The numerator is the tenant's own area and never in dispute; the whole negotiation sits in the denominator.
A tenant's pro rata share is its own area divided by the denominator the lease defines, applied to the recoverable cost pool after any admin fee and any fixed contribution from an anchor. The numerator is never in dispute; the denominator is. In an illustrative open-air centre, the same 2,000 sq ft shop pays $20,700 a year on a total-GLA denominator and $39,800 on a leased-area denominator, 1.92 times as much for the same costs.
Worked in full in How to Read a Commercial Lease by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Common area maintenance, or CAM, is the cost of running the shared parts of a property: car parks, landscaping, security, lighting, cleaning of the malls. The lease says the tenant pays its share. What "its share" means is decided by one defined term, usually buried in the definitions section, and a reader who checks only the tenant's square footage has checked the half of the formula that cannot move.
| Input | Value |
|---|---|
| Gross leasable area (GLA), sq ft | 100,000 |
| Anchor, sq ft, paying a fixed $1.00 per sq ft toward CAM | 40,000 |
| Inline shops, sq ft | 60,000 |
| Of which vacant, sq ft | 10,000 |
| Our tenant, sq ft | 2,000 |
| CAM costs | 900,000 |
| Administrative fee on CAM | 15% |
Gross pool = CAM costs × (1 + admin fee) = 900,000 × 1.15 = 1,035,000
Net pool = gross pool − anchor's fixed contribution = 1,035,000 − 40,000 = 995,000
Tenant's charge = tenant area ÷ denominator × pool
In Excel: =Tenant_SF/MAX(Leased_SF, Floor*Inline_SF)*Net_Pool for a leased-area denominator with an occupancy floor, the most common negotiated form.
The admin fee, 135,000 here, is added before the anchor's contribution is deducted, so the anchor's fixed payment does not carry its share of the fee either. Some leases deduct the anchor first and charge the fee on what remains; the order is worth checking against the definitions.
| Denominator | Area, sq ft | Pool | Share | Annual charge | Per sq ft |
|---|---|---|---|---|---|
| Total GLA | 100,000 | 1,035,000 | 2.000% | 20,700 | 10.35 |
| GLA less anchor, after anchor contribution | 60,000 | 995,000 | 3.333% | 33,167 | 16.58 |
| Leased inline area, 95% floor | 57,000 | 995,000 | 3.509% | 34,912 | 17.46 |
| Leased inline area | 50,000 | 995,000 | 4.000% | 39,800 | 19.90 |
Each step reallocates a cost that someone else could have borne. On total GLA, the landlord bears the vacant units and the anchor's subsidy: the anchor's 40,000 sq ft would carry 414,000 of the gross pool at its pro rata share and pays 40,000, so 374,000 of anchor subsidy sits with the landlord, and in all the landlord absorbs 477,500, or 46.1 per cent of the pool. Excluding the anchor from the denominator moves the subsidy onto the inline tenants. Switching to leased area moves the vacancy onto them too, and the landlord recovers the whole net pool. The floor is the compromise: the landlord bears the vacancy above 5 per cent of inline space, 122,193 here, against 165,833 if the denominator were the full inline area.
| Inline vacancy | Total GLA | GLA less anchor | Leased, 95% floor | Leased area |
|---|---|---|---|---|
| 0 sq ft (0.0%) | 20,700 | 33,167 | 33,167 | 33,167 |
| 6,000 sq ft (10.0%) | 20,700 | 33,167 | 34,912 | 36,852 |
| 10,000 sq ft (16.7%) | 20,700 | 33,167 | 34,912 | 39,800 |
| 18,000 sq ft (30.0%) | 20,700 | 33,167 | 34,912 | 47,381 |
Under a leased-area denominator the tenant's bill rises exactly when the centre is struggling, which is when the tenant can least afford it. At 30 per cent inline vacancy the charge is 47,381, more than double the total-GLA figure. The floor stops the spiral at 34,912 however many units empty. Note also that fixed costs do not fall with vacancy: a centre losing tenants has the same car park to light.
The common mistake is to check the tenant's own area against the plan and assume the share follows. Three further items decide the charge, and each should be read in the definitions: what the denominator is (total, leased, occupied, or a floor), whether major tenants paying fixed contributions are excluded from it, and how the admin fee is applied. Then check the pool itself: whether capital items, management fees or the landlord's own vacancy costs have been put into CAM. On the tenant's side, the ratio of these charges to sales is what the business can bear, worked in the retail occupancy cost ratio, and how fast the pool may grow is a separate clause, covered in cumulative versus non-cumulative CAM caps. In an office lease the share is usually applied not to the whole pool but to its growth over a base year, the structure worked in how a base year expense stop works.
Pro rata share is a fraction with a negotiable bottom line. On this centre the choice of denominator moves the same tenant's CAM bill from $20,700 to $39,800, a difference of $19,100 a year, and only a floor stops the bill rising with vacancy. The free companion documents for this book include the recovery checklist and the cost categories marked landlord or tenant, to run against any lease.
Pro rata share is the tenant's rentable area divided by the area the lease names as the denominator, multiplied by the recoverable cost pool. On an illustrative centre, 2,000 sq ft over 100,000 sq ft of GLA is 2.000 per cent of a $1,035,000 pool, $20,700; over 50,000 sq ft of leased inline space it is 4.000 per cent of the net pool, $39,800.
Tenants want total area, so the landlord bears the share of vacant units; landlords want leased area, so occupied tenants carry the vacancy. A common compromise is leased area with a floor. On the illustrative centre, a 95 per cent floor caps the 2,000 sq ft tenant's charge at $34,912 however much space empties, against $47,381 at 30 per cent inline vacancy without one.
Anchors often pay a fixed CAM contribution and are removed from the denominator, so the rest of the pool falls on the smaller tenants. On the illustrative centre, the anchor's 40,000 sq ft would bear $414,000 at its pro rata share but pays $40,000, and the inline tenant's charge rises from $20,700 to $33,167.
This article is one calculation from How to Read a Commercial Lease. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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