Different lease types can affect how you budget for rent and other expenses. Be sure to understand the Lease type that you are signing. A Lease is a binding, legal contract on your business.
Common commercial lease types:
- NNN (Triple Net) Lease: You pay base rent, plus additional costs like taxes, insurance, and utilities. This Lease type is common for retail and warehouse spaces.
- Modified Gross Lease: You pay a base rent plus a pro-rata share of any increase in operating and taxes expenses, after the first year. This is common for office spaces.
- Gross Lease: A simple flat rate that includes rent and utilities, often used for smaller spaces or subleases.
At 50 Redfield, the Lease is a Modified Gross Lease. Specifically there is a base rental rate (paid in monthly installments), utility charges, and Base Year Tax and Operating Costs. Essentially, a modified gross lease has a built-in inflation factor for the taxes and operating costs. This is accomplished through a specified Base Year for the Taxes and Operating (CAM) costs.
For example if a Tenant signs a Lease in Calendar Year 2025, the Lease will likely specify that 2025 is the Base year for Operating Costs. Should the operating costs in 2026 increase over the 2025 total operating costs, the Tenant will pay its pro-rata share (percentage of the space occupied by tenant from the total building size) of the increase over the base year. See sample below:
Base Operating 2025 = $100,000
Operating Costs 2026 = $110,000
Increase from 2025 – 2026 = $ 10,000
Tenant’s Pro-Rata Share = 5% = $ 500.00 (for 1 year)
In this example, the Year 2 tenant liability for the increase in operating costs would be $500 for the year. At 50 Redfield, this invoice would be sent once a year and would vary based upon the actual fluctuation in operating costs for the prior year. The items that cause the most fluctuation include snow removal and insurance.
Understanding these terms helps you budget and avoid surprises, ensuring the long-term financial success of your business.
