What Are CAMs in the Restaurant Business and How Are They Calculated?

Understanding CAMs (Common Area Maintenance) is crucial for any restaurant operator looking to manage costs effectively. CAMs refer to the recurring expenses that are shared among tenants in a commercial property. These fees typically cover essential services that are provided to all tenants, such as parking, security, and cleaning of common areas. In this article, we will delve into the specifics of CAMs in the restaurant business and explain how they are calculated and recalculated annually.

Overview of CAMs in Commercial Leases

In the context of commercial leases, CAMs are a significant portion of the total cost structure for tenants. They are typically negotiated as part of the lease agreement and are deducted from the rent. CAMs ensure that all tenants in a commercial property have access to necessary communal services and facilities, which can improve their business environment and customer experience.

Common Area Maintenance Expenses

Some of the common expenses included in CAMs for restaurants include:

Parking: This involves maintaining and operating parking lots or garages that are shared by all tenants. Security: Ensuring that the common areas are well-monitored and protected from potential threats. Cleaning: Keeping the common areas clean, which can greatly enhance the overall ambiance of the property and attract more customers. Landscaping: Maintaining the property’s exterior and green spaces to ensure a pleasant environment for all tenants and visitors. Utility Maintenance: Fixing and maintaining utilities such as elevators, air conditioning systems, and other communal facilities.

Calculating CAMs in Restaurant Leases

The calculation of CAMs can vary depending on the specific lease agreement and the property management. Here’s a general breakdown of how it works:

Base Rent: This is the fixed rent amount that the tenant pays to the landlord. It is not directly related to the CAMs. Estimate of CAM Expenses: Before the actual expenses are calculated, an estimate is made based on historical data or anticipated costs. This estimate is typically adjusted annually. Actual Expenses: The actual costs for the year are then determined. These include the expenses quoted in the initial estimate and any additional costs that arise during the year. Distribution of CAM Costs: The total actual expenses are divided by the total square footage occupied by all tenants to determine the CAM charge per square foot. This charge is then multiplied by the tenant’s allocation in square footage to get the total CAM charge for the tenant. Adjustment of Rent: The tenant’s rent is adjusted by adding the CAM charge to the base rent to arrive at the final rent payable. Excess or Deficit: If the estimated expenses are lower than the actual expenses, tenants might owe additional money to the landlord. Conversely, if the estimated expenses are higher, the landlord might refund any excess to the tenants.

Why Auditing CAM Expenses Is Essential

Auditing CAM expenses is a critical step for restaurant owners and tenants. According to Gennaro Cuofanos, overlooking these expenses can lead to unexpected financial burdens. Here’s why:

Cost Overruns: There might be unforeseen increases in expenses, such as higher utility costs or unexpected maintenance issues. Incorrect Allocation: Sometimes, the CAM charges might be incorrectly allocated, leading to tenants being overcharged or undercharged. Inflationary Pressures: Inflation can lead to higher costs of maintenance and other services, which can increase the CAM charges over time.

Thus, it’s important for tenants to regularly review their CAM expenses to ensure transparency and fairness.

Conclusion

Understanding and managing CAMs in the restaurant business is essential for maintaining profitability and ensuring compliance with lease agreements. By staying informed about the calculation process and actively auditing these expenses, restaurant owners can minimize financial risks and optimize their bottom line.