Calculating Square Footage Costs for Leases

Many people ask me how to calculate the various costs for leases on a per square foot basis and compare options.  This quick primer may help.

Price per square foot is the most common way to refer to the basic lease rate, most often called Base Rent.  It is calculated by multiplying the square footage by the amount to get an annual amount.  To obtain the monthly cost, simply divide by 12. 

For example, if the price quoted is $10/ square foot and and the space is 1,000 square feet, calculate as $10 x 1,000 = $10,000/yr.  Divide by 12 to get monthly cost of $833.33.

Square footage is the size of the leased space.  Measurements can be taken in various ways, most often from the outside of the exterior wall or the middle of the demising wall, so it will not be the same as the useable square footage for your business. Be sure you understand exactly what is being quoted.

TMI is an abbreviation for Taxes, Maintenance and Insurance.  This refers to the cost associated with the entire property that the Landlord incurs, which will, in turn, be passed on to the Tenant. 

You will be charged for the square footage the percentage of the building that you lease.  Common areas such as washrooms, lobbies, hallways and elevators can be included in this figure, so be sure you understand your costs and how they are calculated.

CAM is an abbreviation for Common Area Maintenance, a term similar to TMI.  You may also hear the abbreviation CAE or Common Area Expenses.  Unless you are a very large Tenant or have special circumstances, chances are that you will not be able to negotiate the additional rent (TMI or CAM).  Ask to have the right to review the Landlords costs each year and, if possible, have a cap or a maximum increase per year to better manage your costs.

PERCENTAGE RENT is often charged in a retail lease and is calculated as a percentage of the gross sales of the Tenant.  This amount is in addition to the Base Rent and Additional Rent.

The costs of a space is only one facet of many lease considerations.  A professional Realtor can help negotiate a lease to help control your outlay and reduce your potential liabilities for years to come.  Be sure to clearly understand all of your costs and obligations before you commit to a business location. 

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