Negotiating Common Area Maintenance Costs

Negotiating Common Area Maintenance Costs

CS-EP-available-spaces-for-lease-along-Paranaque-area-ideal-Spa_1By Marc E. Betesh and Nancy M. Davids

The common area maintenance(CAM)clause is one of the most heavily negotiated sections in a retail lease.The original quaint,simple concept was that the CAM provision would deal with the cost of maintaining sidewalks,parking lots,and other common areas.That concept has given way to clauses that cover all of a landlord’s retail development operating costs.This expansion has rendered the term “common area maintenance costs”somewhat of a misnomer.In fact,many landlord leases have changed the CAM caption to“operating costs.”Because CAM costs can be nearly as high as the minimum rent, much attention has been paid to how CAM clauses can be used to fairly manage the landlord’s and tenant’s risks and obligations for these costs.The CAM clause found in most modern retail leases obligates the tenant to pay a specified share of certain defined costs of operating the center,although such definitions vary widely from lease to lease.Tenants often negotiate limits or caps on these obligations and often insist on the right to audit the landlord’s records to verify that their particular charges are valid.Because of the unpredictability of CAM obligations and the burdens CAM audits have placed on both landlords and tenants,some landlords and tenants use a fixed,negotiated CAM charge in lieu of passing through a share of actual costs.This article will explore how CAM pass-throughs generally operate, the evolution of CAM clauses over the years,and the variations in these clauses.

Negotiating Common Area Maintenance Costs

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