In an Ohio commercial lease, base rent serves only as a starting point. For many businesses, Common Area Maintenance (CAM) charges represent a primary financial uncertainty. These fees cover costs to operate and maintain shared spaces such as parking lots, lobbies and landscaping. These costs can change significantly each year.
Without a negotiated “cap,” a heavy winter in Cincinnati or a major repair project in Columbus can result in a massive, unexpected bill. Tenants use specific strategies to negotiate these limits.
Understanding the cap on operating expenses
A CAM fees cap limits how much a tenant’s share of operating expenses may increase annually. Landlords generally prefer no caps so they can pass through all costs, but a cap helps a tenant maintain a predictable budget.
During negotiations, the parties first determine the cap percentage, which often ranges from 3% to 7%. The second task involves determining which costs that percentage governs. Most tenants seek a limit on controllable expenses. These are costs the landlord influences, such as janitorial services or management fees. Landlords often exclude uncontrollable costs, such as utilities and property taxes, from these limits.
Cumulative vs. non-cumulative: the distinction in cost
The method used to calculate the cap over a multi-year lease changes tenant liability. Non-cumulative caps favor the tenant because each year stands alone. If the lease sets a 5% cap and the landlord’s costs increase by only 2% this year, the landlord cannot save the remaining 3% for future years. Conversely, cumulative caps permit the landlord to carry forward unused increases. If costs remain low for three years but spike in year four, the landlord may use the accumulated room in the cap to charge the tenant a higher amount at once.
Negotiating expense exclusions
A cap functions effectively only if the contract clearly defines the covered expenses. Because specific contract language governs Ohio commercial leases, tenants negotiate to exclude certain items from CAM pass-throughs.
For example, a landlord should bear the costs to replace a roof or repave a lot rather than passing capital improvements to the tenant. Additionally, tenants should not pay for the landlord’s corporate expenses, such as executive travel or legal fees for other leases.
Finally, landlords should exclude marketing and leasing commissions because costs to attract new tenants do not benefit the current tenant’s operations. Reviewing these exclusions helps ensure the lease remains fair for the duration of the agreement.