Rent

Rent seems simple. The lease should state the amount of rent the tenant must pay the landlord. We prefer to describe the rent as two separate parts: base rent and additional rent.

Base rent is the amount the tenant pays the landlord each and every month/quarter/year. The lease should also state what the increase is every year. Some leases state the rent will be $__________ in year 1, $__________ in year 2. Others state that the rent will increase a certain percentage each year.

The more complicated provision is additional rent. Additional rent can include many different costs that the landlord passes through to the tenant, including but not limited:

  • real property taxes and assessments
  • insurance
  • common area maintenance ("CAMs")
  • building maintenance

In some leases, additional rent is paid in arrears by the tenant. In other words, the landlord calculates the amount of the additional rent based on its costs, then charges the tenant on a monthly basis for the costs the landlord already paid. In other cases, the landlord will estimate the costs in advance. The tenant will pay that amount each month. 

If the tenant pays in advance, the lease should contain a provision dealing with the situation where the estimated costs are too low or too high. For example, the lease could state:

Upon the Effective Date, Landlord shall estimate Tenant’s Additional Rent for the balance of the current calendar year and shall submit a statement of such amounts to Tenant. Tenant shall pay as monthly Additional Rent one-twelfth (1/12) of the estimated annual Additional Rent, in advance, without deduction, setoff, prior notice, or demand, on or before the first (1st) day of each month, along with the payment of Monthly Base Rent. Tenant shall continue to make said monthly payments until notified by Landlord of a change. Within ninety (90) days after the end of each calendar year, Landlord shall give Tenant a statement showing the expenses described in this Section for the previous calendar year, upon which Tenant’s Additional Rent is based, and the calculation of Tenant’s monthly Additional Rent. At the same time, Landlord shall provide Tenant with a calculation of Tenant’s estimated Additional Rent for the current calendar year. In the event the total of the monthly payments of Additional Rent that Tenant has made for the prior calendar year is less than Tenant’s actual Additional Rent for such calendar year, Tenant shall pay the difference in a lump sum within thirty (30) days after receipt of such statement. Any overpayment by Tenant shall first be credited towards the next installment of monthly Additional Rent and then credited towards the next installment of Monthly Base Rent. Even though the Term may have expired and Tenant may have vacated the Premises, when the final determination is made of Additional Rent for the year in which this Lease terminates, Tenant shall timely pay any balance due over the estimated Additional Rent previously paid and, conversely, any overpayment made shall be refunded by Landlord to Tenant within thirty (30) days.

Regardless of the way that additional rent is defined, the commercial lease must clearly state how it is calculated and when it is paid.

Click here to get back to the Commercial Lease Checklist.