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How to calculate appropriate CAM fees for different tenants

On Behalf of | Sep 11, 2020 | Commercial Real Estate |

As a commercial landlord, the lease that you execute with your tenants is one of the most important legal protections that you have. As with residential landlords, some commercial property owners make the mistake of using boilerplate documents and identical terms for every lease, property and tenant.

Although doing so may save a little bit of time initially, overall, you will likely derive greater legal protection from a more specific lease carefully tailored to the needs of an individual unit or tenant. Creating customized commercial leases can help you make your property more appealing to a broader variety of tenants and give you more protection as the landlord.

One of the many factors that you will likely have to review and carefully consider when negotiating these terms is how to allocate an appropriate amount of common area maintenance (CAM) fees to a particular tenant.

Different business models can have drastically different infrastructure needs

Whether you rent out retail storefronts, office space or manufacturing space, the potential tenants that come to look at your units will all have their own unique way of doing business and generating profit. Applying the same rules and standards to drastically different businesses can result in lost revenue if potential tenants decide they don’t want to deal with unfavorable rental terms for their business. CAM fees are often as important as rent to potential tenants.

Discussing the number of staff members that a company has, how frequently they have customer traffic in and out of the building and similar aspects of their business can give you an idea of how much parking space they will need and how much strain they’ll put on your existing resources.

A company that offers remote website hosting services will likely have next to no foot traffic but will probably require industrial-strength air conditioning because of the heat produced by the large computer servers. An accounting firm may need extra parking during March and April but may otherwise have minimal foot traffic throughout the year. Looking at these needs and addressing them specifically can help you offer better solutions for your tenants.

Including rules that allow you to increase fees is an important protection

Businesses grow and change, and you need to be ready to adjust what services you provide and what costs you charge if a company suddenly goes from having three staff members to 20 in a few months.

Including provisions in your lease that allow you to make changes to cam fees based on business volume and needs will better protect you than locking in a specific rate that might end up being lower than what it should be if the company proves successful. Getting help with the creation or execution of a custom lease can help you secure the right tenants and start collecting rent.