Key takeaways
- The lease structure determines who pays taxes, insurance, and maintenance — and therefore what the rent number means.
- Triple net rents look low because the tenant pays operating costs separately.
- Load factor converts usable square feet into rentable square feet you pay for.
- Escalation clauses compound; a 3% annual bump raises rent about 34% over ten years.
The spectrum from gross to triple net
In a full-service gross lease the landlord pays all operating expenses out of the rent. In a triple net lease the tenant pays base rent plus its pro rata share of property taxes, insurance, and common area maintenance. Modified gross sits between, typically with the landlord covering some expenses and the tenant covering others.
Comparing a $22 gross rent against a $16 triple net rent is meaningless without knowing the expense load. If operating expenses run $8 per square foot, the net lease is more expensive. Always compare on a gross-equivalent basis.
Base years, expense stops, and CAM caps
Gross and modified gross leases often include a base year: the landlord absorbs operating expenses at base-year levels, and the tenant pays its share of increases thereafter. Negotiating the base year matters, particularly if the building was under-occupied during that year, which understates expenses and inflates future pass-throughs.
Tenants should negotiate caps on controllable CAM increases, exclusions for capital expenditures and for costs specific to other tenants, and audit rights with a defined lookback. Landlords resist these; the outcome depends on market conditions.
Load factor and measurement
Usable square footage is the space you occupy. Rentable square footage adds a pro rata share of common areas — lobbies, corridors, restrooms, mechanical rooms. The ratio is the load factor, commonly 10% to 20% in multi-tenant office buildings.
You pay rent on rentable, not usable. A 5,000 usable square foot suite with an 18% load factor is 5,900 rentable feet. Confirm the measurement standard — BOMA methods differ — and confirm how the load factor was calculated.
The clauses that decide outcomes
Assignment and subletting rights determine your exit if the business changes. Exclusive use clauses in retail prevent the landlord from leasing to a direct competitor. Co-tenancy provisions in retail allow rent reduction or termination if an anchor leaves. Options to renew fix a term but rarely fix a rate unless negotiated.
Personal guarantees are the single most consequential term for small business tenants. Negotiate for a limited or burn-off guarantee that expires after a period of on-time payment rather than an unlimited personal guarantee for the full term.
Frequently asked questions
What is a TI allowance?
Tenant improvement allowance — landlord capital toward building out the space, quoted per rentable square foot. It is negotiable and effectively part of the economic package alongside free rent and base rate.
How long are commercial leases?
Three to five years for small office and retail, five to ten for larger spaces, ten to twenty for industrial and single-tenant net lease assets.
Are commercial tenants protected like residential tenants?
Largely no. Commercial leases are negotiated between businesses and courts enforce them as written. There is no implied warranty of habitability and few statutory protections.
Sources & further reading
- BOMA International floor measurement standards
- Institute of Real Estate Management commercial expense benchmarks
- Commercial lease negotiation practice guides
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.