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How can you negotiate common area maintenance charges for a commercial lease?

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If you are looking for a commercial space to lease, you may encounter the term common area maintenance (CAM) charges. CAM charges are fees that tenants pay to cover the costs of maintaining and operating the shared areas of a commercial property, such as lobbies, hallways, parking lots, landscaping, security, and utilities. CAM charges can vary widely depending on the type, size, and location of the property, as well as the lease terms and the landlord's discretion. Therefore, it is important to understand how CAM charges are calculated, what they include, and how you can negotiate them to reduce your leasing expenses. Here are some tips to help you negotiate CAM charges for a commercial lease.

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Jakub Ziolek

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Lou Boemia

1 Know the lease type

Different types of leases have different implications for CAM charges. Generally, there are three main types of leases: gross, net, and modified gross. In a gross lease, the tenant pays a fixed rent that includes all CAM charges, while the landlord pays for all operating expenses. In a net lease, the tenant pays a lower base rent plus a proportionate share of CAM charges and other expenses, such as taxes and insurance. In a modified gross lease, the tenant pays a fixed rent plus a share of some CAM charges and expenses, while the landlord pays for the rest. Knowing the lease type can help you compare different properties and negotiate the best deal for your budget and needs.

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2 Review the CAM clause

The CAM clause in the lease agreement specifies how CAM charges are determined, billed, and paid by the tenant. It also defines what expenses are included or excluded from CAM charges, how they are allocated among tenants, and how they are adjusted over time. You should review the CAM clause carefully and ask for clarification if anything is unclear or ambiguous. You should also look out for any hidden or unreasonable fees, such as administrative or management fees, capital improvements, or landlord's profits. You can request to see the landlord's historical CAM statements and budgets to verify the accuracy and fairness of the CAM charges.

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3 Negotiate the CAM terms

Once you have reviewed the CAM clause, you can negotiate the CAM terms with the landlord to lower your CAM charges or limit their increase. Some possible negotiation strategies include asking for a cap or ceiling on the annual CAM charges or their escalation rate, a base year or stop clause, an audit right, and an exclusion or reduction of certain CAM expenses. Additionally, you can request a proration of certain CAM expenses that reflect your actual consumption or benefit. This can help protect you from unexpected or excessive hikes in CAM charges due to inflation, market changes, or landlord's discretion and ensure that you are not overcharged or double-charged for any expenses.

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Jakub Ziolek

Partner | Legal Services | Harvard Executive Education | Real Estate | M&A | Foreign Direct Investments | AI in Law
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Certainly, it is prudent to negotiate CAM clauses. (1) In a net lease model, examining the service charge formula is essential to prevent scenarios where you may end up paying for vacant spaces or other tenants’ expenses. Some lease agreement drafts include formulas where the remaining tenants cover uncovered maintenance costs. This is especially applicable when there are vacancies in the building or when other tenants have reached their CAM charge caps. (2) It’s crucial to verify the range of expenses covered by the CAM charges. While most operating expenses are straightforward, you might want to scrutinize asset management fees or expenses related to broadly defined CAPEX (Capital Expenditures).

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4 Monitor the CAM charges

After you have negotiated and signed the lease agreement, you should monitor the CAM charges regularly and keep track of any changes or discrepancies. You should review the CAM statements and invoices that the landlord provides and compare them with your lease terms and expectations. You should also communicate with the landlord and other tenants to stay informed and updated on the CAM charges and any issues or disputes that may arise. If you find any errors or problems with the CAM charges, you should notify the landlord and seek a resolution as soon as possible.

Negotiating CAM charges for a commercial lease can be a complex and challenging process, but it can also save you a lot of money and hassle in the long run. By following these tips, you can be more prepared and confident to negotiate the best CAM terms for your commercial space.

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5 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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Lou Boemia
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You could separate landlord expenses into controllables and uncontrollables and negotiate a fixed amount for year 1 on the controllables plus an annual adjustment percentage and a not-to-exceed annual cap.

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How can you negotiate common area maintenance charges for a commercial lease?

1

2

3

4

5

1 Know the lease type

2 Review the CAM clause

3 Negotiate the CAM terms

4 Monitor the CAM charges

5 Here’s what else to consider

Commercial Leasing

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How can you negotiate common area maintenance charges for a commercial lease?

1

2

3

4

5

1 Know the lease type

2 Review the CAM clause

3 Negotiate the CAM terms

4 Monitor the CAM charges

5 Here’s what else to consider

Commercial Leasing

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