Commercial properties often include shared spaces like lobbies, hallways, elevators, parking lots, and landscaping. While these areas don’t directly generate income, they are essential for a property’s functionality, safety, and appeal. The costs of maintaining these areas are typically passed on to tenants through Common Area Charges (CAC).
For tenants, CAC can significantly influence the total cost of leasing space. For landlords, CAC ensures that shared facilities are well-maintained without eating into rental income. In this guide, we’ll explore what CAC are, how they’re calculated, their benefits and drawbacks, and what both tenants and landlords should know about them in 2025.
An Overview of Common Area Charges (CAC)
What Are CAC?
Common Area Charges (CAC) are fees paid by tenants to cover the expenses of operating, maintaining, and repairing shared spaces within a commercial property. These charges are outlined in lease agreements and distributed proportionally among tenants.
Why Are They Important?
For Tenants: CAC ensures that shared spaces are clean, functional, and safe.
For Landlords: CAC provides reimbursement for costs incurred in managing common areas.
For the Property: Well-maintained common areas enhance property value and tenant satisfaction.
Examples of Common Area Charges
Maintenance Costs: Cleaning, repairs, landscaping, snow removal.
Utilities: Electricity, water, heating, and cooling for shared areas.
Security: Guards, surveillance systems, and access control.
Insurance: Coverage for shared spaces.
Administrative Costs: Management fees related to overseeing common areas.
Capital Improvements (sometimes): Major upgrades like new roofs, elevators, or HVAC systems, though these are often debated between landlords and tenants.
How CAC Are Calculated
Pro Rata Share: Tenants typically pay based on the percentage of rentable space they occupy compared to the total building space.
Fixed vs. Variable Costs: Some charges are predictable (like insurance), while others vary (like utilities).
Pass-Through Charges: Landlords may pass unexpected costs, like emergency repairs, directly to tenants.
Caps and Floors: Lease agreements sometimes limit how much CAC can increase each year.
Benefits of Common Area Charges
Tenant Benefits: Access to clean, safe, and functional shared spaces.
Landlord Benefits: Recovers operating expenses without raising base rent.
Property Value: Well-maintained shared spaces attract new tenants and retain existing ones.
Flexibility: Allows costs to be distributed fairly among multiple tenants.
Challenges and Drawbacks
Lack of Transparency: Tenants may feel uncertain about how CAC are calculated.
Unpredictable Costs: Variable expenses can fluctuate significantly year to year.
Disputes: Disagreements often arise over whether certain costs (like capital improvements) should be included.
Impact on Affordability: High CAC can make leasing space more expensive, potentially deterring tenants.
Legal and Lease Considerations
Lease Agreements: CAC terms must be clearly outlined in the lease.
Audit Rights: Many leases give tenants the right to review the landlord’s records to verify charges.
Exclusions: Certain costs (such as landlord overhead unrelated to property maintenance) may be excluded.
Caps on Increases: Negotiating limits on annual CAC increases is common.
CAC vs. CAM Fees
Though often used interchangeably, some markets distinguish between Common Area Charges (CAC) and Common Area Maintenance (CAM) Fees:
CAC: Broader, including all shared-area costs like insurance and admin expenses.
CAM Fees: Narrower, typically referring only to maintenance-related expenses.
Negotiating Common Area Charges
Request Transparency: Ask for detailed breakdowns of all charges.
Negotiate Caps: Limit annual increases to a percentage.
Clarify Exclusions: Ensure the lease specifies what is and isn’t covered.
Compare Market Standards: Research what similar properties in the area charge.
Leverage Competition: Use multiple lease offers to negotiate more favorable CAC terms.
Trends in 2025
Green Building Costs: Sustainability initiatives (like solar panels or recycling programs) are increasingly included in CAC.
Smart Technology: Expenses for smart lighting, automated HVAC, and security systems may show up in charges.
Tenant Pushback: Tenants demand more transparency and accountability in how landlords calculate CAC.
Hybrid Work Impact: Reduced office occupancy shifts some CAC burdens, potentially raising disputes about fairness.
Shared Amenities Expansion: More properties add gyms, lounges, and co-working spaces, influencing CAC structures.
Frequently Asked Questions
What are Common Area Charges?
Fees tenants pay to cover the costs of maintaining shared spaces in commercial properties.
How are CAC calculated?
Usually based on each tenant’s share of rentable space compared to the total building.
What do CAC include?
Maintenance, utilities, security, insurance, and sometimes administrative or improvement costs.
Can tenants dispute CAC?
Yes, many leases allow tenants to audit landlord records to verify charges.
Are CAC the same as CAM fees?
Not always. CAC is broader, while CAM typically focuses on maintenance.
Do CAC apply to residential properties?
They are more common in commercial leases, though residential condos may have similar homeowner association fees.
Can CAC increase every year?
Yes, but leases often cap annual increases.
Who decides what’s included in CAC?
The lease agreement defines inclusions and exclusions.
What happens if a tenant refuses to pay?
Nonpayment can be considered a lease violation, leading to penalties or eviction.
Do CAC affect property value?
Yes, high or unclear charges can deter tenants, while well-managed charges support strong occupancy rates.
Related Terms and Concepts
Common Area Maintenance (CAM) Fees: A narrower category of charges for maintaining shared spaces.
Gross Lease: A lease where tenants pay a fixed rent, with the landlord covering most expenses.
Net Lease: A lease where tenants pay rent plus some or all operating expenses, including CAC.
Operating Expenses: Costs incurred in managing and maintaining a property.
Triple Net Lease (NNN): Tenants pay base rent plus taxes, insurance, and maintenance expenses.
Wrap Up – Common Area Charges (CAC)
Common Area Charges (CAC) are a critical part of commercial real estate leasing, ensuring that shared spaces are safe, functional, and attractive. While they provide important benefits for both landlords and tenants, they can also create disputes if not handled transparently.
In 2025, CAC structures are evolving to include sustainability costs, technology upgrades, and expanded amenities. For tenants, understanding how CAC are calculated and negotiating fair terms is key to managing leasing costs. For landlords, maintaining transparency and fairness helps attract and retain tenants in a competitive market.
