California Attorney and Real Estate Broker Chris Adishian answers the question, “What are ‘common area maintenance charges’ (CAMS)?” at the South Bay Association of Realtors’ event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.

Transcript:

Question: “This is a great question. You guys run into this in commercial all the time. You always hear about not only the rent, you hear about CAM charges. Everybody keeps talking about CAM charges. What are CAMS?”

Answer: “CAMS are, in a non-legal definition, they’re a big topic of conversation and they shouldn’t be as much of a mystery or black box as they often are. But there are several types of leases that you can have in a commercial setting: one is a gross lease, where it’s just ‘Here’s your rent, $5,000 a month;’ another one is called a triple net lease, and the triple net lease is where you usually see the CAMS come in.

And CAMS is an acronym; it stands for Common Area Maintenance. The other way to think of it is just shared expenses to operate the shopping center or the building. And in a triple net lease, the tenants bear the burden of those costs proportionally and that’s either, usually if you look at the standard air lease, it’s in there, I think it’s paragraph 4.2, and it details all the CAMS. And what’s in CAMS? It’s the most expansive definition you could possibly imagine because in a triple net lease, the Landlord doesn’t want to pay for anything, so it’s property taxes, it’s utilities, it’s a security guard, it’s a security system, whatever it costs to operate the center gets added up and divided proportionally to the tenants, usually on the basis of square footage.

So when you look as a tenant and you say, ‘Oh well my rent’s only $2,000 a month plus CAMS,’ well you’ve got to look at the ‘plus CAMS’ number because that could materially affect how much money the tenant’s going to pay each month. And a lot of tenants who are business owners and run their own businesses act surprised when they see a CAM number come in on their ledger and they really shouldn’t be a surprise. If they’re surprised they probably got bad advice during the leasing process.

And CAMS are negotiable, but it depends on your relative bargaining power, but if you’re going to take up a lot of square footage for the Landlord, you probably have more leverage to negotiate CAMS, and depending on market conditions you might have more leverage to negotiate CAMS. We’ve done deals where there are caps on CAMS. When the market was bad in 2010 and our Landlord just needed to fill the space, some tenants were able to benefit from that and they have a cap on their CAMS and they’re paying substantially less than their proportionate share. The risk with that is that that tenant might also say, ‘Hey I think the Landlord should add this service or that service or this service or that service,” and you kind of have a free rider risk. But that’s the sum of CAMS and I’m happy to talk more afterwards.”

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @algpc | LinkedIn | Facebook | YouTube

California Attorney and Real Estate Broker Chris Adishian answers the question, “How do I select good tenants? Evict bad tenants?” at the South Bay Association of Realtors’ event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.

Transcript:

Question: “How do I select a good tenant and how do I get rid of a bed tenant?”

Answer: “In my property management company, we have a lot of commercial properties and commercial tenants and we also have residential. But folks, my answer is going to be primarily commercial here and I’m happy to answer questions about residential later.

But the things you want to do on the commercial side are to do a credit check obviously, maybe run a background check even, you may need to get their consent. But there are services any good law firm or property management firm can access which will allow you to receive: ‘Was there a prior bankruptcy? What’s their credit score?’ They should voluntarily give that to you.

And then you can look at the business: ‘Is this a viable business? Is it an In-n-Out Burger going in there or is it Mable’s Bead Shop? And how much rent are they paying?’ The branded chain tenants are sort of the highest probability of being able to fulfill the lease obligation in general, and the ‘Ma and Pa’ one-off stores are a little risky. But you’ve got to look at each one on a case-by-case basis, see what kind of assets they have behind them, you can ask for bank statements and those sorts of things. If you do those steps in conjunction with your leasing agent and call on his/her experience, that would be a pretty good way to start so you don’t have a tenant who moves in with a lot of promises and then stops paying rent after 2 months.”

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @algpc | LinkedIn | Facebook | YouTube

California Attorney and Real Estate Broker Chris Adishian answers the question, “I just purchased a commercial property, now what do I do?” at the South Bay Association of Realtors’ event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.

Transcript:

Question: “First question is: ‘I purchased a commercial property. What do I do now?’”

Answer: “Well the first thing is that generally it’s a great thing that you’re able to buy some real estate, particularly if it’s in a good area. Most people do that as a means of diversification if they’ve had a successful career or a successful business early in their career and they want to have a revenue stream that’s not tied to their business or their earnings, or maybe even for retirement; so it’s a good move.

Then the question is how are you going to relate to that investment? Do you want to learn how to replace toilet seats and do wiring and electricity and repair roofs? Or do you want to hire someone to do it for you? And I will say that either one’s okay. It really just depends on what you want as an experience. And the other factor though is that you’ve got make sure that you know how to operate the property, otherwise it can be quite expensive and potentially a bad investment, when it should be a good investment if well managed.”

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
Social Media: @algpc | LinkedIn | Facebook | YouTube