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How do you budget for variable CAM charges in a net lease?

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If you are a tenant in a net lease, you may have to pay for some or all of the common area maintenance (CAM) charges in addition to your base rent. CAM charges are the expenses incurred by the landlord for maintaining and operating the shared spaces of the property, such as parking lots, landscaping, security, utilities, and janitorial services. CAM charges can vary depending on the type of net lease, the property condition, the market conditions, and the landlord's discretion. How do you budget for variable CAM charges in a net lease? Here are some tips to help you plan ahead and negotiate effectively.

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1 Understand your lease type

The first step is to understand what type of net lease you have and what CAM charges you are responsible for. There are three main types of net leases: single net (N), double net (NN), and triple net (NNN). In a single net lease, you only pay for property taxes in addition to your base rent. In a double net lease, you pay for property taxes and building insurance. In a triple net lease, you pay for property taxes, building insurance, and all CAM charges. The more net charges you pay, the lower your base rent should be.

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DAVID CONROY

Industrial Real Estate Advisor | Manufacturing | Warehouse | Investments
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In my experience (doing industrial) I wouldn’t really agree with this section. I’d classify NNN as the tenant is responsible for everything including replacing the roof, parking lot, and HVAC when needed. NN is when the tenant is responsible for replacing the HVAC, but the parking lot and roof replacement are on the landlord on a non pass through basis. Net would be when the landlord is responsible for parking lot and roof replacements on non pass through and only passes through the HVAC replacement based on the years left in the tenants lease. But in net the tenant still pays all taxes, CAM, and insurance.

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Shreyansh S.

LLB & LLM in Constitutional & Administrative Law || Lawyer at District Court || Associate Partner at Shree Legal Associate || Head Editor & Founder at LAWLOVELEGAL || Experienced in Commission Sales || Passionate Blogger
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The 5 short points for budgeting variable CAM charges in a net lease: 1. Review Lease Terms: Understand CAM calculation terms in the lease. 2. Analyze Historical Expenses: Study past CAM expenses for trends. 3. Communicate with Landlord: Clarify which CAM components are variable. 4. Allocate Contingency Funds: Include a buffer for unforeseen CAM costs. 5. Regular Monitoring: Periodically review and adjust the budget as needed. By following these points, you can create a more accurate and adaptable budget for variable CAM charges in a net lease, promoting financial stability and transparency for both landlords and tenants.

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2 Review your lease terms

The second step is to review your lease terms and look for any clauses that define or limit the CAM charges you have to pay. For example, some leases may specify a base year or an expense stop, which means that you only pay for the CAM charges that exceed a certain amount or percentage of your base rent. Some leases may also cap the annual increase of CAM charges or exclude certain expenses from the CAM calculation. You should also check if your lease allows you to audit the landlord's CAM statements or dispute any CAM charges that seem unreasonable or inaccurate.

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DAVID CONROY

Industrial Real Estate Advisor | Manufacturing | Warehouse | Investments
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I agree but in my experience any lease with a base year is actually a modified gross lease and not a true net lease. In a modified gross lease the base year is typically the year you take occupancy (but not always). In modified gross you typically pay for any increases in tax, CAM, and insurance on over the base year. In a true net lease you can negotiate annual percentage increase caps on “controllable” CAM which are things like landscaping, sprinkler testing, property management fees, etc. Property taxes and snowplowing are usually examples of non-controllable expenses. In some leases of single tenant buildings you’re allowed to self perform CAM instead of paying the landlords vendors

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3 Estimate your CAM costs

The third step is to estimate your CAM costs based on the historical data, the current market trends, and the property condition. You can ask the landlord for the past CAM statements or invoices to see how much they have charged other tenants and how they have allocated the CAM expenses. You can also research the average CAM costs for similar properties in your area and compare them with your lease terms. You should also consider the age, size, and quality of the property and how they affect the CAM costs. For example, an older or larger property may require more repairs and maintenance than a newer or smaller one.

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4 Negotiate your CAM charges

The fourth step is to negotiate your CAM charges with the landlord and try to reduce or avoid any unnecessary or excessive fees. You can use your CAM estimates and market research as leverage to argue for a lower base rent, a higher expense stop, a lower CAM cap, or a more favorable CAM allocation. You can also request for more transparency and accountability from the landlord and ask for a detailed breakdown of the CAM charges, a regular CAM statement, and a right to audit or challenge the CAM charges. You can also propose to share some of the CAM costs with other tenants or to take over some of the CAM responsibilities yourself.

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5 Monitor your CAM charges

The fifth step is to monitor your CAM charges throughout the lease term and make sure that they are consistent with your lease terms and your CAM estimates. You should review your CAM statements carefully and look for any errors, discrepancies, or unjustified increases. You should also keep track of any changes in the property condition, the market conditions, or the landlord's policies that may affect the CAM charges. If you find any problems or issues with your CAM charges, you should communicate with the landlord and try to resolve them as soon as possible.

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6 Adjust your budget accordingly

The final step is to adjust your budget accordingly and prepare for any fluctuations or surprises in your CAM charges. You should set aside some funds for your CAM charges and update them regularly based on your CAM statements and estimates. You should also anticipate any potential increases or decreases in your CAM charges due to factors such as inflation, seasonality, occupancy, renovations, or emergencies. You should also review your lease terms and options before renewing or terminating your lease and see if you can renegotiate your CAM charges or switch to a different lease type.

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John Caulfield

Corporate Real Estate Lease Management ; | Abstraction | Auditing | Landlord/Tenant Communication | Lease Database Management | Triple Net Abstraction and Billing | Expense Recoveries | Collections
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Make certain the Common Area Utilities do not include other tenants' usage. It's a good idea to get a complete meter mapping for the center. Both water and electricity.

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DAVID CONROY

Industrial Real Estate Advisor | Manufacturing | Warehouse | Investments
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At the end of the year there is typically something called CAM and tax reconciliation. You may be surprised that the taxes and CAM were actually a lot higher or lower than the landlords estimate. As a result you’ll either get a credit or a bill for the overage. During the year you should put away some extra funds as reserves in case your over so you don’t get hit with a big bill at once. If you receive a credit in my opinion you should put it away in reserves as well because eventually you’ll have a lease year where there is a bill

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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DAVID CONROY

Industrial Real Estate Advisor | Manufacturing | Warehouse | Investments
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You should make sure you’re landlord has a line item in CAM that insures they have an attorney protesting real estate taxes. That will help keep your taxes under control over time

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How do you budget for variable CAM charges in a net lease?

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1 Understand your lease type

2 Review your lease terms

3 Estimate your CAM costs

4 Negotiate your CAM charges

5 Monitor your CAM charges

6 Adjust your budget accordingly

7 Here’s what else to consider

Lease Negotiations

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