Can you refuse to pay increased CAM fees in a commercial lease?
Commercial real estate rentals differ from residential rental real estate in a number of ways. For example, the rent is usually the only obligation the tenant has to the landlord for residential property. However, for commercial properties, a tenant may also have to pay a number of other costs.
As a commercial tenant, you may have to pay real estate taxes on your share of the property, as well as common area maintenance (CAM) charges. Usually, landlords offer either a fixed fee for the monthly CAM charges or allocate a percentage of the total CAM charges to individual units based on the amount of space each rental takes up and how much the tenants utilize those common areas.
Commercial leases are often for longer terms than residential leases. Instead of a month-to-month lease or 12-month lease, you may have signed a three- or five-year lease. While you may feel like the terms are set, it is possible for your landlord to approach you during your lease to tell you they want to increase the CAM fees you pay. When that happens, your landlord could make what was once an affordable rental much more expensive.
Carefully review your lease
Dealing with CAM charges during the initial leasing session is a wise decision. You can request certain terms, such as a limit on the annual increase in fees or a reduction in the percentage of fees you pay because you will not use parking space for clients or customers at your business.
Whether you negotiated your own terms or signed the document as presented by your commercial landlord, you should carefully review the terms of the lease to see what it says about CAM fees if a change is imminent.
In some leases, landlords receive a lot of leeway to change what they charge later on. Other times, the terms of the lease limit increase or offer alternative solutions to tenants, such as the right to end the lease early without incurring any penalties for doing so.
Determine if your company benefits from the additional charges
Sometimes, an increase in CAM charges is unavoidable. Perhaps there was some kind of accident or issue that resulted in massive costs to the property owner, such as the need to replace the HVAC system or resurface the parking lot.
Other times, landlords try to pass along costs and fees that they should absorb or charge you far more than what is reasonable. Some will even go so far as to hire businesses owned by friends or family to make repairs or perform maintenance at the property. They could end up charging tenants a massive mark-up for the profit of someone they know.
Your landlord likely doesn’t want to lose you as a tenant
Although demand for commercial properties tends to stay steady as long as the economy is healthy, it is expensive and unpredictable for landlords to seek new tenants. There is no way of knowing how long it will take to locate a viable tenant for any given unit, and, inevitably, some of those businesses will fail, leaving the landlord in the same position a few months later.
You can leverage both your history as a rent-paying tenant and the future potential for your business when discussing CAM rate increases with a commercial landlord.
In some cases, you may be able to prevent an increase, while in others you can limit how much more you wind up paying. Other times, the best-case scenario may involve finding a way to break the lease and move the business to a new location where you will have more control over what charges you wind up paying.