Cumulative CAM Cap and Your Commercial Lease
Posted: May 12th, 2008
Category: Real Estate News
My name is Justin Daniels, a local commercial real estate lawyer in Atlanta. Brad Nix asked me to pen a quick legal post on important legal issues that comes up in commercial Leases.
I came across a situation you should be aware and try to avoid or mitigate when negotiating your office or retail lease. Common Area Maintenance (CAM) are the charges landlords typically pass through to tenants for their office or retail space (etc. parking lot repaving or utilities for the hallway lights). You should always negotiate to cap inevitable increases in these charges or you can be obligated to pay the entire increase. A variation on this theme, however, is a cumulative cap over the term of the lease. You should be aware that this cumulative cap allows the landlord to pass along to you CAM increases in later years of the lease that it did not capture in the early years of the lease.
This is best explained in an example. Lets say you negotiate for a 5% cumulative cap. In year one your CAM goes up 2%. In the next year, the landlord can recover 8% in CAM increases from you because they get 5% per year and the three percent (5% - 2%) they did not use in the prior year. For tenants leasing significant square footage, this can add up to a significant expense for which you are unaware and have not have budgeted.
This situation can be handled as follows:
1) Refuse a cumulative cap.
2) If you cannot eliminate it, get a percentage number by which CAM can never increase for each year of the lease (i.e. CAM can never go up more than 7% in any given year).
As always your trusted resource for practical legal advice, have a great week. If you want more information please contact me at 404-261-0500.
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