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How a Commercial Lease is Normally Calculated


A commercial lease is calculated based on several factors that vary depending on the terms negotiated between the landlord and the tenant. Unlike residential leases, commercial leases are more complex and can involve various elements that impact the total cost. Here are some key factors that contribute to the calculation of a commercial lease:


1. Base Rent: The base rent is the fixed amount the tenant pays per square foot or per month to occupy the commercial space. The base rent is typically determined based on the size of the space and the local market rates for similar properties.


2. Rentable Square Feet vs. Usable Square Feet: Commercial leases often involve two types of square footage measurements: rentable square feet and usable square feet. Rentable square feet include the tenant's actual space plus a portion of common areas like hallways, restrooms, and lobbies. The tenant pays rent based on the rentable square footage.


3. Operating Expenses: In some commercial leases, the tenant is responsible for a share of the operating expenses of the property, such as property taxes, insurance, maintenance, and utilities. These expenses are often referred to as "triple net" (NNN) charges, and they are usually in addition to the base rent.


4. Common Area Maintenance (CAM) Fees: CAM fees cover the maintenance and operation of shared areas in a commercial property, such as parking lots, landscaping, and common areas. The tenant's share of CAM fees is calculated based on their proportionate use of the property compared to other tenants.


5. Lease Term: The length of the lease term also affects the total cost. Longer-term leases often come with more favorable rental rates, while shorter-term leases may have higher rates but provide more flexibility for the tenant.


6. Rent Escalation: Some commercial leases include rent escalation clauses that allow the rent to increase over time, typically to account for inflation or other factors. Rent escalation can be in the form of fixed percentage increases or tied to an index, such as the Consumer Price Index (CPI).


7. Tenant Improvements: In certain cases, the landlord may provide tenant improvements to customize the space for the tenant's specific needs. The cost of these improvements may be factored into the lease agreement.


It's important for both parties to carefully review and negotiate the terms of the commercial lease to ensure clarity on the total cost and responsibilities. Commercial leases can be complex documents, and it's advisable to seek the assistance of a real estate attorney or a commercial real estate agent when entering into such agreements.


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