In this blog series, we explore commercial real estate questions often asked by tenants, landlords, and investors. Have a question that’s not on the list? Feel free to reach out to Peter Andrews, Executive VP of Brokerage at pandrews@melvinmark.com.
What’s the difference between a Triple-Net (NNN), Gross, and Full-Service (FS) lease?
In an average triple-net (NNN) lease, the tenant is responsible for the base rental rate, insurance, taxes, utilities, operating expenses, and maintenance costs. In a full-service (FS) lease, the landlord is responsible for all expenses except the base rent. A modified gross lease is somewhere in between a NNN and FS lease. The tenant usually pays for base rent, taxes, and insurance, while sharing some or all operating costs.
How can I find the right tenants for my property?
While finding tenants to populate your property is important, finding the right tenants is key. Securing a tenant that is successful, dependable, and fits the space can help increase the success of your property. Appealing to the right tenants takes experience and can require things like leasing strategies, building analyses, property marketing, repositioning, and more. Hiring an experienced landlord representative can help you gather the right information and reach potential tenants that fit your needs.
What does it mean if a space is demisable?
The term “demisable” often describes space that can be separated into more than one leasable area. One can demise a space in order to sublease a portion of an already-leased space or to simply increase a landlord’s revenue by creating several leasable locations.
What are tenant improvements and who pays for them?
Tenant improvements refer to customized alterations made to a space to tailor it to the tenant. Before work begins, the landlord and tenant agree upon the party responsible for paying for the work and who performs it. The most common types of agreements are:
- Tenant improvement allowance (TIA): The tenant receives a sum of money from the landlord and hires contractors to do the work.
- Build-out: The landlord presents several improvement options to the tenant and the tenant chooses which they prefer. The landlord hires contractors to do the work.
- Discounted rental rate: The tenant receives a reduced rental rate equal to the cost of the improvements and the tenant hires contractors to do the work.
- Turnkey projects: The tenant submits an improvement plan to the landlord. If approved, the landlord hires contractors to do the work.
Is there a difference between usable space and rentable space?
While the terms “Rentable Square Feet” (RSF) and “Usable Square Feet” (USF) may sound similar, there is a difference between the two.
Usable Square Feet:
Usable square feet refers to space that is occupied specifically by the tenant and will differ depending on the tenant’s location. If they occupy a full floor, their usable square footage includes everything within the boundaries of that floor (even non-usable areas like janitorial closets or electrical rooms). If the tenant only occupies part of a floor, their usable square footage refers to the space that is unique to their suite.
Rentable Square Feet:
‘Rentable square feet’ plays a factor in a tenant’s rent cost. It refers to their usable square footage plus their pro-rata share of building common areas (i.e. lobbies, meeting rooms, restrooms, etc.). Common areas are also referred to as a building’s “load factor” and are added on to a tenant’s usable square feet in a percentage form. For example, if a tenant occupies 20,000 square feet of office space in a building that has a 20% load factor, their rentable square footage would be (20,000 x .20) + 20,000 = 24,000 RSF.
What does CAM stand for?
CAM stands for “common area maintenance” and often refers to CAM charges. A tenant is often responsible for these charges. However, it depends on the agreed-upon lease.
CAM includes things like:
- Security services
- Repairs
- Pest control services
- Property maintenance
- Property insurance
- Cleaning services
CAM charges are usually calculated based on the amount of space a tenant occupies (but in some cases it can be a fixed cost) and can be monthly, quarterly, or yearly.
Should I hire a property manager?
Having a property manager and property management company to look after your building can be a worthwhile investment. A property manager can help save you time by focusing on keeping your tenants happy and addressing any tenant or building concerns. This can be especially helpful if you don’t live near your property and/or you’re responsible for multiple properties. A property manager can give you peace of mind knowing that your asset and its tenants are being cared for by a professional.
When might a tenant sublease their space?
A tenant may want to sublease their space for a variety of reasons including:
- They need to reduce the size of their operation
- They’ve decided to change geographic locations
- They are growing and need a larger space
- They are closing their doors
When a sublease agreement is signed between the landlord, the tenant, and a subtenant, the tenant is able to lease their space to a subtenant and the subtenant pays the rent for that space until the original lease term ends.
With local experience and attention, we can help you find the right tenants and negotiate the right leasing terms. Contact us today to get started.
To explore questions from tenants, read part 1 of our blog series.