A new year opens up new opportunities. At the end of last year, the real estate industry saw a downturn, illustrating the importance of planning and knowing your position. Have you invested the time to set your goals for 2023? Do you have a clear understanding of what direction you want to take?
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Commercial leases often require tenants in a multi-tenant development (such as a shopping center or office building) to pay CAM charges in addition to monthly rent. These lease provisions often are misunderstood or taken for granted by landlords and tenants and, as a result, are frequently violated, knowingly or otherwise.
Sophisticated tenants require CAM charges to be "actually paid or incurred" or "expended" by the landlord to be reimbursable, and they are careful to prohibit landlords from passing their overhead on as disguised CAM charges. To guard against this practice, tenants should negotiate (and then review) their leases carefully, require landlords to deliver "reasonably detailed statements" of CAM charges as often as the lease requires, and should scrutinize those statements to ensure that all charges are allowed by the lease.
CAM charges often include property management fees. In addition, most leases permit the landlord to estimate CAM charges and force tenants to pay their share of those estimates monthly. Generally, they require the landlord to reconcile or justify the actual CAM charges to its tenant after the end of each year. Commercial landlords that also manage the project themselves often charge tenants, in addition to CAM expenses incurred, an arbitrary, "industry standard" percentage of the rent as "a property management fee," even though the lease does not expressly provide for that, and no third-party management fees are paid or incurred by the landlord.
When the CAM charges are based on actual costs, a tenant might want to negotiate a cap on how much they will be required to pay for their share of common area maintenance. Putting a cap on CAM charges helps protect the tenant from their lease expenses increasing outside of their budget or sudden surprises at the beginning of the year. In turn, this adds some risk to the landlord to cover additional expenses themselves.
With fixed CAM charges, property owners set a flat fee for common area maintenance and usually add small annual increases to that fee to cover the cost of inflation. Tenants may still want to review the property expenses to ensure their CAM charges aren't significantly higher than they should be. Fixed CAM charges can either apply to property taxes, insurance, and actual maintenance costs or only to maintenance costs while leaving the property taxes and insurance adjustable.
Listen as our authoritative panel discusses the best practices in negotiating CAM provisions, what types of provisions to include, and when to choose between a capped or fixed cost CAM provision.
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Know how to handle real estate transactions involving contaminated or potentially-contaminated properties. Many real estate transactions involve properties that have known or potentially unknown environmental contamination. Because of the strict liability imposed by environmental statutes it is important that real estate transactions be proceeded by appropriate due diligence and that the existence of any environmental contamination and associated liability be allocated in the Purchase and Sale Agreement or other applicable transaction documents (i.e., lease or financing documents).
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