Thursday, September 15, 2016

Real Estate & Related Terms Explained: Additional Rent

Last week to kick off our new series, we discussed a term related to commercial leasing (one of our specialities), triple net. Unfortunately, there are many confusing and interchangeable terms used in commercial leasing. Today we are going to explain additional rent, so you understand the breakdown of your rent payment every month.

What is Additional Rent?
The technical definition of additional rent is "any rent in addition to the base rent payable by the tenant". So this additional rent, in a triple net lease, would usually include the tenant’s share of the costs of the property, including property taxes, insurance, snow removal, repairs, and more.

What Else Should I Know About Additional Rent?
Additional rent is usually quoted as a dollar amount per sq ft (ie $7.00/ft). In our market, there is a field on MLS where you can input the additional rent figure for each commercial lease listing. That way you know what your total rent will be as a tenant. Add the additional rent figure to the base rent and multiply it by the square footage to get your total annual rent. Divide that number by 12 to get your monthly rent total. You should also know that additional rent is usually a budgeted number and it will be reconciled with the landlord every year depending on the actual operating costs of the plaza.

Why Does This Additional Rent Figure Vary By Property?
The additional rent will vary by property because the operating cost of each property is different.  One property could have a higher assessment value than another and therefore their property taxes are higher. Or if there are more common areas in a building, the utilities and maintenance cost of this space will add to the additional rent.  

If you see a property with an extremely low number, that can be a red flag that they are under estimating the operating costs and you will most likely see them increase substantially over the budget. Another general observation you can make about additional rent is that the newer the property is, the lower the repairs and maintenance costs generally are, therefore the lower the additional rent figure will be. The opposite is generally true of older buildings.

Additional rent is a confusing topic, so don’t be afraid to ask an expert. If you have any questions about additional rent in your situation, feel free to email us anytime .

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