Article
Five lease language best practices that help control common area maintenance charges
March 24, 2024 · Authored by Stephen Bacchetti, Isabella Risucci
Businesses leasing commercial space should expect to pay common area maintenance (CAM) costs in addition to rent. Also known as operating expense recoveries, CAM costs fund the property’s CAM, such as elevator maintenance fees, building security costs, or property taxes.
Well-defined lease language is critical when it comes to controlling and auditing CAM charges. Establishing clear lease language around CAM expenses can facilitate transparency and control over passed-through CAM charges throughout the lease term.
Below are five lease language best practices to consider during lease negotiations that can protect your business from excessive CAM charges:
Clearly define expenses
Allowable CAM charges should clearly define allowable charges to avoid disagreements over interpretation. Take time to detail the allowable charges so that all parties understand what is and isn’t a reimbursable expense. For example, labeling an expense as admin costs isn’t the same as labeling it salaries and fringe benefits of the on-site property management team, office supplies, and Owner approved IT expenses necessary to operate the building. The latter provides more specificity and ensures landlord and tenant have a shared understanding of allowable costs.
Include due diligence and benchmarking clauses surrounding third party vendors
Industry best practice suggests property owners and managers bid out routine CAM related services, such as janitorial, security, landscaping, HVAC maintenance, every three years at a minimum. Including language requiring CAM services undergo a due diligence process can help control third-party vendor costs and their impact to overall expenses.
Incorporating language that allows for benchmarking reported expenses against industry standard or comparable properties can help establish a basis for evaluating the reasonableness of expenses if questioned.
Clarify capital expenditure and amortization definitions and allowability
Clearly establishing eligible amortization costs and amortization criteria can also help control CAM charges and remove ambiguity from fee discussions. Evaluating amortization-related language requires examining multiple facets of the amortization process and agreeing how each element will be handled during the term of the lease.
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