Stale CAM Charges: Are You Protected?
March 1, 2000
Janis Boyarsky Schiff- Washington
Common Area Maintenance (CAM) provisions in retail leases enable landlords to
maintain the common areas of a shopping center on behalf of the tenants and then
divide and allocate the costs of such maintenance among the tenants and
occupants of the shopping center. A well-drafted CAM provision will clarify the
responsibilities of both the landlord and the tenant and eliminate unnecessary
confusion during the term of the lease. A standard CAM provision may include the
following language:
"…Tenant shall pay to Landlord, … on the first day of each calendar
month … for each Calendar Year during the Term, …Tenant's Proportionate
Share of Basic Costs …[which shall be defined as follows:] … before the
beginning of each Calendar Year thereafter during the Term, Landlord shall
furnish Tenant with Landlord's estimate of the Basic Costs for the applicable
Calendar Year…. [Within 90 days after the end of each Calendar Year, the
Landlord must furnish the Tenant with a statement of the actual Basic Costs for
the prior Calendar Year.] Within thirty (30) days after the delivery of the
Expense Statement, a lump sum payment will be made by Tenant equal to the
amount, if any, by which Tenant's Proportionate Share of the actual Basic Costs
exceeds the amount which Tenant has paid toward the estimated Basic Costs for
such Calendar Year…. If Tenant's Proportionate Share of the actual Basic Costs
is less than the amount Tenant has paid toward the estimated Basic Costs for
such Calendar Year, Landlord shall refund the excess to Tenant within thirty
(30) days after the issuance of the Expense Statement… If, instead Tenant's
Proportionate Share of the Basic Costs for such Calendar Year is more than the
amount Tenant has paid, Tenant shall pay the additional cost to Landlord within
thirty (30) days after the issuance of the Expense Statement."
This provision is an example of one type of CAM provision; the provision
provides for the tenant to pay an estimate of its pro rata share of the CAM
costs at the start of each month, and then provides for reimbursement to the
tenant, in the event that the estimates paid by tenant was an overpayment. If
the tenant's estimated payments constitute an underpayment, the clause provides
that the tenant must pay the additional cost to landlord.
An alternative to the foregoing payment structure has the landlord paying CAM
charges as incurred and then billing the tenant for the reimbursement of the
tenant's share of such costs after the annual costs have been determined. This
type of payment structure is more typical for larger, anchor tenants.
Both types of CAM provisions are often written without including a clear
schedule for reconciliation. Without a timetable for landlord reconciliation or
tenant reimbursement incorporated into the CAM provision, a landlord and/or
tenant may find themselves liable for large lump sums years after the costs were
paid and/or accrued. Problems often arise in two areas relating to payment and
reimbursement of CAM charges, the first where CAM clauses are miscalculated, and
the second, where CAM charges are not assessed upon or billed to tenants in a
timely manner. The first issue can be addressed by inserting audit provisions as
part of the CAM provision. The second issue is more difficult to resolve. CAM
charges that are not timely assessed or billed are often referred to as
"Stale CAM Charges." It is more difficult for a tenant to pay a large
lump sum than it is to pay small predictable amounts assessed over time. If a
landlord waits too long to bill a tenant for reimbursement for CAM charges, a
tenant may find itself liable for a large lump sum payment, which the tenant did
not expect long after the costs were incurred. Similarly, if a landlord falls
behind in its bookkeeping and fails to timely reconcile its books, it may find
itself owing its tenants large reimbursements due to overpayments. The problem
of delay in billing and/or accounting may be infrequent with large,
institutional landlords; however, smaller landlords who have fewer
administrative resources may experience such problems more often. All landlords
may, however, experience loss of delayed billing costs, which need to be billed
to a tenant past the date of the annual reconciliation. In such circumstances, a
potential payor may successfully argue that the sums should no longer be owed
based on the legal principals of waiver, equitable estoppel and the expiration
of the statute of limitations. Whether a landlord and/or tenant has a cause of
action if lump sum payments become necessary as a result of delay in billing is
unresolved, although several courts have addressed the issue in terms of a
"waiver theory," siding against the party who failed to act in a
timely manner.
In the case of N.H. Waters, Jr., vs. Don Taylor, 527 So.2d. 139 (1988) the
Alabama Supreme Court addressed this matter and ruled on the basis of a
"waiver" concept that a landlord had no right to collect an accrued,
but unpaid increase in rent . The Waters case involved a landlord who failed to
demand increases in base rent (not CAM charges) due to it over a four year and
nine-month period. The court found that, while the landlord was legally entitled
to the rent increase under the lease, its course of conduct over the four year,
nine-month period (billing the tenant for the lesser amount and accepting the
lesser amount) was indicative of the landlord's waiver of the right to collect
increased rent.
In 1999 the Alabama courts again addressed the waiver issue in GE Capital
Information Technology Solutions v. Fred Nunnelley, 730 So.2d 23 (1999). The
Court determined that it is an issue of fact whether a landlord waived its
rights under a lease by accepting an underpayment of rent for 36 months, the
case was remanded for trial to determine the waiver issue.
While the case law on the subject is limited, practitioners drafting lease
provisions to address this issue, have made distinctions based on a contractual
theory. Whether rent, CAM, or other charges are easily determined and set out in
the lease document, the tenant has an expectation of what is owed and a
contractual obligation to pay it, therefore the waiver theory or the theory of
equitable estoppel or laches do not apply. However, if the determination of
amounts due under a lease, either in terms of rent, CAM or other charges is
wholly within the landlord's control, then the landlord has a fiduciary duty to
accurately and timely notify the tenant of the amount(s) due. The tenant can
rely on such notification as determining what is owed by it to the landlord.
This rationale, however, has not been raised or asserted in any case law
addressing this problem.
Delayed reimbursement of CAM and other charges, as outlined above, can lead
to costly litigation and a deterioration in the relationship between the
landlord and its tenants. These problems can be avoided by drafting CAM
provisions that include a clear schedule of establishing timeframes for every
step of the landlord reconciliation and tenant reimbursement process. Including
such timeframes in the CAM provision will notify each party of its CAM charge
reimbursement responsibilities, make it easy to identify who is in default
should any problems develop, and prevent the parties from becoming entangled in
the web of stale CAM provisions.
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