Definition
Common Area Maintenance (CAM) refers to the expenses a landlord incurs to maintain and operate the shared areas of a commercial property. These costs are typically passed through to tenants as part of lease reimbursements.
In simple terms: CAM is the cost of keeping shared spaces clean, safe, and functional.
What Are Common Areas?
- Parking lots and garages
- Hallways and lobbies
- Elevators and stairwells
- Landscaping and sidewalks
- Restrooms (in retail centers)
- Loading docks
Typical CAM Expenses
- Landscaping and snow removal
- Security services
- Janitorial services
- Repairs and maintenance
- Lighting for common areas
- Property management fees
- Trash removal
CAM does not usually include tenant-specific improvements or capital expenditures, unless explicitly allowed by the lease.
How CAM Charges Are Calculated
Tenants typically pay CAM based on their pro rata share of the total building or shopping center square footage.
Example
- Total building size: 100,000 SF
- Tenant space: 10,000 SF
- Tenant share: 10%
- Total CAM expenses: $500,000
Tenant CAM obligation = 10% × $500,000 = $50,000
CAM Reconciliation
At year-end, landlords compare estimated CAM payments collected against actual expenses.
- If actual expenses exceed estimates → tenant pays the difference.
- If expenses are lower → tenant receives a credit or refund.
CAM Caps
Some leases include caps limiting annual increases in CAM charges, often expressed as a percentage (e.g., 5% per year).
Caps may exclude uncontrollable expenses like property taxes or insurance.
CAM and Lease Types
- Triple Net (NNN): Tenants pay CAM plus taxes and insurance.
- Full Service Gross: CAM included in rent (subject to base year stop).
- Modified Gross: Partial CAM reimbursement.
CAM and NOI
- CAM recoveries increase effective revenue.
- Strong recovery structures stabilize NOI.
- Unrecoverable expenses reduce landlord profitability.
Investor Considerations
- Review lease definitions of CAM carefully.
- Confirm management fee structure.
- Check for caps or exclusions.
- Assess historical CAM trends.
- Verify reconciliation procedures.
Common Pitfalls
- Ambiguous lease language.
- Improper allocation of capital expenditures.
- Underestimating CAM inflation.
- Failure to gross-up expenses in partially leased buildings.
CAM vs. Operating Expenses
- CAM: Shared-area maintenance costs.
- Operating Expenses: Broader category including CAM, taxes, insurance, and management.
Investor Checklist
- Audit CAM reconciliation annually.
- Review CAM cap structures.
- Model expense growth conservatively.
- Verify tenant pro rata calculations.
- Understand exclusions and non-recoverable costs.