Commercial vs. Residential Leases, What is the Difference? Part 2 of 2.
CAM charges and Additional Rent
Usually residential leases just have a base rent amount and then maybe extra fees for pets or a storage space. But some commercial leases include a clause specifying that the tenant will pay “common area maintenance” charges on top of the base rent that they pay.
In addition some leases specify that the tenant is responsible for the taxes and insurance on the space, or for utilities and janitorial service. When you are comparing different spaces, be sure to ask what the base rent is and if there are any CAM charges or additional rent so you can get an accurate comparison of the space’s total cost.
Usable Vs. Rentable Square Feet
Sometimes in commercial leases a landlord puts a “load factor” into the total square footage of the leased space. So for instance if your leased space is professionally measured to be 1000 square feet, the landlord can charge you for your percentage of common areas such as hallways, bathrooms, foyers, shared meeting rooms by adding additional square feet to the total amount in the lease. You should know what your rentable square feet are (your square feet in your premises plus your share of the common area square feet) and what your usable square footage is (the number of square feet in your individual demised space).
Renewal Options: Fixed vs. Fair Market Value
Sometimes you can get a renewal option in your commercial lease, which is the tenant’s right to take or not take when they lease is coming up for expiration. There are two ways these are done. One way is to set the length of the renewal term and specify how much the rent will be. You then have a certain amount of time before expiration to let the landlord know that you are taking the renewal option.
If the proposed amount of rent is much higher than the going rate for the market, the tenant can choose not to take the renewal but then the landlord is not obligated to renew the lease.
The other type of renewal option is a “fair market value” one. This means that the landlord and the tenant will attempt to agree on what the going rate is for the this type of property in their market and will sign a renewal based on that amount. Of course this can be difficult if the parties don’t agree on what fair market value actually is.
As you can see, commercial leases are far more complicated in many ways than residential leases are, so it’s important that you fully understand all aspects of a lease before you sign it.
At Centerco Office Suites in St. Louis you will work with a team of experienced commercial real estate professionals to walk you through the leasing process to make it easier for you.