Operating Expenses and CAM

Keep this section in mind as you move forward into more about lease sections. It is common, especially when dealing with commercial leases for multiple-tenant plazas, to have provisions in the lease for payment of utilities and expenses common to the entire site (common area maintenance, or “CAM”) For instance, the expenses of repaving the parking lot, replacing lot lights, etc., as well as maintenance fees for the property itself, and common utility fees, may all be discussed in this part. The ways in which expenses and common area maintenance are divided have produced certain nomenclature peculiar to the field. First, the difference between a “gross lease” and a “net lease” is that “[I]n a gross lease, the lessor pays expenses such as utilities, insurance, and taxes; in a net lease, the lessee pays those expenses.”[1]

Now, net leases themselves may be divided into single, double, and triple net leases. As explained by Investopedia:

A single net lease requires the tenant to pay only the property taxes in addition to rent. With a double net lease, the tenant pays rent plus the property taxes as well as insurance premiums. A triple net lease, also known as an NNN or net-net-net lease, requires the tenant to pay rent plus all three additional expenses.[2]

You will also see other labels which are not used extensively or have no additional meaning. For instance:

[T]he titles or labels of "net lease," "triple net lease," and "absolute triple net lease" have no legal significance and are not decisive of the extent to which the parties intended to shift the expense burdens of various operating, repair and maintenance obligations from landlord to tenant. Rather, the allocation of cost responsibilities is dictated by the substance of the lease.[3]

Therefore, it is always necessary to read the lease, regardless of what it is titled. DON’T assume and DO read.

[1] Loveless Constr. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1048 n.2 (Ind. T.C. 1998)

[2] Mary Hall, What's the Difference Between Single, Double, and Triple Net Leases? Investopedia (2020), https://www.investopedia.com/ask/answers/040115/what-are-differences-between-single-double-and-triplenet-leases.asp (last visited Mar 30, 2020).

[3] 49 Am Jur 2d Landlord and Tenant § 686