The 5 Key Commercial Lease Terms for Restaurants:
Get “On the Same Page” As Your Landlord, Figuratively and Literally
Know Your Rent Payment
Finding and leasing commercial space has a different set of rules than for residential rental properties. One golden rule, however, remains true in both cases: thou know and understand the key lease terms and ensure the lease agreement is specific and clear. In this series, we will analyze the key terms of a commercial lease relationship. This is the second part of a six-part series, examining five key terms in your commercial lease agreement. Today, we’ll discuss the nuances of rent payments.
There are various ways of calculating a commercial rent payment, ranging from beneficial to the tenant to detrimental to the tenant. Leases can have flat rent payments, rent payments that are variable, i.e. based on the restaurants sales, or a combination thereof. An important issue with rent payments is whether it includes other fees, like maintenance, taxes, and insurance. Here are descriptions for some common rent payment paradigms:
- A Fully Serviced Lease – a lease with a monthly rent payment that includes the cost of certain services, such as janitorial services, utilities, water and sewer charges, property taxes, and so forth.
- A Double Net Lease – a lease that requires the tenant to pay for all or part of taxes and insurance, in addition to the rent payment.
- A Triple New Lease – a lease where the tenant pays all or part of the taxes, insurance, and maintenance associated with use of the property. In this case, a tenant typically does not pay additional Common Access Maintenance fees, though the tenant, in essence, is paying for it in his or her lease agreement.
- A Gross Lease – if you could get it, this lease is more akin to a residential lease agreement, where the landlord pays the usual costs of maintaining the premises, including not only maintenance and taxes but, perhaps, also utilities and insurance.
In my experience, landlords seek to pass on common maintenance costs, insurance, and taxes either has part of the monthly rent payment or as stipulated Common Area Maintenance fees (see series part #4). Whether these costs are included in the rent or Common Area Maintenance fees, a wise tenant will ensure that the premises are not in need or on the verge of significant repairs or improvements and, as a safety, will ensure the lease agreement has a cap on the fees.
Next up, we discuss the difference between rentable square feet and usable square feet and its importance.