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Flat CAM Charges in Shopping Centers
Don't look back, but the gross lease of the not-too-distant past is making a comeback, as shopping center owners and retailers continue to seek absolute truth in the never ending uncertainty of budgeting and recovering common area maintenance (“CAM”) charges. The latest and greatest chapter in this continuing saga has the parties establishing flat CAM charges with set percentage increases, in lieu of the variable cost recovery method that has been somewhat industry standard over the past quarter century.
As covered malls sprouted across the country in the late 60s and early 70s, the gross lease of yesteryear became instantly anachronistic and unprofitable for shopping center owners who were unable to budget accurately for new and uncertain cost structures. Shopping center owners sought to preserve “triple net” returns by ensuring any operating cost uncertainty would be borne by retailers. Cost recovery was king, and shopping center owners felt no compulsion to control or manage spiraling expense structures so long as retailers were ultimately responsible for bearing operating and management inefficiencies. Throwing fuel onto the fire, many shopping center owners created in-house or captive management companies whose fees were tied to total CAM charges collected, thereby creating a perverse incentive to maximize CAM costs and complexity, without commensurate benefit in project operations.
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