What Are Common Area Maintenance (CAM) Charges?
In a massive commercial property like a shopping mall or a multi-tenant office building, the landlord is responsible for keeping the lights on in the hallways, repaving the massive parking lot, and hiring security guards. These shared spaces are the "common areas."
Because these spaces benefit all the businesses in the building, the landlord does not pay for them out of pocket. Instead, the commercial lease forces the tenants to reimburse the landlord through Common Area Maintenance (CAM) charges. CAM charges are billed in addition to the tenant's standard "base rent."
How CAM Is Calculated
CAM is almost always calculated on a pro-rata (proportional) basis. If a retail plaza is 100,000 square feet, and a bakery rents a 5,000-square-foot unit, the bakery occupies exactly 5% of the total building. Therefore, the bakery must pay exactly 5% of the landlord's total CAM bills for the entire plaza.
Because CAM expenses fluctuate wildly based on weather, inflation, and emergency repairs, landlords usually estimate the annual CAM budget in January, charge the tenant a flat monthly fee throughout the year, and then perform a "CAM Reconciliation" in December. If the actual bills were higher than the estimate, the landlord sends the tenant a massive invoice for the difference. If the bills were lower, the tenant gets a credit.
The Battle Over "Capital Improvements"
CAM negotiations are the most heavily litigated aspect of commercial leasing. A massive dispute arises over the difference between a "repair" and a "capital improvement."
Tenants agree to pay to patch potholes in the parking lot (a maintenance repair). But if the landlord decides to rip up the entire parking lot and install a brand new, $500,000 concrete structure, that is a capital improvement that permanently increases the value of the landlord's property. Sophisticated tenants hire lawyers to negotiate strict lease caps, ensuring they are never forced to pay for the landlord's massive capital improvements disguised as CAM charges.
Related Terms
- Commercial Lease — The document that establishes the exact rules for CAM billing
- Net Lease — A lease structure where the tenant pays base rent, taxes, insurance, and CAM
- Breach of Contract — The legal result if a tenant refuses to pay a massive year-end CAM invoice
Barnes Walker Commercial Leasing
Barnes Walker's commercial real estate attorneys fiercely negotiate Florida commercial leases on behalf of major retail and office tenants, drafting rigid CAM caps and audit rights to prevent predatory landlords from passing illegal capital improvement costs onto our clients. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC