Okay, you acquired a small commercial property, maybe your uncle left it to you or you managed to get a good deal on it. Now you're looking to lease it up and start raking in the big bucks like Trump!
You jumped online to find a commercial lease you could use and you wound up here.
The first thing you need is to understand the terms that are common in the commercial leasing industry, otherwise the forms will do you little good.
CAM (Common Area Maintenance) : Amounts charged to tenants for expenses to maintain hallways, restrooms, parking lots, and other common areas. This may also include taxes, insurance, common area lighting, lawn care and snow removal. Building maintenance and improvements and even special assessments like road, sewer or water upgrades. CAM fees can escalate at a different rate than the monthly lease rate because they tend to be more variable. Your lease should differentiate between variable and fixed CAM fees. (see terms Net Lease and Gross Lease!
Gross Lease: In a gross lease, the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership. Most apartment leases are gross leases. .
Modified Gross Lease: The industrial modified gross lease is common among multi-tenant industrial buildings. As with a modified gross lease, the landlord will generally pays for the base year property taxes and building insurance. Tenants are generally responsible for their share of common area operating expenses and common area utilities. Services that the Landlord provides differs from lease to lease.
There are numerous types of modified gross leases that are commonly utilized in multi-tenant office buildings. A modified gross lease is similar to a full service gross lease, except that some of the base services are not included by the landlord (taxes, maintenance, insurance and utilities). The most common types of modified gross leases excludes maintenance, janitorial and electrical. This type of lease is commonly utilized in medical office buildings or multi-tenant single floor office buildings, where different tenants have varying needs for electrical or janitorial services. In general, this type of lease requires separately metering individual office suites to determine electrical usage. Generally in a modified gross lease the Landlord has the right to expense pass-throughs utilizing a “base year.”
Net Lease: In commercial real estate, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses which normally would be paid by the property owner (known as the "landlord" or "lessor"). These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities and other items.
Single net lease: In a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent. Double- and triple-net leases are more common forms of net leases because all or the majority of the expenses are passed on to the tenant.
Double net lease: In a double net lease (Net-Net or NN) the lessee or tenant is responsible for property tax and building insurance. The lessor or landlord is responsible for any expenses incurred for structural repairs and common area maintenance. "Roof and structure" is sometimes calculated as a reserve, the most common amount is equal to $0.15 per square foot.
Triple net lease: A triple net lease(Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three "Nets") on the property in addition to any normal fees that are expected under the agreement (rent, premises utilities, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area.
PROPORTIONATE SHARE: (Pro Rata) The Tenant’s proportionate share of operating expenses are calculated on a square footage basis. Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share
BASE YEAR: A “Base year’ is typically utilized in multi-tenant full services gross office building leases to determine “base” cost for operating expenses within the project. The base operating expense account is the floor over which any increases in operating expenses will be passed on to the tenants of the building. In general, a base year is calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.
EXPENSE STOP: An expense stop is the preferred method for expense calculation by a Landlord. This vehicle allows a Landlord to estimate the approximate expenses the building will incur and the tenant is responsible for payment of their proportionate share of actual operating expenses over the estimated expense stop. This is rarely utilized anymore as it led to fraudulent estimates of expenses in the past and unexpectedly high operating expense pass-throughs to tenants.
DISCLAIMER: I am not an attorney, these forms are provided free of charge and I am not liable for any thing you do! Turn-Key Properties LLC our employees, pets, friends, family members and contractors are completely exempt from your stupidity! I/we strongly suggest you consult an attorney, lawyer, tax adviser and maybe even a member of clergy before using something you found online! By clicking on these links and downloading these forms you completely exonerate and exempt us and anyone else from your actions. These documents were posted March 20, 2012 and may or may not meet your state, local or municipal requirements. May God have mercy on your soul!
Turn-Key Properties LLC
22 years of real estate and property management experience serving Missouri and Kansas.