You lease a commercial property in Chicago for a retail business in a shopping center. You negotiated a 10-year lease with your landlord. For the last couple of years, you paid $100,000 a month along with about $10,000 in common area maintenance (CAM) fees. This month, though, you received a bill for $60,000 for CAM fees. But you cannot figure out why. You have enough cash flow to pay the bill, but you earmarked that money for some new fixtures. What recourse do you have?
Goals of the Landlord Vs. Lessee
Almost every commercial lease contains terms and conditions regarding CAM fees. The landlord tries to negotiate terms that fits its interests and you do the same. Landlords typically try to negotiate CAM agreements that:
● Cover as much of the property as possible. This includes the roof, parking lot, and entrances and exits.
● Encompass as much of the cost of operating the property, including maintenance, inspection, repairs, and improvements.
● Ensure as many capital improvements as possible are covered, especially those related to compliance with new codes and regulations and upgrades to plant facilities (HVAC, etc.).
● Include management and administrative fees. Sometimes landlords or affiliates own management companies in whole or in part. They might charge more than the market price because the landlord benefits. This is a classic conflict of interest.
Of course, tenants try to negotiate the opposite. For every goal of the landlord listed above, there is an equal and opposite argument why the landlord should bear the costs.
Pro Rata Share Calculations
Another frequent source of conflict often negotiated into a lease regarding CAM fees involves how the pro rata share is calculated. Often, this can be the percentage of the square footage that is leased by a tenant divided by the leasable floor space of the development. The tenant owes the percentage as a pro rata share of the total CAM fees. Unfortunately, this is not always the case. Often, anchor stores receive a discount rate for their square footage wherein, say, only 75% of the leased space counts in the CAM calculation. This can lead to disproportionate burdens being placed on smaller retailers.
The lease may allow an audit of CAM charges within a specified time. If you want to audit the charges, don’t delay. You might be prevented from doing so later.
Consult with an Attorney
In the above example, what is the recourse? The first thing you as the lesee should do is consult the attorney who negotiated the lease on your behalf. The attorney should be able to quickly advise whether the charge is correct or should be investigated. If there was no attorney involved in the negotiation, then you should get representation from an experienced commercial real estate attorney. This attorney will be able to analyze the lease and the facts surrounding the charge and find out if you are obligated to pay them under the terms of the lease. If you are not obligated to pay these charges, the attorney should be able to negotiate a settlement or represent you in court.
Our attorneys have years of experience in analyzing and litigating commercial leases. If you are having sticker shock at your CAM fees or any other concern regarding your commercial lease, give us a call at (312) 223-1699 to set up your initial consultation. Put our decades of experience to work for your business today.