Common area maintenance charges (usually abbreviated to CAM) are often a part of a commercial lease.
As one of the net charges billed to tenants in a NNN lease, this fee allows landlords to take proper care of their commercial properties. Here’s what you need to know about CAM costs, the role of tenants and landlords in the process, and CAM reconciliation.
What Is Included in Common Area Maintenance Charges?
CAM charges are meant to cover the cost of maintaining or repairing common areas that are shared by commercial tenants. It may vary depending on the lease, but generally, it may include any of the following costs:
- Cleaning of lobbies, bathrooms, elevators, etc.
- Snow removal
- Parking lot repair and maintenance
- Security systems
- Trash pickup
- Other repair, maintenance, or janitorial needs in common areas
Costs will vary from one property to the next. It is important to communicate with tenants and let them know where CAM charges will be allocated.
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How Are CAM Costs Divided Among Tenants?
A CAM charge is an additional rent that is charged on top of base rent. It is usually based on a tenant’s pro-rata share, or their proportionate share of a building calculated by square footage. Each tenant’s share of CAM charges will be outlined in their lease agreements.
It’s also important to note that not all leases require that tenants pay CAM charges. In a gross lease, tenants pay for everything in one lump sum instead of paying a base rent and a CAM charge. Commercial triple net (NNN) leases are the most common type of lease that bills tenants for common area maintenance.
What is CAM Reconciliation?
It’s difficult to calculate the precise costs of repair and maintenance ahead of time. For that reason, CAM charges are not “set in stone” the way base rent charges are. Instead, they are estimated at the start of the year and divided into monthly payments for each tenant.
At year end, the actual CAM charges will be added up, and that’s where CAM reconciliation comes in. If the actual total was more than the tenant paid, then the tenant must pay the difference at the end of the year. But if the actual total was less than what the tenant paid, then the landlord is responsible for paying the difference back to the tenant.
How Can A Landlord Make CAM Reconciliation Easier for Everyone?
No one wants to have unexpected costs at the end of the year. If CAM costs were over-estimated, the burden falls on the landlord to pay back each tenant their share. On the other hand, if the CAM costs were under-estimated, tenants will be unhappy at the news that they owe. If the difference is significant, it can be problematic for either party who must pay. Therefore, it’s important that landlords estimate CAM costs as accurately as possible to make CAM reconciliation less of a burden.
For effortless CAM reconciliation, turn to STRATAFOLIO.
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With this tool, you can manage and track all your net expenses throughout the year. You’ll instantly know if you need to tighten up on an expense category or ramp up your spending. You have a quick visual to see how you are doing with each tenant in relation to your CAM budget. Plus, when it is time to do reconciliation, we help you with an easily exportable report that you can share with your tenants.
With all your commercial real estate data organized in one place, you can make more accurate estimates for next year. Contact us for a free demo to learn more!
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