Additional Rent/Operating Costs

Next segment in our Leasing Series…Additional Rent/Operating Costs.

Additional rent is the other half of the rental amount that applies to commercial premises. Again in industry terminology, this is most often referred to as the ‘operating costs’ of the property. It includes realty taxes, building insurance, maintenance/management costs, janitorial expense, and any other related costs which support the operation of the property. It is applied as a proportionate share of the tenant’s space, relative to the size of the overall property (or building square footage). Simply put, if a tenant occupies 10% of a building, they pay 10% of the total operating expenses, as additional rent.

When considering ‘Additional Rental Costs’ on properties, the amount is represented on a dollar per ft. basis. Additional rent costs, although included on line with most MLS listings, are not as prominent on listing summaries. After doing the net rent comparision - tenants need to make sure they compare the additional rent factors, so as to have a handle on the total monthly cost.

A budget breakdown of additional rent costs, should be available for a tenant’s review, to understand how the cost per ft. is arrived at. It is typically done annually on a projected basis, and then reconciled at year’s end, to the actual expenses incurred on the property. Sounds like a lot of math and accounting - but it should be relatively straightforward and confirms the additional rental costs that apply.

Just a final note, on ensuring additional rent costs do not exceed your expectations during the term of the lease - there is a means of capping increases allowable on additional rent, so that a tenant is not faced with a 10-20% increase from one year to the next. It is acceptable to require a landlord to hold the line on annual increases to a modest % (say 2-3%), in any given year. The only justifiable exceptions would be for property taxes and or utilities, which the landlord has no real control over.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in negotiating the appropriate lease terms for your purposes.