What are Common Area Expenses?
Commercial properties including, shopping centers and free standing restaurants typically require the Tenant to pay a portion or all of the properties expenses as “Additional Rent” also commonly referred to as Triple Net “NNN” or Common Area Expenses “CAM”.
The 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.
When do you pay Common Area Expenses?
Common area expenses 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 common area expenses are reconciled and you will either owe the Landlord additional money for underpayment or receive a credit for over payment.
How are Common Area Expenses Determined?
Your “Pro Rata” share of common area 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 common area expenses.
In summary, you need to consider the total occupancy cost rather than just focus on the rent. As you can see common area expenses can increase the total occupancy cost required to operate your business.
WARNING! Common area 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 attorney specializing in restaurant leasing can guide you through this minefield and protect you from unexpected expenses.
Future articles will address topics such as “What should be excluded from Common Area Expenses?”
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