Tips on occupancy costs, lease options, and different types of leases
Commercial Lease Types
The three primary commercial lease types used in real estate are Full Service, Modified Gross, and Net Lease. The differences between each lease type are primarily defined by which operating expenses are included in the base rent.
Options in a lease give the retailer the right to stay by notifying the landlord in writing a certain number of days or months before the lease expires. Landlords may want a higher rent for the renewal period or “market rate”. Often the tenants want a fixed rate renewal. A common compromise between landlord and tenant is to use the “three(3) broker method”.
Retail Occupancy Costs to Sales Ratio
In order to structure the best economic lease terms for both landlords and retail tenants, it is critical to understand the occupancy costs as they relate to the retailer’s business. The Occupancy Costs, or the total of all expenses the tenant pays for their retail space, is usually displayed as a ratio to sales.
Capital Retail Group. All Rights Reserved. 7315 Wisconsin Ave, Suite 400 W, Bethesda, MD 20814
1751 Pinnacle Drive #600 McLean Va 22102 Phone: (202) 319-2884
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