It can be difficult to understand what people mean when they are discussing leasing rates. There are a number of issues that come into place when discussing rents and several routine ways to convey rents to potential Tenants. For the most part, rental rates are stated on a monthly basis in California. There are other markets however where the lease rate is quoted on an annual basis such as New York as an example. A $36.00 per square foot annual rate is equivalent to $3.00 per square foot when articulated as a monthly rate. Even though this is simple math, it can be a bit of a surprise when you hear $36.00 per square foot as opposed to $3.00 per square foot.
Real Estate brokers many times refer to leasing rates on an annual basis while Tenants most often have a preference to discuss rates on a monthly basis. This may be because Tenants generally look at their expenses on a monthly basis while the real estate world looks at leasing agreements on a yearly basis.
In addition to the various methods of expressing rental rates, there are important definitions connected to each building rate such as: Full Service Gross, Modified Gross, Triple Net, Double Net, Single Net etc. In addition, most properties have Common Area Maintenance (CAM) charges added on.
Full Service Gross is linked to urban or multi-tenant office buildings indicating that the asking rate includes all the building services, utilities and janitorial, property taxes, insurance and common area maintenance above a base year method of calculation.
Single Net indicates what the asking rate does not cover. Net of utilities and janitorial means that the tenant is at a minimum responsible for its own utilities, janitorial and base rent. When you hear the word Net just remember that something is not included in the rent. Ask the landlord what is not included in the rent. This information will be imperative when doing your cost comparison analysis later on.
Double Net is a term used either in retail leasing or with freestanding single tenant property. The Tenant pays for all services, taxes, insurance and systems maintenance. The owner will pay for maintenance to the building's roof, foundations and side-walls.
Triple Net implies the Tenant will pay for all the services, taxes, insurance, maintenance to the roof, foundations side-walls and all building systems.
Screening Potential Properties
There are two goals in prescreening property: determine which ones you have an interest in inspecting and get the written particulars of the building and floor plans. Floor plans will help you visualize how well your company will fit into a unique space or how that space could be modified to meet your requirements.
Prior to physically visiting the various properties, you should understand some essential concepts regarding commercial real estate. First is that most commercial office space will need to have Tenant Improvements performed to meet your space needs. Landlords know this and are prepared to negotiate a Tenant Improvement package. Assuming the space is not in raw condition and you can use the second or third generation space as it is laid our barring carpet and paint, you can and should use this as an opportunity to negotiate a better overall transaction.
Market conditions will determine how much money can be negotiated for Tenant Improvements. Higher vacancy rates translate into more landlord contribution and concessions while on the other hand in a tight market landlords will expect the Tenant to contribute towards Tenant Improvements with less concessions.
The rental rate is just one of many things to consider when leasing office space. It always makes sense to get a Tenant Rep involved in the negotiating process. Leasing office space is a long term commitment and can be the single most expensive aspect to running your company. A seasoned Tenant Rep will have a proven process in place that will save you time and money in the long run.
Nothing contained herein is to be considered legal advice. Always seek legal advice when evaluating any legal document.
