| How much is the rent?
The Santa Cruz Commercial Real Estate market is similar to others areas in that $1.00 for one building may not be the same as a $1.00 for another.
Many landlords quote tenants rents in terms of dollars (and cents) per square foot. But the devil is in the details because there are often significant added costs to the lease.
Make no mistake, in the end, the tenant pays for these additional costs; however the question is whether or not they were included in the quoted rent.
The added costs are the property and building operating expenses, and, generally include the property tax, property maintenance and property insurance. Within property maintenance you will find the costs associated with utilities like water, garbage, sewer, PG&E, landscaping, as well as building and property repairs and maintenance. This is a large, and most comprehensive category.
Property taxes and property insurance are self explanatory. The building is taxed and hopefully, insured. Now, is this an extra cost you ask.
A FULL SERVICE rent is a lease quote that substantially includes all or most of the operating expenses. Tenants should expect to pay for their phone and other “business services”. Janitorial costs are often, but not always, included.
A GROSS RENT quote is a tier down from Full Services. With a gross rent the tenant often maintains the interior of the premises, things like light bulb replacement and janitorial. Insurance and Taxes are paid by the owner directly, and the tenant generally has no obligation except when leases provide for the tenant to pay for increases in these operating expenses.
The real sticking point with a Gross lease is utilities. Often an owner will quote a lease rate as gross and then charge for water, garbage, sewer and common PG&E. This in addition to the costs of direct utilities, such as PG&E, to the premises.
I have seen gross leases provide for the tenants to pay for the increases in property taxes and insurance. Again, its not the quote, it’s what they include.
A TRIPLE NET RENT is the base line rent, and triple net literally means that the rate quoted is being quoted to the tenant, net of the three main cost categories, property taxes, property insurance and property maintenance.
It can be a deceptively low rent, in that all of the costs discussed above, are billed separately from the quoted or “base” rent.
In many ways the triple net lease is favorable to the tenant. Particularly if the manner in which capital improvements are dealt with and negotiated through so that reserves are collected to cover the costs of major improvements, like roof or parking replacement.
In all three categories set out above, there are variations. Real estate transactions are an exercise in negotiations. Try to find a broker that understands the options and will work to create a favorable transaction.
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