Real Estate Law Blog

Why a tenant needs as real estate lawyer’s help in negotiating Common Area Maintenance Expenses in industrial Illinois Real Estate Leasing

Navigating the complexities of real estate leasing, particularly concerning Common Area Maintenance (CAM) expenses, demands precise understanding and negotiation skills. In this article, we will delve into the basics of the CAM expenses that are most common in an office or industrial commercial leases in Illinois, and how strategic legal guidance can help secure favorable terms for clients.  Just like every tenant’s business and every piece of real estate, every lease and circumstance is unique, and there is no single solution for all clients.  The method in which expenses are determined and allocated will be a result the relative bargaining positions of the landlord and tenant, the property type, lease term, and economic structure of the transaction. Most office and industrial leases include a clause that directly bill some, or all, of the CAM expenses to the building’s tenants. CAM expenses encompass the costs associated with maintaining and operating shared areas within commercial properties, including lobbies, hallways, parking lots, and more. For Landlords, the ability to pass through these expenses is crucial for upholding the property’s functionality, safety, and overall value.  For tenants, the CAM passthrough is often one of the most significant components of their total occupancy cost. Basic provisions effecting how CAM expenses are calculated include:

  1. Definition and Allocation: Each lease defines what is going to be included in CAM for that transaction, and who is going to be paying what share of the expenses. The important issue here is to appropriately negotiate what is, and what is not, included in a lease’s definition of CAM and then to make sure that the tenant’s share is allocated fairly. At one extreme a tenant might only pay their share of increases in utilities and snowplowing in a multi-tenant building. At the other extreme, a single tenant in a triple net leased property might pay all the costs of operations and ownership of the building.
  2. Exclusions and Capital Expenses: One of the most important areas regarding determining CAM expenses is what expenses are excluded. Some items are easy to agree upon excluding such as a landlord’s mortgage interest, depreciation, income taxes, leasing, and adverting costs.  However, the inclusion or exclusion of many other expenses is more nuanced.  Some of the most negotiated areas to include or exclude are the responsibility for capital expenditures, replacements (roof and structure, parking lots, HVAC equipment to name a few), expenses arising from compliance with government regulations and requirements, and environmental remediation. Leases vary widely in the determination of expenses to be excluded and how the costs of capital expenditures, replacements, and major repairs are allocated between landlords and tenants. It is critical for a tenant to know what their obligations are and to have a skilled commercial real estate lawyer negotiate a lease that clearly articulates that understanding.
  3. Auditing Rights: generally, tenants will have some right to audit the CAM expense records to verify accuracy and prevent overcharges. These provisions can limit the time window to conduct an audit, frequency of auditing, who is allowed to do the audit and how the auditor is compensated, the time frame for refunds caused by overcharges or even a threshold amount necessary for an overcharge to be refundable. Literally, all of this is negotiable.
  4. Other Provisions: other aspects of the lease which may affect the CAM include: the notice and default provisions, provisions requiring tenants to enter into maintenance contracts of their own, insurance provisions, and the general maintenance provisions of the lease.

At Lamphere Legal, I understand the importance of comprehensive legal guidance in navigating CAM expenses under Illinois and Wisconsin law. Whether you are a landlord seeking to protect your property’s cash flow and value or a tenant aiming to ensure fair treatment, I am here to help. Contact me today to learn how I can assist you in negotiating favorable CAM expense provisions tailored to your specific needs and objectives. With my expertise by your side, you can navigate the complexities of real estate leasing with confidence and clarity.