Most lease agreements include a provision for rent escalation. While it is possible to have a fixed rent for the term of the lease, an agreement that escalates every year or on agreed to periods is more common and benefits both the tenant and the landlord. The tenant benefits because whether the business is a new start or an established business relocation, setting up and establishing at the new location or the expense of moving is costly and having the rent increase as the business grows helps the tenant to budget the rent expense. The landlord benefits by the ability to attract a larger pool of prospective tenants based on the competitiveness of the first years rent and as a result, find the most stable tenant for the space. Rent increases or sometimes referred to as “bumps” can be tied to the consumer price index, a fixed percentage each year or adjustment period, or a fixed dollar amount each year.
Rent tax is a charge assessed by the municipality that the space or property is located in. In our market place, communities like Marana, the City of Tucson or Pima County charge 2.5% of the total rent. In other words, if the base rent is $22.00 a square foot for a 1200 SF retail space and the estimated amount to cover triple net charges for expenses such as property taxes, insurance or common area maintenance is $5.00 a square foot, then the annual total rent will be $32,400 or $2700.00 a month. With the rent tax, the monthly payment will be $2,767.50. There many other aspects of a lease and the issues that are addressed here plus all of the additional terms of the agreement are part of the negotiations. If you have questions or would like to find out more about how an experienced leasing professional can help you, go to www.tucsoncommercial.com.
Tags: Computing total rent, Rent Escalation, Rent Tax, Total Rent, Triple Net Lease, Tucson Leasing
