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Common Area Expenses-What are Common Area Expenses?
What are Common Area Expenses?
Common area expenses may include maintenance and repairs of the common walkways and parking lots, security, property management, and utilities for common areas.
The Tenant will also pay their share of property taxes and property insurance.
Commercial properties including, shopping centers and free-standing restaurants typically require the Tenant to pay a portion or all of the property expenses as “Additional Rent” also commonly referred to as Triple Net “NNN” or Common Area Expenses “CAM”.
When do you pay Common Area Expenses?
CAM or NNN charges for each year are estimated and typically paid monthly with your rent payment.
These charges are usually defined on a monthly or yearly price per square foot similar to rents.
For example, a property may be offered at $2.00 per square foot with common area expenses, property taxes, and insurance estimated at $.50 per square foot.
At the end of each year, the CAM is reconciled and you will either owe the Landlord additional money for underpayment or receive a credit for overpayment.
How are Common Area Expenses Determined?
Your “Pro Rata” share of expenses is calculated by dividing the size of your store by the total square footage of the property.
For example, 1,000 square feet divided by 10,000 square feet equals ten percent (10%).
If you are the only Tenant and occupy a free-standing building, you will pay 100% of the expenses.
In summary, you need to consider the total occupancy cost rather than just focus on the rent.
As you can see CAM expenses can increase the total occupancy cost required to operate your business.
WARNING! Expenses can increase dramatically.
It’s important to understand which expenses can spiral out of control.
For example, Property Taxes can often double when an older property has sold.
An experienced real estate advisor or an attorney specializing in restaurant leasing can guide you through this minefield and protect you from unexpected expenses.
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