Understanding Commercial Leases

Considering a commercial lease to for your business?

Many business owners, landlords and even most residential Realtors are ill-informed about the various types of commercial leases.

The most common confusion in commercial leases surrounds the differences between a Net and Gross Lease.

For simplification, a Gross Lease includes everything in the monthly rent. Everything except the tenant’s utility costs (including hydro, gas, heat, water, cable or a combination of any of these) is included. Any applicable taxes are also an additional cost.

On the other hand a Net Lease, means the tenant pays a base rent for the rentable area plus a proportionate share of other costs.  These may include to property taxes, building insurance, maintenance, management, landscaping & parking lot maintenance and a host of other items.  The various clauses depend upon the type of property and its amenities. Net Leases are commonly referred to as triple net rents.  However triple means three and as you can see often the additional rent or operating costs or CAM (Common Area Maintenance) costs include more than 3 additional charges!

Finally, people are often confused about how the commercial lease is calculated on a monthly basis. It may be confusing, but it isn’t complicated once you see how it works. Simply multiply the rentable area by the stated rental rate per square foot and divide by (12) twelve. i.e. 1,000 square feet X $15.00 PSF (per square foot) divided by 12 = $1,250.00 month.

Commercial leases may be far more complicated than this explanation suggests. It is a good idea to consult a professional to help understand the many possible clauses contained in the document. A long-term commercial lease can contribute to the success, or if done wrong, the failure of a business. Don’t ever sign one without review by a professional who represents your interests.

Ed Williams is a Commercial Real Estate Agent with over 35 years experience in Leasing and Sales of Investment & Commercial properties on southern Vancouver Island including Land Assembly for Developers as well as National and International Retailers. I also am happy to provide consultative services to those considering selling, buying or leasing.
Webs: Pemberton Holmes Ltd.

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