Among the most common questions asked by our clients is, “So what is the total gross rent that we will be paying?” The answer to this question starts by stating that each building can be slightly different and most landlords have different definitions as to what constitutes gross rent for the space they are leasing.
The simplest approach as far as tenants are concerned, gross rent will include all real estate costs associated with renting a space ( except sales tax in Florida):
- Base Rent
- Property Taxes
- Building Insurance ( Landlord’s)
- Common Area Maintenance (CAM’s)
- Building Management
- Parking Costs
- Gas & Electric Utilities
- Trash Removal
- Tenant Insurance
- Tenant Improvements
1. Gross Rent Example Two (Modified Gross “MG”): Base Rent + Additional Rent (Utilities?) = Gross Rent Additional Rent varies from property to property, so always ask what additional rent includes. Gross Rent / 12 months = Monthly Gross Rent
- Example One (Triple Net “NNN”): Base Rent + NNN = Gross Rent NNN = Taxes + Building Insurance + CAM’s Gross Rent / 12 months = Monthly Gross Rent
- These costs are not always clearly laid out in the marketing material of various property listings and some of the costs vary broadly from property to property (i.e. taxes on office/flex space vs downtown office space). In addition, some of these costs are entirely founded in what the tenant may require and are outside of the landlord’s control. Items like data wiring or tenant specific improvements need to be assessed prior to finalizing any deal and signing a lease. We define these costs by placing them into two categories: gross rent & variable costs.
- Will you please send me a breakdown of your NNN’s or additional rent?
- Do these expenses include items like management, gas & electric utilities?
- If gas & electric utilities are not included, how are they charged? Are they seperately metered or pro-rated?
- Can you send me a 12-month average if utilities are not included? (This information can also be achieved by calling the utility provider for the building.)Variable costs are paid by the tenant, either directly, or indirectly as they are assumed in the rent as offered. Some of the costs are defined below:
2. Variable Costs
- Tenant Improvements: Some spaces are ready “turn-key”; the tenant signs the lease, grabs the keys and moves right in. Other spaces require a build-out, meaning that to prepare the space to meet the tenants needs, the landlord and tenant must negotiate who will pay for and be responsible for completing a certain amount of finish.
- Telephone/Data: Always carefully review your costs as they are associated to your connectivity. Some buildings are wired with access to high speed internet while others do not have a major service provider like Comcast or Century Link. Keep in mind data costs will vary broadly as service providers have different definitions of “high speed.” Make sure you are comparing this real cost to weigh your options when looking at various properties!
- Landlord Incentives: I find it is often overlooked that landlords may offer incentives. These discounted costs deviate from one building and it’s landlord to another, but always keep in mind to ask.
- As you can see, there is no straightforward answer regarding what gross rent does and does not include. Whether you are a tenant or a landlord, these costs should be clearly defined in your lease agreement. Sourced by the Colorado Group