Real Estate & Related Terms Explained: CAM

Next up in our series on explaining real estate and related terms is another about commercial leasing. The term is actually an acronym and the concept ties into additional rent, which we discussed last week.

What is CAM?

CAM stands for common area maintenance. CAM comes into play in a multi-unit property where tenants share a common area(s). This common area can include common hallways, elevators, parking lot, landscaping area, utility rooms, common restrooms, and more.

How are CAM charges administered?

CAM charges are usually administered as part of the additional rent. Each tenant pays their proportionate share of the common area maintenance charges. Generally they come up with a figure per sq ft (ie. $2.00/ft, which would be the tenant’s share of common area maintenance for the year).  This budgeted CAM cost is usually billed monthly based on the budget and then reconciled with actual expenses at year end.

What else should I know about CAM?

CAM charges are sometimes advertised totalled with property taxes to give you a total additional rent figure. Sometimes they are advertised separate where they disclose a property tax number, plus a CAM number (ie. $5.00/ft for taxes and $2.00/ft for CAM total $7.00/ft additional rent). Certain types of properties will have higher CAM costs than others. A 20 storey office tower with several elevators and lots of common hallways and facilities will have higher maintenance costs than a small strip plaza with minimal parking and no common entrances or hallways. Sometimes CAM can also include a management or administrative cost to administer the bookkeeping of the common area maintenance and additional rent. This should be apparent when viewing the operating cost budget.

CAMs are another confusing topic for many people. Its important to understand what common areas you are responsible for as a tenant, what the maintenance of these areas is costing you, and what you are getting for those charges. Don’t be afraid to ask questions!

Real Estate & Related Terms Explained: Additional Rent

Last week to kick off our new series, we discussed a term related to commercial leasing (one of our specialities), triple net. Unfortunately, there are many confusing and interchangeable terms used in commercial leasing. Today we are going to explain additional rent, so you understand the breakdown of your rent payment every month.

What is Additional Rent?

The technical definition of additional rent is "any rent in addition to the base rent payable by the tenant". So this additional rent, in a triple net lease, would usually include the tenant’s share of the costs of the property, including property taxes, insurance, snow removal, repairs, and more.

What Else Should I Know About Additional Rent?

Additional rent is usually quoted as a dollar amount per sq ft (ie $7.00/ft). In our market, there is a field on MLS where you can input the additional rent figure for each commercial lease listing. That way you know what your total rent will be as a tenant. Add the additional rent figure to the base rent and multiply it by the square footage to get your total annual rent. Divide that number by 12 to get your monthly rent total. You should also know that additional rent is usually a budgeted number and it will be reconciled with the landlord every year depending on the actual operating costs of the plaza.

Why Does This Additional Rent Figure Vary By Property?

The additional rent will vary by property because the operating cost of each property is different.  One property could have a higher assessment value than another and therefore their property taxes are higher. Or if there are more common areas in a building, the utilities and maintenance cost of this space will add to the additional rent.  

If you see a property with an extremely low number, that can be a red flag that they are under estimating the operating costs and you will most likely see them increase substantially over the budget. Another general observation you can make about additional rent is that the newer the property is, the lower the repairs and maintenance costs generally are, therefore the lower the additional rent figure will be. The opposite is generally true of older buildings.

Additional rent is a confusing topic, so don’t be afraid to ask an expert. If you have any questions about additional rent in your situation, feel free to email us anytime ☺.

Additional Rent/Operating Costs

Next segment in our Leasing Series…Additional Rent/Operating Costs.

Additional rent is the other half of the rental amount that applies to commercial premises. Again in industry terminology, this is most often referred to as the ‘operating costs’ of the property. It includes realty taxes, building insurance, maintenance/management costs, janitorial expense, and any other related costs which support the operation of the property. It is applied as a proportionate share of the tenant’s space, relative to the size of the overall property (or building square footage). Simply put, if a tenant occupies 10% of a building, they pay 10% of the total operating expenses, as additional rent.

When considering ‘Additional Rental Costs’ on properties, the amount is represented on a dollar per ft. basis. Additional rent costs, although included on line with most MLS listings, are not as prominent on listing summaries. After doing the net rent comparision - tenants need to make sure they compare the additional rent factors, so as to have a handle on the total monthly cost.

A budget breakdown of additional rent costs, should be available for a tenant’s review, to understand how the cost per ft. is arrived at. It is typically done annually on a projected basis, and then reconciled at year’s end, to the actual expenses incurred on the property. Sounds like a lot of math and accounting - but it should be relatively straightforward and confirms the additional rental costs that apply.

Just a final note, on ensuring additional rent costs do not exceed your expectations during the term of the lease - there is a means of capping increases allowable on additional rent, so that a tenant is not faced with a 10-20% increase from one year to the next. It is acceptable to require a landlord to hold the line on annual increases to a modest % (say 2-3%), in any given year. The only justifiable exceptions would be for property taxes and or utilities, which the landlord has no real control over.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in negotiating the appropriate lease terms for your purposes.