Can a lease refer to these charges as “Operating Expenses”? The lease I’m looking at states the tenant shall pay landlord its proportionate share of operating expenses for the year. It then defines operating expenses as generally all expenses other than costs to prepare space for a new tenant, broker/leasing commissions paid, legal expenses related to negotiating and enforcing leases, depreciation, and expenses paid from proceeds of insurance awards.
Seems to me like a lot of expenses, like mgmt. fees, payroll/benefits costs, accounting fees, bad debts, advertising, capital improvements, etc. are “CAM” expenses and are being borne by the tenants in this case.
Is this standard in the industry? Anyone know where to find a guide as to acceptable/reasonable CAM and non-CAM charges? Any help is much appreciated…
Posted by Michael on December 25, 2005 at 21:40:29:
A couple questions concerning CAM charges on commercial properties. I understand charging $2.50 a sq ft per year is common for charges such as property tax, insurance, snow removal etc. but what about charges that occur lets say every three years such as parking lot sealing, repainting stripes? Do most owners figure a cost or percentage and average it out over the years figuring it into the CAM charges? If so, is there any other similar charges over the years that I’m not thinking of right now?
Also concerning CAM charges, do most owners reconcile with the tenant on a quarterly or yearly basis as to how much CAM was paid to the owner vs how much actually was spent on those expenses? Any advice would be appreciated. Thank you.
Posted by ray@lcorn on December 27, 2005 at 11:52:25:
Michael,
CAM is generally defined as recurring maintenance charges, and strictly speaking does not include property taxes, insurance or capital improvements. $2.50 psf may be the norm in your market, but other markets may be less or more. The typical retail lease will specify that the CAM charges are to be based on the actual expenses incurred, and may allow an additional administrative fee of 5% to 10% to be collected.
RE taxes and insurance are typically passed through at cost, with no admin fee. Capital improvements (such as sealing and striping) may be included only if specified in the definition of CAM in the lease.
Most leases will provide for an annual CAM account reconciliation, after which the fee for the coming year is adjusted accordingly, within any limits set in the leases. The tenant will also have the right to audit the CAM expenditures.
Posted by ray@lcorn on December 27, 2005 at 15:01:13:
Bob,
We book it as just that… additional rent. We also write the lease language to include CAM and RE tax/insurance payments as additional rent so it has the same legal standing for collection.
Posted by Bill Taylor on December 27, 2005 at 19:10:33:
Our CAM fees are adjusted once a year in case our costs were more than the normal monthly charges. My property manager deals with all of that and that is just the way I like it. My CAM charges include the property management fee in addition to all costs involved with the property. This is a lot better than my residential property so far. If I have any problem with the property I can send an e-mail to the proeprty manager and that shakes hime up a bit. He is a lot tougher manager than I was and that is exactly what I needed.