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Is a dispute over CAM charges threatening your retail development?

With profit margins growing ever slimmer for brick-and-mortar retailers these days, both landlords and tenants are scrutinizing every expense. In the past, common area maintenance (or CAM) charges weren’t regularly challenged, if only because the amount a plaintiff could recover was less than the cost of recovering it.

That’s no longer true. Today, many CAM expenses are growing, and costs can add up quickly. We’re talking about expenses for areas that retail tenants share, such as parking lots, loading docks, employee lunchrooms, and the like, depending on the circumstances and the lease. CAM also covers expenses that benefit both the landlord and the stores, such as property taxes, signage, landscaping, capital improvements and security.

Do the landlord and the tenants understand and agree to CAM assessments?

To avoid a potentially costly dispute, retail tenants should never sign a lease until they have a clear understanding of what is and is not included in the CAM agreement. As with any contract, both parties should strive for a meeting of the minds rather than rely on the technical terms of the lease.

This prevents disputes in two ways. First, tenants with a clear understanding of what to expect are much less likely to complain about charges that are expensive but appropriate. Second, in some cases judges will take non-lease factors into account when considering the dispute. For example, a judge may determine that a particular term of the lease is invalid if a tenant can show a longstanding pattern of the landlord not enforcing it.

Have you been reconciling your CAM charges annually?

A common way for CAM charges to be handled is for the landlord to provide an estimate of the charges upon the tenant’s annual lease renewal, and the tenant pays a monthly charge based on that estimate. In such cases, the lease should contain a term providing for reconciliation of the estimate with the actual cost at the end of the year.

If those reconciliations aren’t taking place, the situation can become murky and create a serious potential for disputes. Has the landlord been overestimating the CAM costs in January and pocketing the difference when those costs come in lower? Has the landlord established a pattern of substantially underestimating the CAM costs and never trying to collect?

Pay attention to your CAM costs, and be sure to reconcile them promptly. If either side wishes to question the details or payment of the assessments, it’s best to do so right away. An attorney can help you determine the propriety of the charges and resolve the dispute through negotiation, alternative dispute resolution, or litigation.

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