There are so many factors involved in finding the right commercial space to house your business but the most important is understanding how much rent you will have to pay each month. Commercial and retail leases use various rental pricing methods. The decision as to which commercial lease calculation method to use is frequently related to the type of business you, the tenant, are running.
Commercial rental properties include shopping malls, professional offices, strip centers, and free-standing buildings used for offices and retail space. Depending on the type of lease, you often pay for repairs and improvements. There are very different lease types, and they often are based on what kind of business you have. There are a variety of different leases and they are all calculated differently.
Rent is calculated per square foot of the leased space. This can be expressed either as an annual or a monthly amount.
- Example with annual quote: A 2,200 square foot office space is quoted a rent of $11.50 per square foot. 2,200 X $11.50 = $25,300 per year for rent.
- Example with a monthly quote: 2,200 X $11.50 = $25,300. Divide by 12 months to get a monthly rental amount of $2,108.33.
Retail volume can vary significantly due to many factors, including the economy and also location. For this reason, it is a common practice for a landlord, in their commercial lease calculation, to determine a base rent that they absolutely need, and then to have the tenant pay a percentage of their retail gross income in addition to the base rate. This is called a percentage lease and is very logical because, if the location is a good one, retail sales should rise and enable the tenant’s ability to pay higher rent.
There are two ways in which the percentage is normally calculated:
1. Minimum base rent + percentage over a certain base amount: In this case, the tenant pays a minimum base monthly rent, and then adds a percentage of all gross receipts over a certain base amount. Example: $1,000 per month base rent, and 5% of all gross receipts over $50,000 per month. Using one month’s gross receipts of $72,000, we do the calculation this way:
$72,000 – $50,000 = $22,000
$22,000 x .05 = $1,100
$1,100 + base of $1,000 = month’s rent of $2,100
2. Minimum base rent + percentage of all gross receipts: In this case, there is no bottom line revenue required before the percentage kicks in. Rent is paid on all the gross receipts from zero.
Example: $500 base rent + 2% of gross business receipts. If we use the previous numbers, we’d take 2% of the entire $72,000 and add that to the base rent, as here:
$72,000 X .02 = $1,440
$1,440 + $500 = monthly rent of $1,940
If this is too much for your to wrap your head around, click here to use a commercial lease calculator for you. It will do all of the heavy lifting for you and provide your monthly bottom line payment within moments.