Colorado-Real-Estate-Journal_468387

Page 10 — Property Management Quarterly — July 2025 www.crej.com CAM I f you’re involved in real estate – especially commercial real estate – you’ve likely come across the terms “CAM” or “triple net.” For many tenants, these terms can feel burdensome due to the complexity of how such charges are calculated and the often limited or unclear communication from property managers. Although there’s a certain mys- tique around how triple net charges are calculated and reconciled, the process is generally straightforward. This article aims to break down both the simple and more nuanced aspects of these charges to help tenants and owners better under- stand the process. Before I take a deeper dive into this topic, let me quickly note that I am not an attorney, and I cannot provide legal advice. I encourage you to seek an attorney to verify any of the information presented. n Definitions. The terms CAM, net lease, and triple net are often used interchangeably in commercial leas- ing: • CAM stands for common area maintenance. • A net lease refers to a lease where the tenant pays some or all of the building’s operating expens- es. • Triple net typically includes taxes, insurance, maintenance, and man- agement fees. There are also variations: • Single net leases (covering only taxes), • Double net leases (covering taxes and insurance), • Absolute net leases (covering taxes, insurance, maintenance, management fees, in addition to larg- er capital expenses like parking lot and roof replace- ment). • And hybrid leases that can resemble modified gross lease struc- tures. n Understanding the variability. Over the years, I’ve had many conversations with tenants and owners about the “whys” and “hows” of CAM charges. A common misconception is: “That’s not how it was handled at my last prop- erty.” This can lead to frustration, especially when a lease allows the landlord to recover capital expenses without clear limitations. The key takeaway is this: CAM charges are not standardized. They are entirely governed by the specific terms of each lease agreement. For this reason, it’s critical that own- ers and tenants understand what they’re signing, and a good safe- guard here is to involve attorneys and commercial property managers when reviewing lease documents. While a property manager cannot give legal advice, they are typically very well versed in the applica- tion of leases and thus should be approached for any needed insight. n Budgeting. The process of cal- culating triple net charges begins with a budget. This budget outlines projected operating expenses for the upcoming year and should be based on: • Historical operating data; • Planned maintenance and capi- tal improvements; • Vendor contracts for recur- ring services (e.g., landscaping, lot sweeping, HVAC, porter services); • Anticipated increases in proper- ty taxes and property insurance (for insurance, a 5% increase is a com- mon placeholder when future rates are unknown); and • Forecasted utility rate increases (often available from utility provid- ers). n Calculating tenant charges. Once the budget is finalized, each ten- ant’s monthly triple net estimate is calculated. For a straightforward lease: 1. Determine the triple net rate: Divide total projected expenses by the building’s total square footage. 2. Apply the tenant’s share: Multiply the triple net rate by the tenant’s rentable square footage. 3. Monthly charge: Divide the annu- al amount by 12. Example: If total projected expenses are $48,000 annually and the building is 10,000 square feet, the triple net estimate is $4.80 per sf. A tenant occupying 1,000 rent- able sf would pay $400 per month in triple net charges, in addition to base rent. However, many leases include added complexities – such as caps on CAM increases, gross ups, base years, administrative fees or exclu- sions for specific expenses. • CAM caps typically limit how much triple net expenses can increase over a defined period of time. This cap is often expressed as a percentage but can also be a fixed dollar amount. • Gross-ups essentially divide the cost of vacant space among the remaining triple net tenants based on their pro-rata share. In effect, this means that tenants pay for operating expenses attributed to vacant units, helping ensure that owners recover these costs. • Base year refers to a specific, predetermined period in the lease – normally the first year. During this time, tenants are only respon- sible for their pro-rata share of any operating expenses that exceed the amount established in the base year. • Administrative fees are commonly included in commercial leases and allow the owner to collect an addi- tional amount, typically represented as a percentage of some or all build- ing expenses. These factors can result in dif- ferent triple net rates for different tenants within the same property. That’s why a thorough lease review is essential when preparing budgets and reconciliations. n Reconciliation. Triple net charges What to know: Budgets & CAM reconciliations Benjamin Yoder, CPM Director of commercial management, Dorman Commercial Management Please see Yoder, Page 21