Common Area MaintenanceTenants should be knowledgeable about CAM and OPEX expense with warehouse property
So What is Common Area Maintenance ?
Common area maintenance (CAM) fees also known as operating expenses are usually paid by tenants on a pro-rata share basis to pay the landlord for costs of operating their property. This definition would include the costs of operation, repairing and maintaining common areas of the warehouse property. There are generally accepted expense items , however a charge that has nothing to do with the operation or repair or maintenance of the property should be discounted, as an example: Snow removal.
CAM charges in a Lease
Poorly drafted explanations in a warehouse lease can be an issue. Some examples of non acceptable pass thru items can be the landlord’s legal costs to set up a LLC to own the land. If the language in the lease are vague charges can include things that tenants thought were out . If you are not careful, your CAM can end up being higher than your base rent.
What is Your Pro-rata Share?
If you have a 10,000 SF warehouse to lease and the industrial business park has 100,000 SF of total space what is your percentage? What is this tenant’s pro-rata share of expenses? Did you say 10%? Congrats, if you said 10% that is right or it may be wrong, it all depends on what is written in a lease.
Is the tenant’s square footage figured against the property’s total leasable area on only the current leased up space?
If the calculation is against leased up space, how often is that percentage re-calculated?
Are all the tenants responsible for the same common areas? Are large tenants excluded from the calculations?
You should understand how things are calculated.
Expenses included in CAM
- Operating Costs- Examples
- Trash removal
- Repair of parking lot areas
- Security- More office like
- Property Taxes
- Property Insurance costs
- Janitorial and Pest control costs (typical for offices)
- Common area utilities (typical for offices)
- Landlord’s administrative fees
- HVAC repairs for common areas (typical for offices)
Once you agree to what expenses are, the Common area maintenance charges are pretty straight forward. Some capital expenditures not only help tenants but lower overall costs and will reduce common area maintenance charges. A better functioning HVAC (shared) reduces energy consumption required to heat and cool a facility. When improvements are discretionary, there should be an agreement between landlord and tenant that the improvements are part of the common area maintenance or not. If it is part of the CAM, then it should be amortized over the useful life of the improvement.