Taking up from my last column, I’m talking with Jim, the owner of the traffic school, “Fun While Drinking and Driving,” about the lease he’s thinking of signing for his new location.
We’ve already discussed 1) renewal periods – were there any, and at what rate; 2) forced relocation – landlord can move tenant to new location without tenant’s consent; 3) tenant improvement or “TI” work – was there any, how much, and amount of work necessary to get an occupancy permit; 4) when did he have to begin paying rent?; 5) exclusivity clause – how effective and extensive; and 6) personal guarantee.
Then we reached the topic of CAM charges.
CAM stands for Common Area Maintenance. What is “common area?” That is the area that is not part of a tenant’s premises and which is open to all tenants or visitors to the building or location.
For instance, in an office building, the hallway that leads to the various offices is considered common area. Or in a mall, the corridors you use to walk from store to store; or the restrooms that are not inside a specific store.
One organization defines “common areas” as areas and facilities that are for the general, nonexclusive use of the landlord, its tenants, and the invitees of either. Another typical common area is the parking lot.
Now that we know what we’re talking about, the tenant must realize that even though he or she won’t always (and perhaps may never) use these areas, the tenant is responsible for helping to pay for the maintenance, upkeep, repair and, in some instances, replacement of these common areas.
“OK,” Jim said, “That seems fair. What’s the big deal?”
“There are several big deals,” I responded, and I went on to describe a few of them.
For instance: determining how much of the CAM charges an individual tenant responsible for. Tenants commonly respond, “I should pay whatever portion of the overall project my store/shop/office is.” For example, if a tenant rents a 2,000-square-foot office in a 24,000-square-foot building, many tenants believe their portion of the CAM fees would be 1/12th, or about 8.4 percent.
But that’s not always the way it works. Some landlords won’t use a tenant’s percentage of the overall space but only the tenant’s percentage of the overall rented space. Applying that to the example above, if only 20,000 square feet have been rented, then the tenant’s share of the CAM raises to 10 percent.
And sometimes in malls or shopping centers, to entice some of the more prestigious anchor stores (e.g., Nordstrom’s, Macy’s, etc.), landlords will agree these tenants don’t have to pay as much in CAM charges as the rest of the tenants, who have to make up the difference.
So, it is important to know exactly what part of the overall CAM charges you’ll be paying. It’s also a good idea to get the right to audit those charges.
Two other quick points:
1) Make sure you understand what’s included in “CAM fees.” For example, are you going to pay the landlord an administrative fee to figure how much it gets to bill you? Or, put another way, are you helping to pay the salary of the person who’s going to be hounding you to pay your CAM fees?
2) When do you pay the CAM fees? Normally, it’s once a month. But remember, you’re paying for the month and year ahead. So, you’re paying an estimate as to what the annual CAM fees will be. Many landlords do a reconciliation after they’ve figured out exactly how much the fees actually were. This reconciliation can result in a significant reconciliation bill to the tenant, who often has not budgeted for this expense.
After all of this, Jim conceded that he was willing to pay to have the lease reviewed. ©