Negotiating CAM Provisions in Commercial Leases: Standard Inclusions, Capped CAM, Fixed Costs, and Gross Leases

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Conducted on Thursday, March 3, 2022

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Course Materials

This CLE course will provide real property counsel with a detailed explanation of common area maintenance (CAM) provisions in commercial leases. The panel will outline which costs are standard inclusions and what can and should be excluded. The panel will offer alternative methods of managing CAM costs such as capped CAM costs, fixed CAM costs, and gross leases.

Description

Commercial leases often require tenants in a multi-tenant development (such as a shopping center or office building) to pay CAM charges in addition to monthly rent. These lease provisions often are misunderstood or taken for granted by landlords and tenants and, as a result, are frequently violated, knowingly or otherwise.

Sophisticated tenants require CAM charges to be "actually paid or incurred" or "expended" by the landlord to be reimbursable, and they are careful to prohibit landlords from passing their overhead on as disguised CAM charges. To guard against this practice, tenants should negotiate (and then review) their leases carefully, require landlords to deliver "reasonably detailed statements" of CAM charges as often as the lease requires, and should scrutinize those statements to ensure that all charges are allowed by the lease.

CAM charges often include property management fees. In addition, most leases permit the landlord to estimate CAM charges and force tenants to pay their share of those estimates monthly. Generally, they require the landlord to reconcile or justify the actual CAM charges to its tenant after the end of each year. Commercial landlords that also manage the project themselves often charge tenants, in addition to CAM expenses incurred, an arbitrary, "industry standard" percentage of the rent as "a property management fee," even though the lease does not expressly provide for that, and no third-party management fees are paid or incurred by the landlord.

When the CAM charges are based on actual costs, a tenant might want to negotiate a cap on how much they will be required to pay for their share of common area maintenance. Putting a cap on CAM charges helps protect the tenant from their lease expenses increasing outside of their budget or sudden surprises at the beginning of the year. In turn, this adds some risk to the landlord to cover additional expenses themselves.

With fixed CAM charges, property owners set a flat fee for common area maintenance and usually add small annual increases to that fee to cover the cost of inflation. Tenants may still want to review the property expenses to ensure their CAM charges aren't significantly higher than they should be. Fixed CAM charges can either apply to property taxes, insurance, and actual maintenance costs or only to maintenance costs while leaving the property taxes and insurance adjustable.

Listen as our authoritative panel discusses the best practices in negotiating CAM provisions, what types of provisions to include, and when to choose between a capped or fixed cost CAM provision.

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Outline

  1. Common area maintenance provisions
    1. Most common inclusions
      1. Issues for landlords
      2. Issues for tenants
    2. Capped CAM
    3. Fixed cost CAM

Benefits

The panel will discuss these and other key topics:

  • What types of provisions are most likely to be included in the CAM clause?
  • What are a landlord's greatest concerns in negotiating CAM?
  • What are the tenant's most significant issues when negotiating CAM?
  • When should stakeholders consider capped CAM vs. fixed CAM charges?

Faculty

Diamant, Tal
Tal Diamant

Shareholder
Brownstein Hyatt Farber Schreck

Mr. Diamant utilizes his broad real estate and corporate expertise to act as a trusted advisor for his clients and help...  |  Read More

Molotsky, Brad
Brad A. Molotsky

Partner
Duane Morris

Mr. Molotsky’s primary practice is focused in the areas of commercial leasing, acquisitions and divestitures,...  |  Read More

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