CAM, Pass-Through Expenses…What They Mean to You

Ever called on a retail or office space “For Lease” sign and was told that rent is $X per month + CAM? What are they talking about?

Why isn’t it like renting an apartment...rent is rent and upon paying that amount I get to live there?

You should ask yourself…what should be included in the CAM charges that I pay?

CAM is an acronym for “Common Area Maintenance” and it’s uses are often different in various areas of the country. For the most part, and in it’s simplest form, CAM is an estimated annual amount of total expenses for operating a property. When a landlord discusses or quotes a CAM charge during lease negotiations, they are usually expressing an estimate of the per square foot expenses to pass through to the tenant.

As with many items in a lease, the expenses that are included in calculating CAM charges are determined by actual verbiage in the lease. For the purpose of this discussion, we will discuss the most common meaning of CAM for the retail trade in the Branson, Missouri market. Beware however, there are no absolute rules. Landlords may include additional items or may exclude traditional items as detailed in this discussion. To fully understand all items included in CAM, read your lease carefully.

Generally speaking, CAM charges are all expenses common to all tenants in a given property. For instance, a small neighborhood shopping center will have several custodial or maintenance jobs that must be done regularly. Some of those regularly completed jobs are: grass and weed control, parking lot sweeping, sidewalk cleaning and trash receptacle emptying. Other CAM expenses that are often experienced are: common electric usage for parking lot lights and lighted signs or flagpoles; rental and servicing of large trash dumpsters; often the water is supplied for irrigation as well as consumption in the stores. Virtually any “operating expense” will be added to the CAM charges. In most cases, any costs or expenses related to management company fees or property owner’s employees are added to CAM charges. Often, real estate taxes and insurance for the center are added to CAM charges (although there is usually a separate clause in the lease denoting these expenses).

Calculations of the estimated CAM charges are relatively easy and fairly accurate, once the center has experienced a year or two of expenses. If the center is newer, estimates will be slightly more difficult to assess. However, if represented by an experienced broker or if the landlord is familiar to the area, the estimate will most likely be very close to actual.

CAM is estimated by setting a budget that will list all probable expenses for the calendar year. The total of all estimated, probable expenses is then divided by the total rentable square footage in the property. The answer to this calculation is the estimated CAM charge per square foot. The next step is to multiply the per square foot rate by the total number of square feet in the space leased. This is the annual CAM estimate for the space you are leasing.


Since the amount is usually relatively large and for many legal reasons, the annual CAM estimate is divided by twelve therefore creating a monthly charge. It is important to note that this is only an estimate. Usually there is language in the lease regarding CAM reconciliation at the end of each year. Most leases will have rules regarding overages and shortages. Most typically, remedies are either an invoice for shortages or a credit (or check) for overages depending upon the outcome of the reconciliation.

You may ask why a tenant has to pay CAM since the property is the landlord’s building and asset. The answer is comprehensive and many fold.

First, the tenant is the entity receiving use of the building and are therefore the reason for the expenses. In other words, a landlord expects to receive a certain amount of money for the space they are letting to the tenant. To ensure the landlord receives that amount of money, it has several way in which it can collect it’s rent.

One simple way is what is referred to as a gross lease rental income. This lease arrangement is much like the apartment rental you may have experienced. Tenant pays a set rent amount and the landlord pays all CAM expenses. The problem with that is both the landlord and the tenant have a good chance of losing. If the landlord was willing to rent based on the gross lease rental basis, he would naturally need to add the expenses to his rental rate and since the expenses are not accrued as of yet he will need to estimate them on the high side. Thus, the rent for a gross lease will be higher per month than the net lease.

A net lease arrangement is one in which the tenant does pay their portion of the expenses (CAM) with a few limitations; those limitations should be spelled out in the lease document. Now, the landlord and tenant set the rent and the landlord bills the tenant for the actual expenses on an estimated basis throughout the year with reconciliation at year end. This is a much more equitable method of leasing for all parties. The landlord knows its tenants will not be wasteful and leave water running, or lazy and throw trash out onto the parking lot because the increase in expenses or repairs will be the tenants expense. The tenant should feel confident that the center will not quickly be run down and dirty because the landlord is being reimbursed for the expenses.

While anything is possible when negotiating a lease - it is virtually impossible for a landlord to modify it’s CAM calculation and charging methods once other tenants are in the building. The other tenants have a reasonable expectation that all tenants will be paying their fair share. If any negotiations were to reduce the CAM for a new tenant, the landlord would have to make up those deficits.

Some other acronyms that may be seen or some variations are:

CAMTI- Common Area Maintenance, Taxes, Insurance – This is used when the 3 clauses are lumped together.

NNN or Triple Net - The actual definition for this would be much too long, and local custom will often allow for many variations, but in it’s simplest form the description would be: Tenant pays for all expenses. Sometimes there is an exception for the replacement of the structure and roof.

Absolute NNN- The tenant pays for the roof and structure also – most often seen in single tenant buildings specially built for the tenant. – ie. a Walgreen’s stand alone building.

Our experience has shown that a property which has tenant’s paying their fair share of expenses by way of a CAM charge will usually be better maintained and professionally managed property.

Learn more about CAM as a tenant or a landlord. Visit CommercialOneBrokers.com before you sign your next lease.