California Attorney and Real Estate Broker Chris Adishian answers the question, “What are ‘common area maintenance charges’ (CAMS)?” at the South Bay Association of Realtors’ event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.
Question: “This is a great question. You guys run into this in commercial all the time. You always hear about not only the rent, you hear about CAM charges. Everybody keeps talking about CAM charges. What are CAMS?”
Answer: “CAMS are, in a non-legal definition, they’re a big topic of conversation and they shouldn’t be as much of a mystery or black box as they often are. But there are several types of leases that you can have in a commercial setting: one is a gross lease, where it’s just ‘Here’s your rent, $5,000 a month;’ another one is called a triple net lease, and the triple net lease is where you usually see the CAMS come in.
And CAMS is an acronym; it stands for Common Area Maintenance. The other way to think of it is just shared expenses to operate the shopping center or the building. And in a triple net lease, the tenants bear the burden of those costs proportionally and that’s either, usually if you look at the standard air lease, it’s in there, I think it’s paragraph 4.2, and it details all the CAMS. And what’s in CAMS? It’s the most expansive definition you could possibly imagine because in a triple net lease, the Landlord doesn’t want to pay for anything, so it’s property taxes, it’s utilities, it’s a security guard, it’s a security system, whatever it costs to operate the center gets added up and divided proportionally to the tenants, usually on the basis of square footage.
So when you look as a tenant and you say, ‘Oh well my rent’s only $2,000 a month plus CAMS,’ well you’ve got to look at the ‘plus CAMS’ number because that could materially affect how much money the tenant’s going to pay each month. And a lot of tenants who are business owners and run their own businesses act surprised when they see a CAM number come in on their ledger and they really shouldn’t be a surprise. If they’re surprised they probably got bad advice during the leasing process.
And CAMS are negotiable, but it depends on your relative bargaining power, but if you’re going to take up a lot of square footage for the Landlord, you probably have more leverage to negotiate CAMS, and depending on market conditions you might have more leverage to negotiate CAMS. We’ve done deals where there are caps on CAMS. When the market was bad in 2010 and our Landlord just needed to fill the space, some tenants were able to benefit from that and they have a cap on their CAMS and they’re paying substantially less than their proportionate share. The risk with that is that that tenant might also say, ‘Hey I think the Landlord should add this service or that service or this service or that service,” and you kind of have a free rider risk. But that’s the sum of CAMS and I’m happy to talk more afterwards.”
Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.
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