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&lt;b&lt;<i>In the Spotlight:</i></b> Cumulative CAM Caps

By Stephen Levey
September 02, 2015

CAM caps are evil ' not in the traditional sense of Lex Luthor or the Joker, but inasmuch as evil can exist in a lease, it is inherent in a CAM cap. I know, I know ' yet another overly dramatic landlord's counsel whining about how the national tenants bludgeon him in lease negotiations. Perhaps, but a triple net lease is, by definition, intended to reimburse the landlord for all expenses in addition to minimum rent. Such a position, however, would make this article very short, and thus, the soap box remains in the trunk of the car for future lease negotiations. Indeed, a CAM cap, if cumulative and properly drafted and negotiated, can provide a practical and efficient compromise for the common struggle between landlords and tenants in negotiating CAM clauses.

Background

Each party to a lease goes into the deal with a predetermined budget. The tenant projects its sales over the life of the term of the lease, and weighs them against costs of operation, which include CAM costs. Likewise, the landlord projects its expenses over the term, including CAM costs, and weighs them against the fixed (theoretically) income from minimum rent. The parties can negotiate the minimum rent and can rely on the wisdom of elected officials to limit taxes, but CAM costs fluctuate and neither party can truly control them. Additionally, CAM costs by their nature are the product of competing interests for both parties. The landlord will likely seek to create a high-end retail environment with upscale services, but does not want to overspend, absorb unrecoverable costs or deter potential tenants with high CAM cost estimates. The tenant wants the project to be shiny and clean and in excellent condition, but does not want to reduce its profit by paying excessive expenses. Fixing CAM costs can impose too much risk on the landlord, and allowing a full pass-through of CAM costs can impose too much risk on the tenant.

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