Understanding CAM Charges in the Commercial Lease Context

Common Area Maintenance Charges or "CAM" have become a fixture on the landscape of Commercial Lease Agreements pertaining to strip centers, enclosed malls and other multi-unit/multi-tenant real estate developments. CAM charges are generally defined as the amount of additional rent charged to a tenant (in addition to the base rent), to maintain the common areas of the property shared by all tenants and from which all tenants benefit. However, there exists significant variation in the types of expenses Landlords seek to include in CAM charges, with many such expenses less obvious and less beneficial to any particular Tenant than one might expect.

CAM charges are generally prescribed by specific provisions in Commercial Lease Agreements, and the Lease terms will define the items to be included in calculating the Tenant's CAM obligations. Thus, an agreement to pay CAM charges is contractual in nature, and one of the essential elements of a Lease Agreement.

As stated above, CAM fees vary considerably and cover a wide range of expenses landlords would otherwise pay. They typically include taxes, insurance, property maintenance, repairs, cleaning costs, utility charges and landcaping associated with the area surrounding the leased premises. However, they might also include more latent items such as security systems and patrols, depreciation on capital expense items, salaries of administrative staff who run the development, non-tenant signage, and even the Landlord's corporate overhead expenses that are un-related to the property.

CAM charges can be assessed and paid monthly, quarterly, annually, or even charged from time-to-time as major expenses are incurred by the landlord.

It is particularly important that both the Landlord and Commercial Tenant have a thorough understanding of what charges are (and are not) included in CAM Charges PRIOR TO entering a Commercial Lease Agreement.

Court challenges to CAM fees are common, and often arise from nebulous definitions of CAM charges in a Lease Agreement. In a highly publcized case currently pending in federal court in Austin, Dillard's department store and the owner of the Highland Mall are feuding over whether Dillard's was improperly charged for, among other CAM items, "the cost of maintenance and housekeeping for the food court of the mall." This case presents an interesting example of the different perspectives landlords and Tenants have concerning proper CAM expenses.

The Texas Property Code recognizes the potential for wide confusion over what charges may be assessed against a Commercial Tenant. Thus, Section 93.012 expressly limits charges to tenants (other than a charge for rent or physical damage) to those whose amounts or method of computation are stated in the lease.

Landlords and Tenants are encouraged to engage in frank discussion and transparency when negotiating Commercial Lease Agreements that provide for CAM charges. Further, all such Leases should include provsions allowing independent audit of the CAM charges.

CAM issues are complex and are fertile ground for dispute and even litigation. Accordingly, a prudent Landlord and Tenant should enagage the assistance of a real estate attorney who is experienced in interpreting Commercial Lease Agreements and the CAM charges to be assessed under those Leases.