Rental calculations:

 Rent may be set as a fixed figure in the lease- $2000 per month – this is referred to as a gross
lease - the tenant pays a fixed sum monthly, out of which the landlord pays all of the expenses
related to the property.
 Rent may be based upon the area of the premises – eg. $12 per square foot per year, calculated
and payable monthly. So if area is 1000 square feet, rent is $12,000 per year, payable $1000
monthly.
 Rent may be fixed for the term of the lease or may be an escalating rent – eg. $14 per square
foot for first 2 years, $16 for next 2 years, etc.
 This is usually referred to as the net rent – ie the amount that the tenant pays each month, in
addition to any other charges under the lease (like the taxes, maintenance, insurance).
 In shopping centre leases, the tenant may also have to pay rent based upon a portion of his
annual sales. Generally, if this is used, the percentage rent should not be applicable until the
tenant has reached a certain minimum sales volume. For example if the tenant is paying
$10,000 per year as the net rent amount, and the percentage rent is 2% of sales, then there
should be not percentage rent payable on sales under $500,000 per year. Reason is that T is
already paying base rent of $10,000 which equates to 2% of $500,000. He should not have to
pay percentage rent on that same $500,000 – it should only be the excess sales over $500,000
that attracts percentage rent. So need to be clear on this in the lease.
 Shopping centre percentage lease clauses – range from 2 to 13%. Rate depends partially on the
profit margin of the industry, so appliance stores, which have lower profit margins, have 2-3%
percentage rent. Clothing stores are 5-7%, usually, restaurants are 6-8%. Highest are
amusement arcades with 13% .

 Sometimes, the rent per foot is different for different parts of the space. Eg. If there is 1000
square feet on the ground floor and 2000 feet in the basement of the plaza, the ground floor will
usually have a higher rent per square foot, than the basement space. Also, storage space may
be charged at a lower rent than retail space. Some buildings are now being set up with small
ground floor space and huge basement space so rent is lower to the store.
 It is now common in UK that rent is calculated at different rates for different parts of the space
on the same floor. For example, space near the street is worth more than space at the back of
the unit, so there may be a different rent per square foot applicable to the various parts of the
ground floor space. This may come here.
 If there is free rent period, when does it start and when does it end? Is the free rent only for the
net rent, so T has to pay TMI during the rent free period or is it totally free of charge. Not
unusual for the TMI rents to be phased in during the rent free period – ie totally free for 2
months, then net rent free for 2 months during which T pays TMI only.
The purchaser of a property needs to have very clear details as to what the rents are, how they are
calculated when they increase, etc as the purchaser is usually purchasing a commercial property for the
income it will produce.