Cam Finance Term

CAM, short for Common Area Maintenance, is a crucial term in commercial real estate finance. It refers to the expenses associated with maintaining and operating shared spaces within a commercial property. Understanding CAM is essential for both landlords and tenants as it directly impacts their financial obligations and overall profitability.

CAM charges are typically applied in triple net (NNN) leases, which are common in retail, office, and industrial properties. In a NNN lease, the tenant is responsible for paying not only the base rent but also their proportionate share of property taxes, building insurance, and CAM expenses. This structure allows the landlord to pass on a significant portion of the operating costs to the tenants, making the property more attractive to investors.

So what exactly do CAM charges cover? The specific inclusions can vary depending on the lease agreement and the type of property, but generally, CAM expenses encompass a wide range of services and upkeep. Common examples include:

• Landscaping and Groundskeeping: Maintenance of lawns, gardens, trees, and other outdoor areas. This includes mowing, weeding, planting, and snow removal.
• Parking Lot Maintenance: Repairs, resurfacing, striping, and cleaning of parking areas.
• Security: Security personnel, surveillance systems, and alarm monitoring.
• Janitorial Services: Cleaning and maintenance of common areas such as hallways, lobbies, restrooms, and elevators.
• Utilities: Water, sewer, and electricity for common areas.
• Repairs and Maintenance: Upkeep of building systems, including HVAC, plumbing, and electrical systems, in common areas.
• Property Management Fees: Compensation for the property management company that oversees the day-to-day operations of the property.
• Trash Removal: Collection and disposal of trash and recycling.

CAM charges are typically calculated based on a tenant’s proportionate share of the rentable area of the property. For example, if a tenant occupies 10% of the building’s total rentable square footage, they would be responsible for 10% of the total CAM expenses. This calculation is usually outlined in the lease agreement.

CAM charges can be structured in different ways. A common method is for the landlord to estimate the CAM expenses for the upcoming year and bill tenants monthly based on this estimate. At the end of the year, the actual CAM expenses are reconciled against the estimated amounts. If the actual expenses are higher than the estimated amounts, tenants may be required to pay a lump sum to cover the difference. Conversely, if the actual expenses are lower, tenants may receive a credit or refund.

Transparency and careful review of the lease agreement are crucial for tenants when it comes to CAM charges. Tenants should understand exactly what is included in CAM expenses, how the charges are calculated, and what rights they have to audit the landlord’s CAM records. This due diligence can help prevent unexpected costs and ensure fair treatment. Landlords, in turn, should maintain accurate records of CAM expenses and be prepared to provide supporting documentation to tenants when requested.

In conclusion, CAM charges are a significant aspect of commercial real estate finance. By understanding what CAM entails, how it’s calculated, and the importance of lease review, both landlords and tenants can navigate this complex topic effectively and ensure a mutually beneficial relationship.