Playbook: CAM Charges & Operating Expenses

Why CAM Charges Matter

For most tenants, the monthly rent figure is only half the story. In commercial real estate, landlords often pass along additional costs for building operations and maintenance. These costs, called Common Area Maintenance (CAM) charges or Operating Expenses, can be complex, unpredictable, and sometimes unfairly inflated.

For small businesses and nonprofits without in-house real estate teams, CAM charges are one of the biggest sources of unexpected cost overruns. They can turn a “good deal” into an expensive burden if not clearly understood and negotiated upfront.

This playbook walks you through:

• What CAM charges and operating expenses include
• How landlords calculate and bill these costs
• Negotiation strategies to protect your budget
• Red flags to watch out for in lease language
• Practical steps to monitor charges throughout your lease

Step 1: Know the Basics

Before you can negotiate or manage CAM charges, you need to understand the building blocks.

What are CAM charges?

• Costs for maintaining and operating common areas used by all tenants (lobbies, elevators, restrooms, parking lots, landscaping).
• Typically include: janitorial services, security, utilities for shared spaces, snow removal, landscaping, parking lot maintenance.

What are Operating Expenses?

• Broader than CAM, they may include property taxes, insurance, repairs, management fees, and even capital improvements (depending on the lease).

CAM vs. Base Rent

• Base rent: fixed cost for occupying the space.
• CAM/Operating expenses: variable costs that can change year to year.

Lease Types and CAM Impact

• Gross Lease: Landlord covers operating expenses (CAM built into rent).
• Modified Gross Lease: Tenant pays base rent plus certain expenses.
• Net Lease (NNN): Tenant pays base rent plus its share of taxes, insurance, and CAM.

Step 2: Understand How CAM Is Calculated

CAM is rarely a flat fee. Landlords calculate your share using formulas that can significantly affect costs.

Key Components of Calculation:

• Expense Pool: The total operating costs the landlord chooses to include.
• Exclusions: Costs that should not be passed to tenants (e.g., marketing, landlord legal fees, major capital improvements).
• Pro Rata Share: Your percentage of the building, usually based on rentable square footage.

Example:
If a building has $200,000 in CAM charges and you lease 5% of the rentable square footage, your share = $10,000.

But… the fine print matters:

• Is your percentage based on leased space or total building space?
• Are vacant spaces excluded (which could increase your share)?
• Does the landlord cap annual increases?

Step 3: Identify Common Red Flags

Small businesses often overlook CAM clauses until bills arrive. Here’s what to watch for:

• Uncapped CAM Increases: No ceiling on year-over-year growth can lead to huge surprises.
• Landlord-Friendly Inclusions: Costs like marketing, debt service, or unrelated expenses slipped into “operating costs.”
• Capital Expenses Passed Through: Long-term improvements (elevators, roofs, HVAC systems) should not be treated as operating expenses unless amortized fairly.
• Management Fees Above Market: Landlord charging excessive percentages for property management.
• Audit Restrictions: Lease language that limits your right to audit CAM charges.

Step 4: Negotiate CAM Clauses Before Signing

You have more leverage at the Letter of Intent (LOI) and lease negotiation stage than after signing.

Negotiation Checklist:

• Define CAM Clearly: Limit CAM to true operating costs and exclude landlord overhead.
• Cap Increases: Request a cap (e.g., no more than 5% increase per year, compounded).
• Exclude Capital Improvements: Unless amortized over the useful life and tied to measurable cost savings.
• Audit Rights: Secure the right to review and audit CAM statements with reasonable notice.
• Base Year Protection (for gross or modified gross leases): Ensure you’re only paying increases above a fair “base year.”

Pro Tip: Use market comparables. If similar tenants in nearby buildings have tighter CAM clauses, bring that data to negotiations.

Step 5: Monitor and Manage During the Lease

Negotiation is only the first step. Tenants must actively manage CAM charges throughout the lease.

Ongoing Best Practices:

• Request Annual Statements: Get detailed reconciliations each year.
• Cross-Check Line Items: Look for charges outside the scope of the lease (e.g., landlord’s legal disputes, new lobby renovation).
• Track Historical Increases: Compare charges year over year to identify unusual spikes.
• Exercise Audit Rights: Even if you don’t audit annually, the ability to do so helps keep landlords honest.
• Plan for Variability: Build cushion into your budget for CAM fluctuations.

Case Example: CAM Surprise vs. CAM Control

Case 1: The Coffee Shop That Didn’t Ask Questions
A local coffee shop signed a lease with a $2,000/month base rent. The landlord quoted CAM charges of $400/month. By year three, CAM jumped to $900/month due to parking lot resurfacing and landscaping upgrades. The shop had no cap or audit rights and had to absorb the unexpected 25% increase in occupancy costs.

Case 2: The Nonprofit That Negotiated Wisely
A nonprofit signed a lease with a $3,000/month base rent and negotiated a 5% annual cap on CAM increases, plus exclusions for capital expenses. When the landlord replaced the roof, costs were amortized and spread across tenants only to the extent of actual utility savings. The nonprofit’s occupancy costs stayed predictable and they remained confident in their budget.

Step 6: Practical Tools & Frameworks

CAM Charge Negotiation Framework (“The Three C’s”):

1. Clarity: Define what’s in and out.
2. Caps: Limit exposure with annual increase caps.
3. Checks: Secure audit rights to verify charges.

Tenant CAM Checklist:

• Lease defines CAM explicitly
• Exclusions for capital, legal, and marketing expenses
• Cap on annual increases
• Right to audit
• Base year protection (if applicable)
• Transparent reconciliation process

Conclusion: Key Takeaways

CAM charges and operating expenses can be a hidden landmine in commercial leasing. But with knowledge and preparation, small businesses and nonprofits can protect themselves.

Remember:

• CAM is negotiable, just like base rent.
• Clarity, caps, and checks are your best tools.
• Active monitoring prevents expensive surprises.

Approach CAM the same way you approach rent: as a major cost center that deserves scrutiny. By applying this playbook, you’ll keep your occupancy costs predictable and fair—freeing up resources to invest back into your mission or business.