As a new business owner, you are probably excited to finally get started offering your product or service to consumers in your area. You may have even found the perfect location for your new company and talked to the landlord about leasing space in their development.
Understand that in addition to your monthly rent, landlords also charge “Common Area Maintenance” (CAM) fees to their tenants. This means that the landlord will charge their tenants for the landlord’s costs for insurance, taxes, utilities and the cost to maintain the parking lots, parking garages, and sidewalks. This may seem straightforward, but we have seen many clients shocked by the size of these pass-throughs.
What does maintenance mean?
You might think it would be easy to determine what costs constitute a development’s common area maintenance expenses. However, it is the landlord’s interest to pass through to its tenants as much of its operations costs as possible, including costs that generally would not be considered maintenance costs.
For example, in one recent case, the tenant negotiated what was believed to be fair rent and CAM payment provisions with the landlord but did not pay close enough attention to the definition of “CAM expenses” when the lease was being negotiated. Years later, the landlord completed a major renovation of the shopping center and attempted to pass the remodeling costs on to the tenant under the CAM provision.
After binding arbitration, the judge held that our client was not required to contribute to such costs because they were capital improvement expenses, not maintenance expenses. Nevertheless, the case took considerable time to resolve, and it could have been avoided with more attention to detail when the lease was signed.
In other instances we have seen landlords attempt to pass through costs associated with kiosks, valet parking and even car washes.
Protecting your investment
As these examples show, it is extremely important that you consult one of our experienced attorneys before you sign a lease for your business. The investment in experienced legal advice up front can save you significant headaches down the road. Making the wrong choice at such a critical time can doom your business before it has a chance to thrive.
