Commercial Lease Calculator

These lease types determine who pays operating expenses. FULL SERVICE GROSS (FSG): The simplest for tenants. Landlord pays all operating expenses (taxes, insurance, CAM, utilities). Rent is "all-inclusive". Common in: Multi-tenant office buildings. Pros: Predictable costs, no surprise expenses. Cons: Higher base rent, less control. TRIPLE NET (NNN): Tenant pays base rent PLUS property taxes, insurance, and common area maintenance (CAM). Common in: Retail, industrial, single-tenant buildings. Pros: Lower base rent, more transparency. Cons: Variable costs, more complex budgeting. Example breakdown for $30/SF NNN: Base rent: $30/SF. Property tax: $4/SF. Insurance: $1.50/SF. CAM: $8/SF. Total effective rent: $43.50/SF. MODIFIED GROSS (MG): A middle ground. Tenant typically pays base rent plus some expenses (usually CAM and utilities). Landlord pays taxes and insurance. Common in: Smaller office buildings. Variations: Base year stop, expense stop. ABSOLUTE NNN (BOND LEASE): Tenant responsible for EVERYTHING including structural repairs and roof. Lowest base rent. Common with: Credit tenants, long-term leases. PERCENTAGE LEASE: Base rent plus percentage of gross sales above a breakpoint. Common in: Retail, shopping centers. Example: $20/SF base + 5% of sales over $500K.

CAM (Common Area Maintenance) charges cover the costs of operating and maintaining shared spaces in a commercial property. WHAT CAM INCLUDES: Exterior Maintenance: Parking lot repairs and striping. Landscaping and lawn care. Snow removal. Exterior lighting. Signage maintenance. Building Common Areas: Lobby cleaning and maintenance. Elevator maintenance. Common restrooms. Hallway lighting. HVAC for common areas. Security: Security guards. Security systems. Access control. Property Management: Property manager fees. Administrative costs. Accounting/audit fees. Other: Trash removal. Pest control. Common area utilities. TYPICAL CAM COSTS BY PROPERTY TYPE: Office: $6-12/SF/year. Retail (strip center): $4-8/SF/year. Retail (mall): $12-20/SF/year. Industrial: $1-3/SF/year. Medical: $10-18/SF/year. WHAT CAM SHOULD NOT INCLUDE: Capital improvements (new roof, HVAC replacement). Leasing commissions. Landlord's mortgage. Legal fees for landlord disputes. Costs covered by insurance. NEGOTIATING CAM: Request CAM cap (typically 3-5% annual increase). Ask for exclusions list. Request audit rights. Understand pro-rata share calculation.

TI (Tenant Improvement) allowance is money the landlord provides for the tenant to customize/build out their space. HOW TI WORKS: Typically expressed as $/SF. Paid by landlord, often amortized into rent. Can be used for: walls, flooring, electrical, HVAC, finishes. TYPICAL TI ALLOWANCES: Office (2nd generation): $15-40/SF. Office (build to suit): $50-100+/SF. Retail (in-line): $10-30/SF. Retail (anchor): $30-60/SF. Industrial: $5-15/SF. Medical: $60-120/SF. FACTORS AFFECTING TI: Lease term (longer = more TI). Credit strength. Market conditions. Space condition. Competition for tenant. CALCULATION EXAMPLE: Space: 3,000 SF. TI Allowance: $35/SF. Total TI: $105,000. If lease is 5 years at 7% amortization: Monthly amortization: ~$2,079. Added to base rent. HOW TI IS DELIVERED: As-is: No TI, tenant does all work. Allowance: Landlord gives $, tenant manages buildout. Turnkey: Landlord builds to tenant specs. Shell + TI: Landlord provides base building, TI for finishes. NEGOTIATING TI: Request higher TI for longer lease. Ask for TI to be delivered at signing. Negotiate free rent instead of TI. Get detailed scope of "as-is" condition.

Rent escalations are predetermined increases built into the lease that raise rent over time. TYPES OF ESCALATIONS: FIXED PERCENTAGE: Most common. Example: 3% annual increase. Year 1: $30/SF, Year 2: $30.90/SF, Year 3: $31.83/SF. FIXED DOLLAR AMOUNT: Rent increases by set amount. Example: $1/SF annual increase. Year 1: $30/SF, Year 2: $31/SF, Year 3: $32/SF. CPI (Consumer Price Index): Tied to inflation. Can have floor and ceiling (e.g., 2% min, 5% max). More unpredictable but "fair". MARKET RESET: Rent adjusts to market rate at intervals. Example: Every 5 years, rent resets to FMV. Can result in big jumps or decreases. STEP-UP: Larger increases at specific intervals. Example: 0% years 1-3, then 10% at year 4. Common with startups or growing businesses. WHY LANDLORDS WANT ESCALATIONS: Hedge against inflation. Maintain property value. Cover increasing operating costs. IMPACT OF ESCALATIONS: Example: 3,000 SF at $30/SF with 3% annual escalation, 5-year term: Year 1: $90,000. Year 2: $92,700. Year 3: $95,481. Year 4: $98,345. Year 5: $101,296. Total: $477,822 (vs $450,000 flat). Escalation cost: $27,822 (6.2% more). NEGOTIATING ESCALATIONS: Request lower rate (2% vs 3%). Ask for flat rent years 1-2. Propose CPI with cap. Request fixed increases vs percentage.

Comparing lease offers requires normalizing different terms to make apples-to-apples comparisons. KEY METRICS TO COMPARE: EFFECTIVE RENT: Total cost ÷ Lease term ÷ SF. Accounts for all costs and concessions. Most accurate comparison metric. NET PRESENT VALUE (NPV): Time value of money calculation. Accounts for when payments occur. Best for financial analysis. FIRST YEAR COST: Important for cash flow planning. Includes: rent + NNN + move-in costs. COMPARISON CHECKLIST: Base rent per SF. Lease type (NNN, gross, modified). Operating expense estimates. Escalation rate. TI allowance. Free rent period. Security deposit. Renewal options. Expansion rights. EXAMPLE COMPARISON: OPTION A: $35/SF gross, 5 years, no TI, 3% escalation. Year 1: $105,000. Total 5-year: $557,917. OPTION B: $25/SF NNN + $12/SF expenses, $30/SF TI, 3% escalation. Year 1: $111,000. But TI value: $90,000. Net 5-year: ~$499,000. HIDDEN FACTORS: Parking costs. After-hours HVAC charges. Electricity structure. Build-out timeline. Landlord financial stability. Building amenities. RED FLAGS: Undefined CAM charges. No CAM cap. Unclear expense stops. Personal guarantee requirements. Aggressive penalty clauses.

Base year and expense stops are methods to allocate operating expense increases between landlord and tenant. BASE YEAR CONCEPT: Landlord pays operating expenses at "base year" level. Tenant pays increases above base year. Common in: Gross and modified gross leases. EXAMPLE: Base year (2024) expenses: $10/SF. 2025 expenses: $11/SF. Tenant pays: $1/SF increase. If space is 3,000 SF: $3,000 additional rent. HOW IT WORKS: Year 1: Landlord pays all expenses (included in rent). Year 2+: Tenant pays pro-rata share of increases. Calculation: (Current year expenses - Base year) × Pro-rata %. EXPENSE STOP: Similar concept, different structure. Fixed dollar amount landlord covers. Tenant pays everything above the "stop". More common in some markets. EXAMPLE: Expense stop: $12/SF. Actual expenses: $14/SF. Tenant pays: $2/SF ($6,000 for 3,000 SF). GROSS-UP PROVISION: Adjusts base year if building not fully occupied. Prevents tenant from paying for landlord's vacancy costs. Important in new or partially leased buildings. NEGOTIATING TIPS: Request actual base year (not estimated). Ask for gross-up clause. Negotiate cap on annual increases. Get right to audit expenses. Request exclusions for capital items. RISKS TO WATCH: Base year may be artificially low. Expenses can spike significantly. Pro-rata share calculation method. Definition of "controllable" vs "uncontrollable" expenses.

Commercial lease security deposits are typically larger and have different rules than residential deposits. TYPICAL AMOUNTS: Office: 1-3 months rent. Retail: 2-6 months rent. Industrial: 1-2 months rent. Startups/weak credit: 6-12 months rent. CALCULATION: Usually based on TOTAL monthly rent (including NNN). Example: $5,000 base + $2,000 NNN = $7,000/month. 2-month deposit = $14,000. ALTERNATIVES TO CASH DEPOSIT: LETTER OF CREDIT (LOC): Bank guarantees payment. Preferred by landlords. Typically 1-2% annual fee. May reduce to cash deposit over time. PERSONAL GUARANTEE: Owner personally guarantees lease. Can be limited (time, amount). Common for small businesses. CORPORATE GUARANTEE: Parent company guarantees. For franchises or subsidiaries. GOOD GUY GUARANTEE: Limited personal guarantee. Only covers rent until you leave. Common in NYC. DEPOSIT BURNDOWN: Deposit reduces over time with good payment history. Example: 6 months → 3 months after year 3. Incentive for tenant loyalty. INTEREST ON DEPOSITS: Commercial deposits rarely earn interest. Laws vary by state. Negotiate if large deposit. GETTING DEPOSIT BACK: Return timeline (30-60 days typical). Deductions for damages beyond normal wear. Unpaid rent or expenses. Restoration costs if required. NEGOTIATING DEPOSITS: Request lower deposit for longer lease. Ask for burndown clause. Propose LOC instead of cash. Offer additional guarantees for lower deposit.

Pro-rata share determines what percentage of common expenses you pay based on the size of your space relative to the building. BASIC CALCULATION: Pro-rata % = Your SF ÷ Building SF × 100. Example: Your space: 3,000 SF. Building total: 50,000 SF. Pro-rata share: 6% (3,000 ÷ 50,000). WHAT IT APPLIES TO: Property taxes. Building insurance. Common area maintenance. Some utilities. Property management fees. RENTABLE VS USABLE SF: USABLE SF: Actual space you occupy. RENTABLE SF: Usable + share of common areas. LOAD FACTOR: Rentable ÷ Usable (typically 1.10-1.20). Example: 3,000 usable × 1.15 load = 3,450 rentable. Pro-rata based on RENTABLE SF. COMMON AREA TYPES: Full floor: Elevator lobbies, restrooms. Building: Main lobby, common conference. Pro-rata may differ by area type. CALCULATION EXAMPLE: Building expenses: $500,000/year. Your rentable SF: 3,450. Building rentable: 50,000. Pro-rata: 6.9%. Your share: $34,500/year ($2,875/month). THINGS TO WATCH: EXCLUDED AREAS: Retail tenants may be excluded from office calculations. Anchor tenants may have separate arrangements. Ask what's included in denominator. GROSS-UP: If building is 80% occupied. Landlord may "gross up" to 95%. Increases your share of actual costs. VERIFICATION: Request annual expense reconciliation. Ask for breakdown by category. Retain right to audit. SHOPPING CENTER CALCULATIONS: May be based on GLA (Gross Leasable Area). Anchor tenants often pay reduced rate. In-line tenants pay more per SF.