Office Rent Structure

 

As a follow-up to lease types, we’ll look further at Single and Multi-tenant Office buildings:

 

SINGLE TENANT OFFICE BUILDINGS Generally, single-tenant office buildings are leased on a triple net basis (NNN). This lease calls for the tenant to be responsible for all costs associated with occupancy.

PROPORTIONATE SHARE:
The tenant’s proportionate share of operating expenses is calculated on a square footage basis. Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share

BASE YEAR: A “Base year” is typically utilized in multi-tenant building leases to determine “base” cost for operating expenses cost of the space. The base operating expense account is the floor over which any increases in operating expenses will be passed on to the tenants of the building. In general, a base year is calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.

MULTI-TENANT OFFICE BUILDINGS Full-Service Gross: A full-service gross lease is where the Landlord is responsible for the payment of taxes, maintenance, insurance, and utilities. All of the costs are included in the base rent figure. The tenant is typically responsible for their own property insurance and taxes and any excess utility consumption beyond building standards. Further, Tenant is typically responsible for their proportionate share of any increase in base operating expenses over a base year or expense stop.

PROPORTIONATE SHARE: The Tenant’s proportionate share of operating expenses are calculated on a square footage basis. Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share.

BASE YEAR: A “Base year’ is typically utilized in multi-tenant full services gross office building leases to determine “base” cost for operating expenses within the project. The base operating expense account is the floor over which any increases in operating expenses will be passed on to the tenants of the building. In general, a base year is calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.

EXPENSE STOP: An expense stop is a preferred method for expense calculation by a Landlord. This vehicle allows a Landlord to estimate the approximate expenses the building will incur and the tenant is responsible for payment of their proportionate share of actual operating expenses over the estimated expense stop. This is rarely utilized anymore as it led to fraudulent estimates of expenses in the past and unexpectedly high operating expense pass-throughs to tenants.

If you would like more information about this topic, or if you are interested in leasing commercial space, email a SwiftLease agent at agent@swiftlease.com