Understanding Your Commercial Lease

What is CAM in a Commercial Lease?

If you are new to commercial leasing, you are probably quite amazed by the highly technical and lengthy document presented to you. Commercial leases vary significantly from residential lease agreements. For instance, often you pay an additional amount that is separate from the amount you pay in rent.

This separate amount is commonly referred to as Common Area Maintenance or (CAM). Your commercial lease should clearly define what is included in the CAM payment. Typically, this payment covers taxes, maintenance, and insurance. CAM costs typically include maintenance of the parking lot, landscaping, waste removal, cleaning of common areas, property management fees, administrative fees, ongoing repairs for big items like HVAC, plumbing, parking lots, and related costs.

Why is CAM Separate from the Base Rent?

It is a common practice for landlords to present their monthly rent in terms of a price per square foot so tenants can compare different spaces. Companies separate out CAM in leases because the tenants are taking advantage of certain features that the CAM supports, usually in the form of more customer traffic due to enhanced appearance of the space. Also, arguably, this is a way to pass along the costs incurred from maintenance of a premises to the tenant. Because maintenance, insurance, taxes vary over the years, and often times commercial leases are for several years, it is easier for CAM to be separate from rent.

How Does the Landlord Calculate CAM?

Usually, the landlord will add up the estimated total costs for annual taxes, insurance, and maintenance and then divide it by the total square feet of the building. From there, the company multiplies the per square foot price (let’s just say $7.00 per square foot) by the number of square feet in your individual space. Typically, after the end of each calendar year, the landlord determines its actual cost for the calendar year (and tenant’s share thereof) and furnishes a copy of the total in writing to tenant. If the CAM payments made by tenant that year exceed tenant’s estimated proportionate share of CAM, the landlord should provide a refund for the amount overcharged and vice versa.

Does CAM Fluctuate Over Time?

Yes, it does change because property taxes fluctuate and as structures age, including roof, HVAC, plumbing, parking lot, the costs of upkeep may fluctuate.

Can I Negotiate CAM?

Negotiating CAM is tough because landlords understand that their tenants talk and they don’t want to create a conflict by offering a business a lower CAM. As always, this depends upon the market. If the location is a highly sought-after location, then negotiation will be much more difficult.

What Can I Negotiate in a Commercial Lease?

Sometimes the landlord will agree to cover certain expenses for the tenant to build out the leased space in a way that works for their business. This is something you could negotiate.

Additionally, you may be able to get a month or two free if the space has been vacant for a while.

Also, review termination provisions if the building is sold, and also discuss negotiating a curtesy period for your business if you happen to miss a rent payment. It is important to understand whether or not you can sublet the space or a portion of it to cover rent in the event you have trouble making the rent payments each month.

It is important to negotiate leasehold improvements, what will be repaired, or replaced and when. For example, landlords, at times, do not want to replace HVAC, and they may feel that it is sufficient to repair it. Take time to understand what repairs are at whose discretion and understand who pays for certain repairs.

Ask for a competitor clause that requires the landlord to not rent, without your consent, to a competitor.

Contact Wick Law for help understanding and negotiating your commercial lease!

Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at mwick@mwicklaw.com. Wick Law, LLC is located in Columbus, Ohio.

(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)