If you’re thinking about leasing a retail or commercial space for the first time, you might have a lot of questions about commercial area maintenance costs (also known as CAM fees). In fact, experienced commercial real estate investor Raanan Katz says that he regularly meets with potential tenants and customers who don’t fully understand these obligations even after several different retail rental agreements.
To help you find the right commercial location for your company, and to help cut through the confusion, we got together with Raanan Katz to go over the particulars of CAM fees. Here are a few things business owners and executives need to know:
CAM fees are included in almost all commercial real estate agreements. That’s because, in addition to the actual space you are renting, there are probably other ancillary areas or services that benefit your customers and employees. For example, common restrooms, parking lots, or 24-hour facility security all might be provided and included in your CAM fees.
There are two main ways CAM fees are calculated. CAM fees can be structured as a fixed cost, or a variable expense that can increase or decrease according to other factors (like traffic, revenue, etc.). As you might expect, there are advantages and disadvantages to each arrangement, for both the business and the commercial leasing company. What’s especially important is to know how these fees are going to be computed, when they are going to be due, and how often they are subject to change.
There is no “normal” CAM fee structure. Because the actual fees, and the way they are calculated, can vary greatly from one property or commercial real estate company to the next, Raanan Katz says this is an area of a lease or agreement where renters should pay particularly close attention to the details. It isn’t a bad idea to ask for examples or previous statements if you have questions, or even to have your own attorney or accountant look at the paperwork to ensure that you’ll be able to afford the CAM fees that will be charged.
CAM audits could be part of your lease agreement. In commercial leasing agreements with variable CAM fees, audits and detailed reports may be included. That way, if the property owner increases your fees significantly, you’ll be able to see exactly why, where the increased expenditures are going, and how your business will benefit. Because they build trust and credibility, these kinds of audits can sometimes be very beneficial in maintaining a good relationship between a retailer and a commercial real estate property holder.
There is a lot of confusion out there about CAM fees, what they mean, and what they should amount to. This is partially due to the fact that they vary from one property or location to the next, and can also be the result of poor explanations from real estate brokers and others involved in the process. As with anything in the business world, though, the best way to get the answers you need is to simply ask a lot of questions, do your research, and then don’t sign on the dotted line until you’re sure you fully understand exactly what you’re committing to.