How CAM Is Calculated and What It Should Exclude

Common area maintenance charges pass through operating expenses for shared building areas from the landlord to the tenants under NNN leases. But CAM math varies significantly by lease, and what CAM should include or exclude often gets handled loosely. Macomb County tenants signing NNN leases should understand how CAM gets calculated and what expenses should stay with the landlord rather than passing through.

The basic CAM formula. Total annual CAM expenses divided by total rentable square footage equals CAM per square foot. Tenant CAM equals tenant rentable square footage times CAM per foot. A building with $180,000 annual CAM expenses and 22,000 rentable square feet produces $8.18 per foot CAM. A 5,000 square foot tenant pays about $40,900 annually in CAM, billed monthly as roughly $3,400.

What CAM typically includes. Parking lot maintenance and resurfacing. Landscaping and irrigation. Exterior lighting and utilities. Snow removal, which matters significantly in Michigan winters. Trash removal for common areas. Common area utilities including hallway lighting and HVAC. Property management fees at 3 to 5 percent of gross typically. Building insurance in some structures though insurance often gets separate treatment. Reserves for capital replacements in some structures.

What CAM should typically exclude. Debt service and any financing costs. Depreciation of the building. Capital expenditures beyond ordinary maintenance, unless the lease specifically allows and amortization applies. Repairs to specific tenant spaces that other tenants do not benefit from. Legal or accounting fees related to the landlord’s specific transactions or disputes. Marketing costs for leasing vacant space. Management costs for properties the landlord owns other than this building.

Capital expenditure treatment. This is where CAM disputes commonly arise. Straightforward CAM includes routine maintenance like repairing broken parking lot sections or servicing HVAC systems. Capital expenditures like replacing a roof or resurfacing an entire parking lot are different. Well drafted leases specify that capital items amortize over useful life so each year’s CAM only includes annual depreciation, not full cost in year one. Poorly drafted leases either exclude capital entirely or allow full year one expensing.

Administrative fees. Landlords typically charge an administrative fee on top of actual CAM expenses, often 10 to 15 percent of underlying costs. This fee compensates the landlord for CAM administration overhead. Tenants should verify the fee percentage matches lease language and that no double counting occurs with property management fees already included in CAM.

The pro rata share calculation. Simple pro rata uses tenant square footage divided by total building rentable square footage. But building measurements can vary and matter. Rentable square footage typically includes a share of common areas allocated to each tenant. Gross leasable area might exclude common area allocations. Different landlords use different standards, and the lease should specify which applies.

Gross up provisions on variable CAM. Many CAM expenses scale with occupancy. If a building runs at 70 percent occupancy, cleaning, utilities, and management costs reflect the actual occupancy but per foot spread across only occupied space would burden occupied tenants unfairly. Gross up provisions require the landlord to gross up variable CAM to what it would be at full occupancy so pro rata shares reflect only the tenant’s actual footprint burden.

The Michigan context. Macomb County snow removal costs vary significantly year to year based on snowfall. Heavy winters can push CAM per foot 25 to 45 percent above light winters. Multi year averaging in lease language smooths this volatility. Michigan property tax uncapping at building sale affects tax pass throughs, which some structures include in CAM and some treat separately.

TDG Commercial, known as top commercial realtors in Macomb County, guides tenants and landlords on CAM structure across Michigan commercial leases.