CAM expenses and why do Tenants Have to pay them?

In addition to the rent in NYC commercial leases, tenants must pay CAM expenses based on the rented square footage. CAM is an acronym that stands for “common area maintenance.” Examples of “common areas” would include the atrium space in an office building, green spaces and landscaping on the exterior of a building, common elevators, parking areas (if any), loading docks, and more. Examples of “maintenance” expenses include building security, service, and equipment maintenance like elevators, lawn care, waste removal, and more.

CAM expenses can vary — often significantly — over the term of a commercial lease. Generally, commercial landlords demand that the tenants pay all CAM expenses (per their proportionate share). As such, if the CAM expenses increase year-to-year, so will the tenant’s monthly CAM charges. Typically, the landlord will give the tenant an itemized list of monthly or annual costs and monthly invoices for the CAM expenses.

Why Do Tenants Have to Pay CAM Expenses?

Generally, commercial landlords require tenants to pay CAM expenses. It will be nearly impossible to “negotiate away” CAM entirely. Of course, if the tenant is leasing the entire property — building and all — no CAM is required. But, of course, the tenant is usually required to pay for ALL expenses and upkeep under that type of commercial lease. So, CAM becomes part of the tenant’s business expenses.

Naturally, CAM expenses can be an issue for tenants searching for commercial space. Space with the lowest CAM can be preferable. But, some tenants are “fine” with paying more for CAM expenses because the common areas are part of the appeal” of the building. A well-appointed and pleasant building or development can encourage customers, drive sales and enhance a tenant’s business reputation.

Negotiating CAM Provisions

Consider several issues when considering CAM lease provisions when contemplating a commercial lease. Among the more important are these:

What is defined as “proportional share.”

Generally, CAM is assessed by a landlord based on the tenant’s “proportional share.” But, “proportional share” of what? Tenants should pay careful attention to how this is defined and negotiate this, if possible. The best definition for a tenant is the proportional share of leased space. This protects a tenant from a sudden increase in CAM expenses if a large tenant or several tenants leave the building or development. Of course, by contrast, for landlords, the best definition is a proportional share of all or rentable/leasable space. Existing tenants will pay the CAM expenses for vacant space if the definition is based on rentable/leasable space.

What is included as a “common area.”

Again, tenants should give special attention to how the term “common area” is defined. Does the common area include management and leasing offices operated for the landlord’s benefit? Does the common area include building storage and warehousing to which the tenants have no access?

What is defined as “maintenance expenses.”

— Due diligence is also required concerning what is included as an “expense.” In some cases, commercial landlords will agree to exclude certain expenses from CAM. This should be attempted if possible. Other issues to investigate whether “expenses” include administrative and management fees, which are passed along to the tenants as CAM expenses, but ultimately paid to the landlord. Another critical issue is whether capital improvement expenses are charged and passed along as CAM expenses. The landlord expenses most capital improvements over five to twenty years. If capital improvements are included in CAM charges, are they invoiced based on their costs or on how they are expensed?

Contact Wright Law Firm NYC Today

If you need assistance negotiating a New York commercial lease, call the experienced lease attorneys at Wright Law Firm NYC. We provide commercial real estate legal services. Our goal is to build long-term relationships with our clients. We can focus the commercial lease negotiation on what matters most by gaining insight into their objectives. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.