CAM Reconciliation and an Assignment at the Strip Center
Riverside Management manages a 24,000-square-foot strip center. Bluebird Coffee leases 3,000 square feet on a five-year NNN lease: base rent $28 per square foot, estimated CAM of $8.50 per square foot, a $0.50 per square foot annual administrative fee, and a 5% annual cap on controllable operating expenses. Last year's controllable expenses were $6.00 per square foot. This year the center's total operating expenses are $235,200, including a $28,800 roof replacement that the lease requires the landlord to capitalize rather than pass through. Taxes and insurance, which are non-controllable, run $2.40 per square foot. Bluebird paid its CAM estimates monthly. Bluebird now wants to assign to a franchisee and asks whether the landlord can charge a $5,000 transfer fee and keep the $9,000 deposit.
1. Reconcile CAM and compute what Bluebird owes or is owed.
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Step 1 - per-square-foot expense. $235,200 ÷ 24,000 = $9.80 per square foot.
Step 2 - strip the capital item. Remove the $28,800 roof: $235,200 − $28,800 = $206,400, or $8.60 per square foot.
Step 3 - test the cap. Non-controllable taxes and insurance are $2.40 per square foot, so actual controllable expense is $8.60 − $2.40 = $6.20. The cap is last year's $6.00 × 1.05 = $6.30. Because $6.20 is below $6.30, the cap does not reduce the bill. Billable CAM stays at $8.60 per square foot.
Step 4 - apply the share. Bluebird occupies 3,000 of 24,000 square feet, a 12.5% share: 3,000 × $8.60 = $25,800, plus the administrative fee of 3,000 × $0.50 = $1,500, for a total of $27,300.
Step 5 - compare to estimates paid. Bluebird paid 3,000 × $8.50 = $25,500. The reconciliation balance due from Bluebird is $1,800.
Note the two most common errors: passing through the capitalized roof, and applying the cap to taxes and insurance.
2. Bluebird wants to assign. What is the landlord's position on consent, the transfer fee, and the deposit?
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Consent. The lease requires consent not unreasonably withheld. The landlord is entitled to review the franchisee's financial statements, credit, operating experience, and intended use, and may condition consent on cure of the $1,800 reconciliation balance. Refusing simply because the landlord would rather have a different tenant is the kind of arbitrary refusal that gets challenged.
Transfer fee. Only if the lease authorizes one. There is no statute that lets a commercial landlord charge an assignment fee. If the lease is silent, the landlord can recover actual, documented review costs at most; a $5,000 flat fee with no lease basis should not be billed.
Deposit. In a commercial tenancy the lease governs, not the residential security-deposit statute. Unless the lease says the deposit is returned on assignment, the landlord keeps it as security for the assignee's performance and the remaining term.
Liability. An assignment does not release Bluebird. The original tenant stays liable for the balance of the term unless the landlord signs a written release, which should be a separate negotiated document, not an assumption.
3. The franchisee balks at the process and says a residential tenant would have stronger rights. Evaluate that claim and identify the assignment-versus-sublease distinction.
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The claim is misplaced here. Texas security-deposit and repair-and-deduct protections apply to dwellings, not commercial space. A residential tenant would be entitled to an itemized list of deductions and return of the deposit within 30 days of surrender and a forwarding address; Bluebird has none of those statutory rights. Its rights come entirely from the lease, so the lease language and the estoppel certificate control.
Assignment versus sublease. An assignment transfers the tenant's entire remaining interest for the full remaining term; a sublease leaves the tenant holding a reversion and creates a landlord-tenant relationship between Bluebird and the franchisee. The distinction matters because consent clauses, rent obligations, and the original tenant's continuing liability are drafted differently for each.
Practical step. Before consent, obtain an estoppel certificate confirming rent, deposit, CAM status, and no defaults, and put the reconciliation balance and any approval conditions in writing.