How Commercial Lease Rate is Calculated

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Net lease advisor

Have you ever wondered how lease rates are calculated for businesses and other commercial properties? Read on to learn more about it:

It?s Very Complicated to Calculate

It?s a complicated calculation that depends on a lot of factors. The business revenues of certain types of retail can vary dramatically at different times of year, and changes in the economy can also affect lease rates. Some lease rates will change with income, so that tenants pay based on how much they are bringing in.

Commercial Leasing Can Be Much More Profitable Than Residential Leases

At the same time, it?s important to know that commercial rent agreements can be far more complicated than residential ones. Commercial tenants are also likely have real estate professionals and attorneys helping them negotiate their commercial leasing, so it?s essential for a landlord to also have an advisor on hand who knows what they?re doing.

The Rates Depend On Lease Type

Gross lease rates usually cover properties where there are many tenants. The tenants pay a lump sum and the property owner covers everything from taxes to cleaning. Properties with only one tenant are much more likely to be triple net properties, or NNN properties. With these net leases the tenant pays only a lower rental fee to the landlord, and the tenant covers all expenses, taxes, and maintenance. This allows a building such as a mall to maintain the same standards and look across all stores.

Sometimes Rent is Calculated by the Square Foot

If that?s the case, the lease rates are usually expressed in terms of dollars per foot paid annually or monthly.

Sometimes Rentals are Calculated Using a Percentage Lease

In this case, the landlord takes a percentage of the retail business? gross income. This type of lease is especially popular in places with good locations where sales should rise regularly. It?s also useful if a retail business can expect to take in a huge chunk of its income during one particular season. Usually there is a minimum base rate that must be paid no matter what. The tenant then additionally pays a percentage of gross income, often 5%. The percentage might be calculated minus the base rate amount, or including it.

It can be complicated to calculate a lease rate for a commercial building, but a lot of time it?s worth it for the gains that something like a triple net investment can bring.

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