DennisBeaverMay 31, 2008 (Original publish date) • By Dennis Beaver

If you’re considering renting an office, or possibly locating your business in a shopping mall, today’s story will be of special interest and we may be able to save you quite a bit of money on CAM charges. That’s short for “Common Area Maintenance” and includes such things as cleaning and repairs of parking lots, lighting, gardener services, water, security, property taxes, insurance and so on.

Typically you’ll find CAM charges in a “Triple Net Lease,” which simply means the tenant pays a share of insurance, taxes and maintenance. As most leases are for a period of years at a fixed rent, it would be unfair to the property owner to be responsible alone for those charges, especially if significant inflation returned, resulting in a huge increase. So, CAM services — which benefit all the tenants — are divided among them based upon square footage they occupy.

No, I won’t let you see the real bills!

If you’re asked to pay CAM charges, it is only fair to be allowed to see the real bills the property owner or management company has received. But, as strange as it seems, there are some management companies who refuse to show their tenants the underlying bills, and just say, “Here are your CAM charges, now pay them!” That’s exactly what happened to a reader in the Chico area, who sent the following e-mail.

“Mr. Beaver, I have a small shoe store in a shopping mall. With our local economy not doing too well, it is difficult keeping our heads above water as people are having their shoes repaired instead of buying new ones. To add to the financial stress we are under, the management company sent us all a letter advising that Common Area Charges had increased by roughly 25 per cent.”

“My lease does say that the tenants are required to pay their share of mall security, maintenance, utilities, and so on. I’ve been here five years and always paid those charges but we never were given receipts or proof of what the mall actually was billed. When this big increase came in, I spoke with the property manager and said that I wanted to see the actual bills and to know how I was being charged.”

“I wanted to know the square footage of all the other shops to verify what they asked of me was correct. They refused and threatened to evict me unless I pay. What are my rights? Can they do this?”

Potential rip off of tenants

For many years, CAM charges were shrouded in a fog. Property management companies used them as a way to squeeze money out of the tenants, demanding more than their actual expenses. This resulted in lawsuits, all over the country, where tenants felt victims of fraud. Often, that was the case. Gradually, courts began to require landlords to reveal the actual charges and underlying bills which formed the basis of CAM fees.

One type of lawsuit, we call Declaratory Relief, asks a judge to look at the lease and simply tell everyone their rights and obligations. In California, there have been a number of courts which have looked at this basic accounting issue, and ruled for the tenant. Today, it is clear that when a tenant asks for proof of those CAM charges, the actual proof must be shown.

Often, with the help of accountants, discrepancies are found, some based on inaccurate calculations of square footage, or on simple errors of math. In fact, it is safe to say that today, competent management will cooperate with their tenants, volunteering to show them all the support necessary for those charges.

But there are some landlords, their property managers and lawyers, who still consider this to be the Wild West. In one 1997 case which reached an appellate court, unethical attorneys representing management withheld key documents from the tenants. A gutsy judge gave judgment to the tenants, severely chastising the game-playing attorney.

What should a tenant do?

The best dispute is the one which never occurs. One way to reduce the chances of a CAM fight is by addressing these concerns in the lease itself before you sign. I do not care if it is an office that costs a few hundred dollars a month, to a retail space going for thousands, unless the tenant understands these issues — can read and comprehend a lease — then you’ve got to hire a Real Estate lawyer. In my experience, few tenants read the lease, and those who do often walk away confused.

Commercial leases tend to be as clear as mud, often contradicting themselves, and difficult even for lawyers to understand without careful study. Never forget that a lease is a contract and contracts are negotiable. If you are dealing with a management company who refuses to allow meaningful negotiation, politely thank them for their time and go elsewhere.

Pay careful attention to those sections of the lease dealing with Common Area Maintenance charges. Does the lease require obtaining the tenant’s approval before making expensive renovations to the building? Does it require management to obtain competitive bids? Does it allow tenants to inspect and audit those CAM charges? If not, have your attorney address those issues before you sign.

I told my Chico reader that he needs to consult with an attorney and have a polite letter sent to the management company, asking for those records and citing relevant California cases. While lawyers might differ, it is very dangerous to withhold the payment of CAM fees, as this could result in eviction.

Finally, remember there is strength in numbers. If most of the tenants join in, management will have to think hard and long about running the risk of being dragged into court and paying the other side’s attorney fees. That said, don’t be surprised if other tenants are quick to complain, but refuse to “get involved.” These are often David and Goliath battles. But today, if David’s request is reasonable, Goliath is a goner.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.