How to calculate rent on commercial property
Calculating rent on a commercial property can be very time consuming depending on how complex the lease is and what type of tenant is occupying the property.
Commercial and retail leases typically include a base rent with two additional rents possible. The additional rents are percentage rent and triple net rent.
Read the entire lease for the commercial property in question. Then identify and write down the actual size of the leased premises in total square footage (for example, 15,000 square feet). Next, identify the agreed upon square foot rate as defined in the commercial lease (for example, £6 per square foot annually).
Multiply these two values, which will give you the annual base lease value (for example, 15,000 square feet times £6 per square foot = £97,500). This is the base rent agreed upon in the lease. To determine the monthly payment, simply divide that amount by 12 ($150,000 divided by 12 = £8,125 per month).
Calculate any percentage rent that may be due as well. Percentage rent terms and conditions will also be stated in the commercial lease. Designed as a way for landlords to share in a tenant's success, percentage rent is a small percentage due of the tenant's monthly gross income. For example, the lease may state that in addition to base rent, the tenant must pay 3 per cent of all gross sales above £65,000 per month. If sales from the prior month were £74,750, then the percentage rent due would be 3 per cent of £9,750 (equally £292).
Determine if the lease is of the "triple net" variety. It must be clearly stated in the lease. Triple net leases are leases where the tenant pays a portion of the common area maintenance (CAM) as well as property taxes and property insurance. In most cases, the tenant will only pay his pro rata share of these expenses. For example, if the tenant has leased 10 per cent of a shopping center's total leasable space, then a triple net lease would require that the tenant also pay 10 per cent of the common area maintenance, property taxes and insurance costs for the shopping centre.
- The stated examples call for three monthly lease payments. Common practice calls for them to be paid together with just one check or wire transfer.
- Be sure to carefully read all leases. Failure to properly calculate lease amounts when due may result in default of specific terms and conditions of the lease.
- Copy of the lease
- Prior year's tenant monthly gross sales ledger
- Prior year's landlord expense statement