Common Area Maintenance (CAM) Charges Explained

Common Area Maintenance (CAM) Charges Explained

A clear understanding of expenses and revenues is needed by a commercial real estate investor to make an informed decision to purchase a property. The investor must comprehend which expenses are the responsibilities of the landlord and which expenses are paid by the tenants.  Commercial property expenses include taxes, insurance, utilities, maintenance, and other expenses associated with the operation of the building.

What are Common Area Maintenance (CAM) charges?

Commercial leases often provide that tenants agree to pay a monthly lump sum base rent, and also their proportionate (pro-rata) share of other expenses. Under the provisions of many types of leases, a landlord typically passes through to the tenants such expenses as overhead and administrative fees, and also building repair, maintenance, and operating costs for “common areas” of the property, including driveways, parking lots, lobbies, thoroughfares, hallways and public restrooms. These expenses are collectively called CAM charges.

The CAM fees charged to the tenants are often an important component of the commercial property’s income, and must be collected and accounted for properly to cover the associated expenses of the building. CAM fees may be a flat fixed amount, or may be variable, based upon expense increases or escalation calculations, and may be “capped” for individual tenants at a certain amount. The CAM fees are paid by tenants on a monthly, quarterly or annual basis, and also may be charged on a supplemental basis in the event of major repairs to the property.

An investor (buyer) typically obtains the necessary financial information to understand CAM charges by requesting it from the seller or the seller’s agent. It is customary that the sale transaction purchase contract sets forth the details by which the buyer and his agent verifies or determines important components of his financial analysis by his own due diligence work, while in escrow.