Calculating the monthly rent for a commercial lease can be a complex and confusing process, but it is important to understand the components that make up the total cost. By breaking down the costs into manageable pieces, you can get a better understanding of what you're paying for and ensure that you're not overpaying for your commercial space.
What is Base rent also known as NNN or Triple Net rent?
The first step in calculating the monthly rent for a commercial lease is to determine the base rent. The base rent is what Landlord pockets as the starting rent for the space, and it does not include any additional charges such as utilities, property taxes, Fire Insurance, and/or common area maintenance (CAM) charges. The base rent is typically determined by the square footage of the space and the going rate for rent in the area. Any negations, if supply allows, is done on base rent. All other operational charges are rarely negotiable.
What is The TMI which gets added to base rent?
TMI stands for Taxes, Maintenance, and Insurance. These three vital parts of operational cost together make up additional rent and in short know as TMI.
- PROPERTY TAXES: First factors to consider are assessed by local governments and can vary depending on the location and size of the property. Taxes are a vital part of TMI or additional rent and are calculated per Sqf annually.
- MAINTENANCE: Next, you'll need to consider the CAM or Common Area Maintenance rate charges. CAM charges are fees determined per sqft and are an important part of TMI / Additional rent and added to cover the cost of maintenance and upkeep of common areas, such as lobbies, restrooms, and parking lots. CAM charges are often calculated as a percentage of the base rent and can vary widely depending on the property.
- FIRE INSURANCE: The third important part of TMI is Fire insurance for the property, which is paid in addition to base rent as part of TMI. It is NOT the same Liability Insurance which landlords require tenants to buy prior to handing over the keys. Tenants, if they want can add content insurance along with liability insurance.
- In addition to the base rent, and TMI, there may be other costs associated with a commercial lease. For example, utilities, such as electricity, gas, and water, may be included in the rent or may be an additional charge. Most commonly it is an additional cost to tenants who are required to transfer all utilities into their name. The cost of utilities can vary widely depending on the type of business you have and the amount of energy you use.
- MONTHLY RENT: Now let’s take an example to understand how monthly rent is calculated. Let’s assume you are looking at a warehouse of 2000 Sqf, Base asking rent is 19.95 / SQF annually and TMI is 4.05 per SQF. So here is our formula:
(Base + TMI) x SQF = Annual Rent / 12 (months) = Monthly Rent +HST. .
So as per our example, (19.95+4.05) x 2000
= $48,000/12=4000+Sales Tax (if any, in your area)
In conclusion, calculating the monthly rent for a commercial lease involves many factors, including the base rent, TMI charges, and utilities. By understanding these components, you can ensure that the rent is in your budget and continue your hunt accordingly. If you're not sure how to calculate the monthly rent, it's a good idea to consult a real estate agent or a commercial leasing expert. Let me know if you found the article useful by submitting your feedback below.
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