base rent

What is Base Rent in a Commercial Real Estate Lease?

Base rent, (may also be referred to as net rent) is the base lease rate a tenant pays for a commercial, industrial, or office space in a building. The base rent is net of expenses and percentage rents. What this means is that the base rent is not a representation of the total monthly rent a tenant will pay. Confusing? Possibly if you’re new to it.

As mentioned above, base rent is net of other expenses such as utilities, property tax, property maintenance, and property management etc... In commercial real estate leases it’s common practice for the tenant to pay for their share of other property expenses through additional rent commonly referred to as TMI. That means in order to see the whole picture of what your monthly rent will be you need to combine the base rent and additional rent. If you’re still confused I have another blog that explains how to calculate the total monthly rent here.

If anyone is confused over the rent structure in my listings I’m happy to provide clarification.

How to Calculate Monthly Rent for Commercial Real Estate Lease Listings

If you want the shortcut formula look to the bolded text a few paragraphs down. If that doesn’t make sense or you need explanation read on and even reach out if you have any questions.

If you’re looking to lease a commercial, industrial, or office property, you have probably noticed that most listings are priced per sq. ft. often separating base and additional rents. If this is a new concept to you, I bet it can be a little confusing. One of the most common questions I receive from newer business owners is, “What does that work out to monthly?” Below is a simple guide to calculating commercial real estate rents for the majority of listings that are out there.

Step One, add the per square foot base rent and additional rent together. The base rent can often be referred to as net or triple net rent, additional rent can also be commonly known as CAM or TMI. If you have a base rent of $10 per sq. ft. and additional rent of $5 per sq. ft., that is a combined total of $15 per sq. ft.

Step Two, multiply the combined total above by the number of square feet that make up the premises to get the total annual rent. If we are looking at a 1000 sq. ft. commercial unit, that would be $15 multiplied by 1000 for a total of $15,000 annual rent.

Step Three, divide the annual total rent by 12 to discover the total monthly rent. Taking the example above, $15,000 divided by 12 is $1,250.00 monthly. Keep in mind that commercial rents in most states and provinces in the United States and Canada have taxes applicable to commercial rents. In the province of Ontario commercial real estate rents are subject to 13% HST (Harmonized Sales Tax) which gets added to the total. In this situation 13% of $1,250 is $162.50 for a total monthly rent of $1,412.50 including applicable taxes.

For those looking for a mathematical equation the simplest version would look like this:

((Base Rent + Additional Rent) x Square Footage) ÷ 12 = Total Monthly Rent, before applicable taxes.

Other Factors? Aside from any applicable taxes it should be noted that most commercial rents do not include utilities so it would be good to clarify that with a the listing agent if it’s not clear in the advertising. If you come across a listing advertising gross rent instead of base/additional, it usually means that is number is the combined total of base and additional rent already calculated for you.

If you’re looking to lease commercial space, please make sure you are working with an agent that clearly demonstrates knowledge of how to calculate total monthly rents to prevent upsetting surprises.