Common area maintenance

Common area maintenance
See also
Exempt supply Declared value Commercial rate Listed Property Depreciation rate Output tax Net cost Commercial facility Insurable value

Common area maintenance (CAM) is a collection of operating costs that the landlord passes on the tenant. These should be carefully negotiated. For instance, you should ensure that your share of CAM equals your share of the building. If you have to pay property taxes, you should negotiate a right to either fight or have the landlord fight any property tax increases. And you can try to get a cap on the total amount of CAM. There are standard names in the commercial real estate industry for different sets of costs passed on to the tenant.

Common area maintenance charges are cost passed on to tenants in multi-tenant commercial buildings. They can include security, maintenance, snow removal, utilities, and other services necessary to keep the property in good shape. Typically, they are assessed on a proportional basis to the tenants. This is an income item, but it is offset against the corresponding items listed in the operating expenses for the property.

To get a basis for the monthly CAM charge collection, develop an estimated annual budget for the property. Then, on an annual or other basis, calculate and reconcile the actual expenses incurred for the items against the total of the estimates paid during that time period. Once that is done, you can collect a shortfall or refund any excess to the tenant.

Costs included in CAM

The lease will have a page or two describing in some detail what expenses are included as CAM costs. Generally, all of the expenses to maintain the shopping center, such as cleaning, sweeping, lighting, landscaping are included in CAM, and these items are pretty straightforward. But the tenant should be wary when an item that is vague and nonspecific, such as "repainting", is listed in CAM costs. It is important that all CAM items be defined as applying specifically to the common areas.

There are two factors that drive up the costs of CAM expenses:

• the pro-rata share the tenant pays
• the actual cost of the CAM expenses

Even if the actual cost of CAM expenses are decreasing, the tenant might be hit with stiff CAM increases if the occupancy of the shopping center is falling.

Items that affect the cost of a lease

Space costs are normally quoted in dollars per square foot. This dollar amount can be quoted in several ways, as shown in the following discussion on types of leases.

There are five major items that affect the cost of a lease:

• space rent- the actual space to be leased
• common area maintenance fees- the prorata cost charged to your leased space for the maintenance of elevators, security, and other common areas
• property taxes- the prorata portion of state property taxes
• building insurance- your prorata share of the general building, fire and liability insurance. Not to be confused with your own liability and fire insurance, which you have to secure separately
• utilities- generally electricity and water

References

• Fisher S.D., (2010), The Real Estate Investor's Handbook, Atlantic Publishing Company, Florida.
• Fleisher B., (2003), A Guide for Small Business Owners, iUniverse, New York.
• Kondo D., (2010), Business Basics in Hawaii: Secrets of Starting Your Own Small Business , University of Hawaii Press, Honolulu.
• Soodek C., (2011), Law for the Life Cycle of Your Business, Profit and Laws Press, Chicago.

Author: Kinga Krzyściak