If you're new to commercial leasing you are likely surprised by the way most commercial, industrial, or office spaces are priced and marketed. Most commercial listings have the price broken down per sq. ft. and while that may be confusing in itself, what I find catches most people off guard is the mention of additional rent which is also commonly referred to as TMI (taxes, maintenance, insurance) or CAM (common area maintenance). It's often an overlooked detail in the hunt for commercial space because a new tenant may notice the base rent is within their budget but after discovering additional rent the space is not affordable.
So what is this additional rent? It's the landlord's expenses for the property.
What are the landlord's expenses? Property taxes are usually the most significant of this figure but it also includes but isn't limited to property insurance, landscaping, snow removal, waste removal, cleaning and maintaining common areas, building management and administration fees, and repair and maintenance for items like the roof, HVAC, etc.
Why is additional rent separated from the base rent? Keeping the base rent separated and priced per square foot makes it easy to compare against competing spaces to determine what is in line with market value, this benefits both landlord and tenant.
Why do tenants pay additional rent for the landlord's expenses? I've been asked this a few times as if this is a deceiving practice but it isn't. The tenant pays their proportionate share of the property expenses because it's the tenant's that use the property, not the landlord. The tenant's use the structure, the HVAC, the parking lot, the common areas etc. and those items need to be paid for and maintained. Logically it should be the party that uses it that pays for it and that is why the expenses to maintain the property paid for by the tenant usually through TMI.
How is TMI/additional rent calculated? In most scenarios the combined annual total for expenses is divided by the total number of square feet of the building. This provides the per square foot rate for expenses we call additional rent, AKA, TMI or CAM. This per sq. ft. figure is multiplied by the number of square feet that make up the tenant's premises and that is the annual total the tenant is responsible for paying as additional rent.
Does TMI change or increase? Yes. I mentioned above property taxes usually make up the bulk of additional rent and unfortunately property taxes have a tendency to increase regularly. In addition to this the cost of maintenance and repairs also change over time and will have an impact.
Is additional rent negotiable? No. Property expenses are not negotiable. They are what they are.
Have a question about additional rent that isn't in here? Let me know what it is.