Bass, Berry and Sims attorneys Mike Stewart and Shelby Thomas authored an article for Commercial Property Executive outlining common area maintenance (CAM) provisions, a key topic during lease negotiations that have received renewed focus due to changes in the current economic environment, cost uncertainty, interest rates, supply chain shortages, increased cost of materials, tariffs and inflation.
CAM expenses, which are typically categorized into controllable and uncontrollable expenses, should be periodically negotiated to reset the base year of the cap in order to help landlords accommodate the dramatically fluctuating cost of operating a commercial property. Depending on the length of the term, a landlord may negotiate for the right to reset the base every five years, at the start of a renewal term, or even if certain changes in circumstance trigger a reset.
Another point of negotiation in CAM provisions for landlords is the opportunity to expand “uncontrollable” expenses listed as exclusions from the expense cap. While landlords often list things like snow and ice removal, insurance and taxes and utilities as part of the uncontrolled expenses, it is important to consider whether that list needs to be expanded at any time to protect against unknown expenses, such as the cost of security or costs to comply with new legal requirements.
Mike and Shelby provided alternative methods for applying and calculating caps that are more favorable to landlords and allow more expenses to be passed through tenants.
“It is important for landlords to negotiate provisions that allow protection against the increasing unpredictable economic factors,” suggested the authors. “By implementing some of the negotiated provisions described above, landlords can limit their exposure to the unknown CAM expenses and recoup as many CAM expenses as possible, even when unpredictable.”
The full article, “Mitigating the Risk of Unknown CAM Expenses,” was published on August 29 by Commercial Property Executive and is available online.