Understanding commercial lease terms is critical for business owners. Although many business owners believe landlords will not negotiate lease terms, knowing the liabilities and ramifications associated with the lease is vital to your business.
The most common form of a commercial lease is often referred to as a triple net lease. A triple net lease means that in addition to the monthly rent due, the tenant pays common area maintenance (“CAM”) fees, annual insurance costs, and property taxes. In theory, CAM charges cover a landlord’s expenses for maintaining the “common areas”—such as sidewalks—and often include the costs of some structural repairs to the buildings. However, some landlords stretch the definition of CAM to include the costs of managing the property, salaries, benefits, and even dry-cleaning bills. Although a landlord may provide an estimated monthly CAM, most leases allow a landlord to increase the monthly CAM with only short notice.
A tenant’s CAM fees are most commonly determined by the amount of square footage leased by the tenant. For example, a tenant leasing 1,000 square feet out of a 10,000 square foot shopping center will likely pay 10% of the total CAM fees. Other leases split the CAM fees amongst only the leased spaces, meaning if there are only two tenants in the 10,000 square foot shopping center, each tenant will pay 50% of the CAM fees until additional tenants move in.
Regardless of whether you are able to persuade a landlord to revise a lease, understanding the monthly liability pursuant to a lease is critical.Make sure you know what the contract requires you to pay, whether the CAM fees can be increased, and how your percentage of the CAM fees will be determined.