When reviewing a commercial lease, particularly for a retail space, you will notice that typically a tenant will be required to pay base rent and additional rent or CAM (Common Area Maintenance Charges). What is the difference between base rent and additional rent? What can be done to lower or anticipate the cost of additional rent or CAM?
Base rent is the per square foot calculation that is the negotiated rent that you are required to pay. It is usually based on the local fair market value of similar spaces. Since base rent is based on the square footage of the rented space, a prospective tenant should take care that the space is properly measured by an architect or contractor. When working with a local realtor, make sure to obtain comparative data to understand the base rent being charged by landlords of similar spaces.
Additional rent, also known as CAM charges, or Operating Expenses, are typically required in a commercial lease that is a “triple net” lease. A triple net lease is a commercial lease in which the landlord passes through taxes, insurance and the operating expenses for the common areas of the shopping center or mall. These expenses are typically passed through to the tenant on a prorated basis based on the square footage of the premises as a fraction against the leasable (not leased) square footage of the entire shopping center or mall. For example, snow removal, costs of maintaining the common areas, lighting, plumbing, parking lot maintenance, roof repairs and replacement, HVAC, wiring, administrative fees, etc. These fees can add up to be significantly greater than the base rent. How these fees are calculated, whether there is a cap on the fees, what is included or excluded from these fees, and your rights to contest the fees, are all negotiable. For example, should the landlord be able to pass through to you the costs of repairs caused by another tenant’s or the landlord’s negligence? Should these charges include capital expenditures (such as the replacement of the roof because it was never maintained properly)? These types of exclusions can save you money on your bottom line every month. A tenant should also have the right to review the landlord’s books and records to ensure that the charges being passed through to him or her are correct. There should be remedies a tenant can take against the landlord should the landlord significantly overcharge for the additional rent. Tenant should have the right to audit the books and records of the landlord if desired.
There are many clauses in a commercial lease that should be negotiated. The charges that are passed through to a retail tenant as additional rent can make or break the business. What is included or not included in the charges for additional rent or CAM should be heavily negotiated as they can amount to a skyrocketing additional monthly fee over the base rent. These charges are often ignored in negotiations or accepted by the prospective tenant, but should not be ignored. Additional rent is an important negotiated fee that can add significantly to any businesses overhead.
Let the experienced commercial tenants’ attorneys at Lanard and Associates help put you in the best position possible with your commercial lease. Call Nancy Lanard, Senior Partner, today at 215-392-0030 x101 to learn more about the reasonable flat fees charged for commercial lease negotiations.