Key Takeaways

• In many commercial leases the tenant pays a share of the building’s operating costs, common area maintenance (CAM), taxes, insurance, on top of base rent.
• Lease type matters: a gross lease bundles these into rent, while a triple-net (NNN) lease bills them separately, so a low NNN base rent can cost far more than it looks.
• What a landlord can pass through, how it is calculated, whether it is capped, and whether the tenant can audit are largely set by the lease, not by tenant-protective law.
• A recent California law adds operating-expense transparency and documentation rules, but only for a narrow group of very small “qualified commercial tenants.”
• Vague or uncapped CAM language is a frequent source of disputes; clarity up front protects both sides.

CAM Charges and Triple-Net Leases in California, Explained

Few parts of a commercial lease confuse, and surprise, tenants more than operating expenses. A business signs a lease focused on the base rent, then discovers months later that it also owes a steadily growing share of the building’s maintenance, taxes, and insurance. Those pass-through costs, often labeled CAM (common area maintenance) or operating expenses, can add up to a large portion of total occupancy cost. Understanding how they work, and how they are limited, is essential for any California commercial tenant or landlord. Here is the plain-language version.

What CAM and operating expenses are

In a commercial building with multiple tenants, the landlord incurs ongoing costs to run the property: maintaining common areas (lobbies, parking, landscaping), paying property taxes and insurance, and handling repairs and services. In many commercial leases, the tenant pays a proportional share of these costs, usually based on the percentage of the building the tenant occupies, on top of base rent.

“CAM” technically refers to common area maintenance, but in everyday use the term often stands in for the broader bundle of operating expenses a tenant is asked to reimburse. The key point is that these charges are usually separate from, and additional to, the base rent, and they can rise over time.

How lease type changes the picture

How operating costs are handled depends heavily on the lease structure:

• Gross (full-service) lease. Operating costs are bundled into a single rent figure. The tenant’s cost is predictable, and the landlord absorbs the risk of rising expenses.
• Triple-net (NNN) lease. The tenant pays a lower base rent plus a separate share of the three “nets”, property taxes, insurance, and maintenance. Common in retail and standalone buildings. The base rent looks attractive, but the true cost is base rent plus those pass-throughs.
• Modified gross lease. A negotiated middle ground, some costs bundled, others passed through.

This is where tenants get caught. A triple-net lease quoting a low base rent can end up costing more than a gross lease at a higher rent, once CAM, taxes, and insurance are added. The reliable way to compare offers is to estimate the all-in cost, not just the base rent.

Comparing offers on all-in cost

Because the base rent alone can mislead, the only fair way to weigh two commercial spaces is to estimate the total occupancy cost of each. Consider a simple, hypothetical illustration: one space quotes a gross rent that bundles everything into a single figure, while another quotes a lower triple-net base rent plus separate CAM, taxes, and insurance. On the base rent alone, the triple-net space looks cheaper. Once the pass-throughs are added, the two can land much closer, and the “cheaper” NNN space can even end up costing more. These figures depend entirely on the specific building, its expenses, and the negotiated terms, so any comparison should use real numbers for your actual spaces and, where the stakes are high, a professional review, treat the general pattern here as illustrative, not a prediction.

The practical move is to ask each landlord for an estimate of the operating expenses and to run the comparison on base rent plus expected pass-throughs, not base rent alone. A tenant who compares only the headline numbers can choose the more expensive space while believing they got the better deal. Building the all-in comparison up front also surfaces which operating-expense terms, caps, exclusions, audit rights, are worth negotiating hardest.

What can a landlord pass through, and how is it calculated?

In an ordinary commercial lease, what counts as a passable operating expense, and how the tenant’s share is calculated, is largely a matter of what the lease says. That makes the operating-expense provisions some of the most important, and most negotiated, language in the document. Key questions worth pinning down:

• What is included? Which categories of cost can the landlord pass through, and which are excluded (for example, capital improvements, the landlord’s own overhead, or costs to fix original construction defects)?
• How is the share calculated? Usually the tenant’s pro-rata percentage of the building, but the method should be clear and consistent.
• Is there a cap? A cap on year-over-year increases in controllable expenses protects the tenant from runaway costs.
• Can the tenant audit? An audit right lets the tenant verify the landlord’s numbers against actual costs, which discourages padding and resolves disputes.

Because these terms are contract-driven for most commercial tenants, negotiating them up front is the protection, there is no general tenant-protective law that caps commercial CAM.

The exception: new rules for small “qualified commercial tenants”

There is one important and recent exception. As of this writing, a California law that took effect in 2025 (the Commercial Tenant Protection Act) added operating-expense transparency requirements, but only for a narrow class of very small tenants called “qualified commercial tenants”, generally a microenterprise with a handful of employees, a small restaurant, or a small nonprofit, and only when the tenant has properly notified the landlord of that status.

For those qualifying tenants, the law requires landlords to follow specific procedures before charging operating costs, including providing documentation of the costs, the method used to allocate them, and the timing of when they were incurred, and to furnish supporting records on request. It also restricts a landlord from changing the cost-allocation method in a way that increases the tenant’s share without notice and documentation, and it gives the tenant a way to raise a landlord’s noncompliance as a defense. These protections cannot be waived for tenants who qualify.

Two cautions. First, this applies only to tenants who actually meet the narrow “qualified commercial tenant” definition and follow the notice requirements, most commercial tenants are not covered. Second, this is new and evolving law; the details and thresholds can change, so confirm the current rules and whether they apply to your situation with an attorney before relying on them. The safe takeaway for everyone else remains: your protection is what you negotiate into the lease.

Common CAM disputes, and how to avoid them

Operating-expense provisions generate a steady stream of disputes, and most trace back to vague drafting. Frequent flashpoints include a landlord passing through costs the tenant believes should be excluded (like capital improvements or the landlord’s administrative overhead), year-over-year increases the tenant did not anticipate, and disagreements over how the tenant’s share was calculated. The cure for nearly all of them is clarity at signing: a clear list of includable and excludable expenses, a sensible cap on controllable increases, a clearly defined share, and an audit right. Both sides benefit, the tenant gets predictability, and the landlord gets fewer fights and a cleaner basis for collecting legitimate costs.

Bay Legal helps California tenants and landlords negotiate and review CAM and operating-expense provisions. For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

The bottom line

CAM and operating expenses can make up a large share of what a commercial tenant actually pays, and in a triple-net lease they are billed on top of a deceptively low base rent. For most commercial leases, what the landlord can pass through and whether it is capped or auditable is set by the lease, not by law, so the operating-expense language deserves close attention and negotiation. A narrow recent law adds transparency for very small qualified tenants, but everyone else should rely on what they negotiate. Compare offers on all-in cost, pin down what is includable, and push for a cap and an audit right.

Trying to make sense of the CAM charges in your lease? Reach Bay Legal at baylegal.com/contact.For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

What are CAM charges in a commercial lease?

CAM (common area maintenance) charges are a tenant’s proportional share of the costs of running a commercial building, maintaining common areas, plus, in many leases, property taxes, insurance, and repairs, billed on top of base rent. In everyday use, “CAM” often refers to the broader bundle of operating expenses a tenant reimburses.

What is a triple-net (NNN) lease?

In a triple-net lease, the tenant pays a lower base rent plus a separate share of the three “nets”, property taxes, insurance, and maintenance. It is common in retail and standalone buildings. Because the pass-throughs are added to the base rent, the true cost can be much higher than the low base rent suggests.

Can a landlord pass through any cost they want as CAM?

For most commercial leases, what can be passed through is governed by the lease itself, so it depends on how the operating-expense provisions are written. That is why tenants negotiate for a clear list of includable and excludable expenses, a cap on increases, and an audit right. There is no general law capping commercial CAM for ordinary tenants.

Do small businesses have any special protection on operating expenses?

A recent California law (the Commercial Tenant Protection Act, effective 2025) added operating-expense transparency and documentation requirements, but only for a narrow group of very small “qualified commercial tenants” who meet the definition and give the required notice. Most commercial tenants are not covered, and the law is new and evolving, so confirm whether it applies to your situation.

What is a CAM audit right and why does it matter?

A CAM audit right lets the tenant inspect the landlord’s records to verify that the charged operating expenses match actual costs and are properly allocated. It discourages overcharging and gives both sides a way to resolve disputes with documentation rather than guesswork.