Four Tips for Negotiating Maintenance Fees

Common area maintenance (CAM) fees in retail leases have long been a stumbling block when negotiating a commercial lease. Understanding CAM fees and their impact on a lease agreement can be an eye-opener. The reason is that they’re quite complicated. When you lease commercial space, you pay for more than just the actual square footage you will occupy. In many commercial leases, in particular, in retail and industrial space leases, they are often referred to as CAM fees.

In nonindustrial spaces, you may hear this expense referred to as “load factor,” which includes CAM fees. In most shopping and office complexes, the tenant is expected to pay for the use of walkways, parking lots, lighting and climate control. However, an important part of the fair cost of any commercial space is the maintenance and repair required for the duration of the lease. Owners of smaller strip malls will often attempt to incorporate a management fee into the CAM fee in the commercial lease.

Following are four tips to help in negotiating CAM fees with a prospective landlord:

Confirm Measurements:

Since CAM fees are calculated based on the percentage of space the business occupies, it is important to have accurate measurements. The larger the percentage of space your business occupies, the greater the fee. Accurate measurements will ensure that you are not overpaying for common area maintenance.

Expect the Unexpected: Homeowners have to plan ahead for unexpected maintenance and so should business owners. Many landlords use a flat fee for the calculation of CAM rates, but some still use a percentage of annual maintenance costs to calculate the fee. If your lease is calculated using annual maintenance fees, ensure that the lease allows for flexible paymentprivileges so those payments do not negatively impact your day-to-day business operations.

Negotiate the Exclusion of Non-maintenance Fees Whenever Possible:

As a tenant, you should ensure that you are only being charged maintenance-related fees. Some property owners will include a management fee within the CAM structure in addition to maintenance costs. As a prospective tenant you can avoid additional costs by closely examining what is hidden in the CAM fee.

Negotiate Caps on Annual Increases:

By capping the amount the landlord can raise the fee, you protect yourself against exorbitant repair costs and unexpected expenses. This provides you with a certainty about one aspect of future business expenses. CAM fees may be paid monthly, quarterly or annually or even charged from time to time as major repairs to the building are required. CAM fees can escalate at a different rate than the monthly lease rate.

Randy Bett www.BetterGroupRealEstate.ca