Landlord Tenant Laws: Negotiating CAM and Operating Expenses

» Articles » Property Management Articles » Article

September 14, 2018
Author: Erik Piazza

Landlord wants language as broad as possible.

Tenant wants to exclude items of a capital nature, such as roof repairs and resurfacing of parking and to exclude discretionary items, such as art work in common areas. Tenant wants to exclude items that Landlord is responsible for.

Sample CAM provision provided by Landlord:
\"Common Area Costs” are defined as all costs and expenses incurred by Landlord in the performance of its undertakings in operating, equipping, cleaning, lighting, repairing, replacing and otherwise maintaining the Common Areas, and, if provided, security and public safety.

Sample CAM provision showing negotiated language:
\"Common Area Costs” are defined as only the following reasonable costs and
expenses actually and directly incurred by Landlord in the performance of its
undertakings in operating, equipping, cleaning, lighting, repairing, replacing and
otherwise maintaining the Common Areas, and maintaining order and, if
provided, security and public safety, all of which shall be computed on an accrual
basis in accordance with generally accepted accounting principles, including,
without limitation: the costs and expenses in connection with maintaining or
complying with any Federal, state, or local government statutes, rules, or
regulations due to new enactments of such Federal, state, or local government
statutes, rules, or regulations after the date of this Lease relative to access within
the Shopping Center or any portion thereof by individuals, handicapped or
otherwise and of otherwise maintaining the Shopping Center in compliance with
such statutes, rules, or regulations; the costs of seasonal décor, decorations,
marketing, and promotions so long as they promote the entire Shopping Center
and are not favoring any particular tenant; the costs of all necessary materials,
equipment, supplies, and services purchased, leased, or hired therefore which
shall be depreciated over the reasonably useful life but excluding cost of the
initial stock of tools and equipment for operation, repair and maintenance of the
Shopping Center; the cost and expense of maintaining (but not replanting)
landscaping, gardening and planting, cleaning, removal of snow and ice, painting
(including striping), but in no event shall painting or striping occur in greater than
five (5) year increments, decorating, paving (paving costs shall be allocated over a
period of five (5) years), lighting, sanitary control, and removal of trash, garbage,
and other refuse; amounts payable under service contracts; fire protection; water
and sewage charges (including dumpster); the costs [insert premium rather than
costs] of all types of insurance coverage carried by Landlord including, without
limitation, fire, extended coverage (broad form), public liability, personal and
bodily injury and property damage liability, motor vehicle coverage for
maintenance and security vehicles used for maintenance and operations of the
Shopping Center, vandalism and malicious mischief and all broad form
coverages, all in limits and with companies selected by Landlord in its reasonable
discretion; operation of loudspeakers and any other equipment supplying music
and/or public address announcements to the Common Areas or any part thereof;
operation, maintenance, and/or repair of public toilets; installing and renting of
signs so long as the signs are for the entire Shopping Center and no particular
tenant (“for sale or lease” signs are excluded); maintenance, repair, and operation
of the utility systems primarily serving the Shopping Center, including water,
electricity, sanitary sewer and storm water lines and other utility lines, pipes, and
conduits; depreciation of machinery, apparatus, and equipment owned or used in
the operation, maintenance, and repair of the Common Areas over the reasonably
useful life, and rental charges for such machinery and equipment; license, permit,
and inspection fees relating to the Shopping Center; the cost of personnel (wages,
salaries or other compensation or benefits for any officers or employees of
Landlord above the grade of property manager shall be excluded but including
applicable payroll taxes, workmen's compensation, and disability insurance and
employee benefits) to implement all of the foregoing and the direction of traffic to
the parking areas thereof, and administrative and overhead costs attributable to the
management of the Common Areas not to exceed a total of ten percent (10%) of
the total operating costs.

Exclusions from Common Area Costs. There shall be excluded from Common
Area Costs the following: (i) Any indemnity, damages, late charges, interest,
fines or penalties incurred by Landlord for failure to timely pay its obligations or
an action or inaction of Landlord (including any cost due to Landlord’s breach of
the Lease or any other lease); (ii) Cost of removing Hazardous Substances at the
Shopping Center; (iii) The amount of any uninsured judgment assessed against
Landlord as the result of its ownership, management or operation of the Shopping
Center; (iv) Costs associated with leasing other tenant spaces, including, but not
limited to, tenant build out or tenant allowances (or rental concessions in lieu
thereof), broker fees, attorneys fees and leasing commissions; (v) The cost of
restoration of the Shopping Center incurred as the result of fire or other casualty
that is of a nature that is customarily insured by an “all risk” policy of fire and
other casualty insurance and the cost of repairs due to casualty or condemnation
that are reimbursed by third parties or other casualty; (vi) The original cost of
constructing the Common Areas and costs of correcting defects in the design or
construction of the Common Areas; (vii) Income and franchise taxes of Landlord;
(viii) Interest or principal payments on any mortgage or other indebtedness of
Landlord, depreciation on any building or the Shopping Center, payment under
any ground lease debt amortization or other financing costs; (ix) Any depreciation
allowance or expense; (x) Repairs and replacements, which under generally
accepted accounting principles should be classified as capital expenditures, except
repairs or replacements of items in place on the date Tenant opens for business as
such items are repaired or replaced due to wear and tear as opposed to capital
expenditures of the Shopping Center; (xi) All claims, actions, attorneys’ fees and
related costs associated with any legal action brought by or against Landlord with
respect to any other tenant in the Shopping Center based upon a dispute arising
out of such tenant’s lease; (xii) Taxes of any nature incurred by Landlord or

Landlord’s members or affiliates in connection with the receipt of income or gain
(through the sale of the Shopping Center or otherwise or the receipt of rent); (xiii)
Cost of repairs and/or maintenance that are the responsibility of Landlord, such as
maintenance of the roof, slab, exterior walls and structural portions of any
building or leased premises in the Shopping Center (including utility lines,
equipment and systems serving the Leased Premises from the point at which they
are no longer the responsibility of the applicable public utility until the point at
which they serve the Leased Premises); (xiv) Costs for which a management or
administrative fee is paid, with the exception of the administrative and overhead
costs attributable to the management of the Common Areas not to exceed ten
percent (10%) of the total operating costs; (xv) Any costs associated with any
portion of the Common Areas occupied by Landlord or its affiliates and any
amounts paid to any party, including a division or affiliate of Landlord, providing
materials, services, labor or equipment to the extent that such costs exceed the
reasonably competitive costs of such materials, services, labor or equipment when
provided by an independent party in an arms-length transaction; (xvi) insurance
deductibles; and (xvii) any charitable donations. With respect to any capital
expenditure otherwise permitted as a common area expense, the cost thereof shall
be amortized over the useful life thereof and included in Common Area Costs
only to the extent so amortized for any calendar year.

The material appearing in this web site is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided herein is intended only as general information which may or may not reflect the most current developments. Although these materials may be prepared by professionals, they should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

The opinions or viewpoints expressed herein do not necessarily reflect those of Lorman Education Services. All materials and content were prepared by persons and/or entities other than Lorman Education Services, and said other persons and/or entities are solely responsible for their content.

Any links to other web sites are not intended to be referrals or endorsements of these sites. The links provided are maintained by the respective organizations, and they are solely responsible for the content of their own sites.