CAM Charges and Capital Expenses

Tenants need to understand what is included in CAM charges. A tenant needs to understand what is in CAM Charges. Capital expenses- roof, structural, not normal wear and tear items can come up and  Landlords can try to pass thru these expenses.  A capital expenditure adds value to the property for more than 1 year, whereas OPEX or NNN charges are more about maintaining the property near term.

New laws that may allow the LL to not show capital expenditure expenses itemized and they may be passed thru to the tenant. It is almost a form of double dipping when adding capital expenditures to CAM charges. Whatever expenses are being used to maintain a building ( as an example free standing) to maintain the building in an on going long term basis could be considered as a capital expense.

Capital expenses may be removed from the accounting expenses but may not be excluded from a lease document. Developmental costs should be excluded , as where a parking lot improvement should be expensed out of a longer period of time such as 7 yrs for CAM. CAM charges may have a hidden maintenance fee in a lease as a percentage management fee. Cap protections can be negotiated.

Example: Perhaps a top coat on a parking lot is required maintenance which is just a coating on the parking lot versus digging up a parking lot and putting in new concrete which could be considered as a capital cost. However there are some grey areas , if a portion of the parking lot is done as opposed to the whole parking lot,  that may be considered as common area maintenance and not a developmental cost or capital expenditure.

Benefits and Detriments to Landlord

For the landlord or the REIT, they it is possible for them to pass thru costs and expenditures to squeeze tenants to improve their P&L. In a NNN deal, line items can be audited as a judgment call. If a tenant goes to a landlord and asks for line itemization it is entirely possible to get into a judgement call which may not be correct and consequently this would upset negotiations. So it is important to be clear on perspectives and what is reasonable.

Landlords tend to have a sensitivity to keeping costs in alignment to keep tenants, if they pad or keep CAM charges out of control, then the consequence would be their tenants moving out.

Mis-charges of CAM

NRTA – National retail tenants association, is an organization for tenants to protect each other. A tenant can reach it by viewing : www.retailtenants.org

Most tenants do not pay as much attention to CAM charges as they should. Tenants should be provided a reconciliation statement before the end of the year. There should be a provision for this in your lease this can keep the landlord honest to reimburse a tenant if it is required.