When creating a budget to rent a commercial property for office or retail business, it is important to include all expenses related to the rental space, including common area maintenance (CAM) costs beyond monthly rent payments. Rental commercial properties often share common areas with neighboring businesses
An essential operating expense to figure into the cost of renting commercial property, common area maintenance fees cover the cost of maintaining and repairing such spaces as the building’s lobby, hallways, parking lots, sideways, landscaping, and building security.
In a typical triple net (NNN) lease, CAM expenses are part of the monthly operating expenses for the tenant in renting office or retail space. The tenant pays the landlord their portion of the CAM expenses to recover operating expenses for the upkeep and repair of communal areas in the building or complex.
The total CAM charges for commercial real estate rentals vary depending on the property’s needs and the landlord’s preferences. Some standard CAM fees for office and retail space rentals can include:
None of these service expenses are set in stone or required by law. While these expenses are typically a direct reimbursement of the landlord’s costs and usually pretty cut and dried, tenants are free to negotiate with their landlords to get a better price or strike a deal that works for both parties.
At the very least, tenants of commercial properties should attempt to have the landlord set a cap for common area maintenance expenses built into the lease to limit the amount or percentage CAM expenses can increase throughout the contract.
The expenses for common area maintenance can vary slightly for office, retail, and industrial commercial rental properties. These different types of businesses use different kinds of leases to cater to their specific needs, particularly when it comes to electrical and janitorial services.
Based on a typical 40-hour office workweek, landlords expect office rentals to use approximately the same amount of electricity each week. Electrical expenses for office rental tenants are divided across the board and determined by square footage each tenants’ space size. Janitorial costs for office buildings are usually factored into the CAM expenses to cover common areas like the lobby, restrooms, hallways, stairwells, and elevators. Exterior areas that are shared by all tenants in an office building or complexes such as parking lots and landscaping are also typically included in CAM expenses.
Electrical use for retail stores can vary widely depending on the operational requirements for each location. For example, a small fashion boutique will use significantly less electricity to run their business than a restaurant or pet groomer. To make it fair for all tenants, electricity is typically sub-metered for retail centers and paid by each individual tenant as opposed to including it in the CAM expenses. One exception to this is the electricity used to light parking lots and sidewalks. Janitorial expenses are also commonly left out of CAM expenses for retail outlets, as there is typically no lobby, public restrooms, or other shared areas that need to be cleaned.
For retail commercial property rentals, a good deal of the CAM charges involves maintenance and repair for sidewalks, driveways, loading docks, and delivery areas.
Industrial rental properties are also sub-metered to account for wide variations in the usage of electricity for different kinds of industrial business services. As industrial tenants are held responsible for their own electricity costs, it is considered an individual operating cost rather than a CAM expense. Industrial CAM expenses commonly include lighting for parking lots, landscaping, parking lot repair and maintenance, and water used for irrigation services.
For the tenant of commercial property rental, the CAM costs are part of the overall operating expenses for running the business. Money paid to the landlord for common area maintenance appears as an expense on the business’ financial statements, and as an outflow of cash on cash flow statements. CAM fees can be written off on tax returns to avoid paying income tax on earnings any earnings up to the total amount of business expenses being claimed.
Businesses that own or manage commercial properties and charge tenants common area maintenance fees need to account for those funds that come in as CAM charges for commercial real estate. It is considered revenue in the form of operating income and appears on the company’s cash flow statement as an inflow of cash. The money spent on maintaining the common areas should appear as an outflow of expenses.
Anticipated CAM expenses are estimated by the landlord or property manager at the start of each calendar year within the building’s annual operating budget. Tenants are billed for their percentage of the common area maintenance expenses monthly. CAM expenses for individual tenants are based on the size of the rental space in relation to the whole of the property.
When the year is over, the estimated costs are compared to the actual costs throughout the year and tenants are either credited for excess payments or billed for any leftover balance.
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