"Fixed CAM" became the rage over the last decade and its leading proponent was General Growth Properties. Now that GGP is in bankruptcy - and will likely to be for some time - what happens to the fixed services that were to accompany the fixed price? Obviously, retailers have to become even more vigilant about the quality of shopping center services, particularly security and maintenance. If you suspect that your shopping center is not getting the attention it deserves, find out how much the landlord had budgeted for those services in past years and compare that to what it’s spending now. If it’s a landlord in bankruptcy, you can easily find out this information by serving a Rule 2004 "Request for Examination."
How can you insure that the landlord will maintain the condition and
security of the shopping center?
In part, by listing all of the services
the landlord is expected to provide.
IN ADDITION, the lease needs to
make clear that the shopping center will be operated, managed and
maintained in a first class manner.
If you’re a strong tenant or a
strong negotiator, try to insure a minimum, baseline of operating cost
expenditures by the landlord, based upon the per square foot charge you
are being asked to pay times the leasable GLA.
Ten Tips to Reduce CAM Costs
1. Limit CAM to costs related to the
“common areas;” not the “Shopping Center.”
2. Identify CAM exclusions specifically.
Exclude all original construction, utilities and fixtures. Don’t pay
reserves and don’t pay for the food court. Don’t agree to pay for
“remodeling” “renovations” or “improvements:” exclude, “costs
of a capital nature to the extent they improve the Common Areas to
beyond their original condition or utility”
3 Watch what
you agree to “replace.” Don’t agree to depreciate “All Expenses in
Excess of $200,000” (especially after you’ve limited capital expenses),
but DO insist on depreciation of what you have agreed to over its
4. Make sure you
exclude all “off-site expenses,” and make your administrative fee charge
inclusive of landlord’s overhead and administrative costs. When you’re
negotiating your lease, ask the landlord what the “administrative fee”
is intended to cover.
management fees, if any, clearly and specifically. ASK if there is a
management charge based on revenue, collections, etc., and exclude it if
you can. If you can’t, make sure there is “no duplication” of charges.
6. Make sure
that GLA exclusions are “operating stores.” Have outparcels and
“non-fronting” GLA, especially theaters and 24/7 operators, pay their
share of “exterior CAM.”
7. Don’t include
taxes, insurance and utilities as an “operating cost,” but if you do,
make sure they’re not part of the “administrative fee.” And watch out
for “administrative fees tacked on to utility charges.
try to pay no more than landlord’s unit costs. At a minimum, agree to
pay no more than what tenant would pay if metered directly (but not the
same “rate”). Always get a right to checkmeter and adjust.
9. Do not
negotiate an audit clause if the lease is silent. If you do negotiate
an audit clause, make sure that it covers at least three prior years,
and nothing becomes “conclusive.” Include attorneys’ fees and audit
costs; don’t agree to exclusive jurisdiction where the shopping center
10: “Fixed CAM:”
Don’t agree to 5% increases; don’t agree to compounded increases; and
don’t agree to cumulative increases. Always audit first, or get a copy
of the prior year’s bills.