How Does your CAM Stack Up?
Common area maintenance (CAM) fees, also referred to as ‘service charge’ in some commercial leases, refer to the costs associated with operating and maintaining the space shared by the tenants within a facility, and is charged in addition to the base rent.
The CAM Fee
In its simplest form the fee is calculated as the sum of the CAM components ($) divided by the total net leasable space (ft2).
Typically, the commercial landscape in Barbados utilises triple net leases (should refer to A-Class) which require the tenant to pay the net amount for three types of costs: property taxes on the leased asset, building insurance and all maintenance in addition to any other agreed fees. Therefore, the CAM fee would include the items in the below chart.
CAM Composition Proportions
Figure 1 below shows the approximate proportion of each CAM component for a typical A-Class commercial office building and a retail property.
Top 5 CAM contributors
Based on the above data R&M – Plant & Equipment, Management Fees and Security are common top contributors to CAM fees for commercial office and retail properties in Barbados.
R&M – Plant & Equipment, Property Tax, Insurance, Management Fees and Security are the top five (5) CAM contributors for an A-Class commercial office building. Further insights:
– Air conditioning accounts for approximately 50% of the R&M – Plant & Equipment costs.
– Approximately 90% of Security costs is for manned security (guard services)
On the other hand, Management Fees, R&M – Plant & Equipment, R&M – Services, Security and Utilities are the top five (5) contributors for a retail property. Further insights
– Electricity costs account for more than half of the total utilities cost
– Manned security (guard services) attribute to 99% of the overall Security costs
– About half of the costs regarding R&M – Services comprise décor, advertising and marketing
Controlling CAM Fees
Most organizations, if not all, strive to increase revenue by reducing overhead costs. However, one must be cautious that quality is not sacrificed in an effort to trim costs. Value for money should therefore be at the forefront of cost cutting exercises. Here we explore ways in which the top CAM contributors can be controlled and, in some cases, reduced.
Repairs & Maintenance (R&M) – Plant & Equipment
• Implement and continuously monitor a robust planned preventive maintenance (PPM) schedule
• Use life cycle costing analysis to govern your (Landlords/Developers) decision-making process when selecting equipment for major building systems which bear significant capital and maintenance costs paying attention to warranty specifications
• Review manned security hours to determine if the current hours are necessary
• Improve/install electronic security infrastructure that would eliminate the need for manned security
• Weekly/monthly monitoring of water and electricity consumption
• Upgrade fixtures and fittings to low consumption devices
• Use alternative energy sources such as photovoltaics to reduce the electricity consumption
Repairs & Maintenance (R&M) – Services, Insurance and Management Fees
• Review contracts regularly and obtain comparative quotations to ensure that value for money is achieved. (NB: This also applies to Repairs & Maintenance (R&M) – Plant & Equipment and Security)
• The only possible way to reduce this component would be to file an objection to have a review of the Land Tax assessment, however, there is no guarantee that it will change, and there is the possibility that it may increase as a result of the re-assessment.
CAMs are generally composed of nine (9) components as shown in the above chart. The composition of these components may differ across properties due to facility features and functions which some properties may possess that others don’t, and as a result, the top CAM contributors may vary as well.
Landlords should carefully assess their CAMs to determine how best to structure the CAM provision in their leases, while on the other hand, tenants should seek to understand the CAM composition and their contribution. Taking this approach can lead to successful lease negotiations for both parties.