Your lease is one of the biggest expenses for your business, and also one of the most complicated.
At Vast, we are dedicated to being open and educational about the complex process of commercial leasing.
See our frequently asked questions to learn about lease types, costs, and timelines, or contact us for a more in-depth analysis for your business.
How Much Space Do I Need?
For a free in depth analysis of your business's needs for space and other requirements please contact us.
To get an approximate idea of how many square feet you need take the number of employees who will be using the space and multiply by 200.
For example:
15 employees x 200 = 3,000 Square feet
For a more compact/economical office you could use 150 square feet per employee, or for a more spacious office, 250 may be better option.
Compare this number with your current space and adjust as needed. Once you have an approximate number, create a range that contains your approximation and use that to search for new spaces.
Continuing the example above - if 3,000 square feet was the approximate requirement you may want to search for spaces between 2,500 and 4,000 square feet.
If you were to own your own building you would typically be responsible for 100% of the costs of maintaining that building. These costs could include property taxes, insurance, maintenance, landscaping, security, etc. When you lease a building these costs still exist, but now you are usually only responsible for your proportional share of these expenses based on the percentage of the building you occupy.
In a general sense, the biggest difference in the types of leases is how these expenses are worked into the Lease. For the same building quality in the same general area the different types of leases will often work out to around the same end cost.
Talk to your tenant representative to get an in depth analysis of what your lease will cost your business and how to find the right type of lease to best suit your needs.
For a brief look at each lease type please continue reading below.
NNN LEASE (TRIPLE NET)
NNN, or Triple Net, Leases are a type of lease where the tenant pays a base rent plus a "triple net fee" each month that covers their percentage of the operating expenses for the building (property taxes, building insurance, common area maintenance, etc). Commonly the tenant will then pay their utilities separately as well.
To approximate your rent:
(Base Rent + NNN Fee) x Square Feet = Annual rent before utilities and any other fees.
For example, if a space was 2,000 square feet at $12 per square foot per year NNN with $4 per square foot NNN fees:
(12 + 4) x 2000 = $32,000 annual rent ($2,666.67 per month) before utilities and other fees.
MODIFIED GROSS
Modified Gross Leases are the middle ground between NNN (Triple Net) and Full Service. The base rent is often a little higher than in NNN, but the fees to cover the proportional share of operating expenses are already worked into the rate for the first year. In Modified Gross Leases some of the utilities may come included while others will be the responsibility of the tenant.
To approximate your rent:
Base Rent x Square Feet = Annual Rent before utilities, and other fees.
For example, if a space was 2,000 square feet at $16 per square foot per year Modified Gross:
16 x 2000 = $32,000 base rent per year ($2,666.67 per month) before utilities, and other fees.
FULL SERVICE
Full Service Leases commonly have the highest base rent, but almost everything worked into the rental rate with few other fees. The proportional share of the operating expenses are included in the rate for the first year, similar to a Modified Gross lease, and then often most (or all) utilities will be included in the rate as well.
To keep rates a little lower a common trend right now is to see buildings listed as Full Service except janitorial, meaning the tenant is responsible for janitorial services while the landlord is responsible for almost everything else.
To approximate your rent:
Base Rent x Square Feet = Annual Rent before janitorial, and other fees
For example, if a space was 2,000 square feet at $18 per square foot Full Service:
18 x 2000 = $36,000 per year ($3,000.00 per month) before janitorial, and other fees (if applicable)
Disclaimer: This information is for general reference only, and is based on the laws for the state of Arizona. For specifics or further analysis in calculating your monthly rent contact your tenant representative.
What Else Can I Expect to Pay?
Many leases have extra fees above their base rent that can make calculating monthly costs a bit more complicated than the simple multiplication of rental rate and square footage. Listed below are a few of the more common fees that can be seen in leases. Remember in leasing that everything is negotiable and that your tenant representative can help you analyze and negotiate for your needs and budget.
Rental Tax
Rental Tax is imposed by the governing body of an area on all commercial rental space. This is commonly charged as part of the monthly rent payment and then paid to the correct tax authority by the landlord.
Money Due at Lease Execution
The exact amount varies but there is often a security deposit and some rent required to be paid up front at the time the lease is signed.
Operating Expense Increases
In a Modified Gross and Full Service leases your "base year" will usually be defined as the year you move into the space or sign the lease. Since the costs of your proportional share of operating expenses for the building are worked into the base rent, if they increase from what they were in your base year you may be responsible for your percentage of that change in addition to your rent. (These increases typically only apply for leases longer than 1 year)
In a NNN Lease the proportional share of operating expenses are what make up the NNN Fees, so if operating expenses increase your NNN Fees are likely to increase as well.
Annual Rent Increases
To help offset inflation it is common for the rental rate to be increased by a small percentage on a yearly basis. (These increases typically only apply for leases longer than 1 year)
Insurance
The landlord will likely have insurance on the property as a whole, and will often have a liability policy on the property as well. Tenants are commonly required to maintain a liability policy at or above a certain amount of coverage for their space for the life of their lease. Tenants are also responsible for insuring any of their personal property within their space.
Telephone and Internet
Telephone and Internet are typically not considered utilities under any of the three most common lease types and are almost always the responsibility of the tenant.
Signage
Some signage may come included with your space but often any major signage is paid for by the tenant.
What is a Common Lease Term?
In leasing, "term" is the name for the length of time the lease will be in effect. So what is a common lease term? How long should you sign your lease for? Leases can be for any length of time, and like everything else in leasing, it is all negotiable. Commonly landlords will ask for 3, 5, or 7 years - some may offer a 1 year option or even month-to-month, though most landlords prefer longer terms if possible.
There are many things to consider when setting the term for your lease, some brief examples are listed below. This can be a very complex and important subject in determining how your lease will affect your business, so contact your tenant representative for more information on your specific needs and negotiating to make sure they are met.
Rental Rates
From the landlord's perspective longer leases ensure that the space will producing income (or at least covering its costs) and that the landlord will not have to worry about paying expenses for an empty space for a longer period of time. This peace of mind is worth a lot to some landlords and they may be more negotiable on rental rate for tenants willing to sign longer term leases.
From the tenant's perspective longer term leases do bring in some minor added expenses such as annual increases or operating expense increases, but they also allow the tenant to lock in a lower base rate for the term of their lease. For example, if you lease for 1 year at a time then you must renegotiate with the landlord every year and your new rate will be based off of the market which may have taken a big jump. Whereas if you lease for longer your rate is locked in for the term of your lease despite what the market conditions may do. (See lease costs page for further explanation on leasing expenses)
Tenant Improvements
Do you need a great deal of changes made in order for the space to work for you? Landlords are often willing to improve the space for a tenant in exchange for either a higher rental rate or a longer lease term. Some Landlords are willing to do fairly substantial improvements if you plan to stay for a longer period of time.
Growth
Is your business growing rapidly enough that you will need more space in the near future? You may want to consider a shorter lease term or other alternatives. For example, it is sometimes possible to get an option to add an adjoining space to yours when it becomes available in the future, or take more space than you need at a lower rate up front that will increase down the line.
Extensions
It is possible to set up a plan for what happens when your original lease term expires within the lease itself. Leases can be written with options for the tenant to extend their same lease for a certain number of years. This could allow a tenant to sign the original lease for a term they know will work and then at the end of that time have the option to move elsewhere or renew at the same locked in rate depending on market conditions.
Buyouts
Some landlords will allow a clause in the lease allowing a tenant to "buy out" of the lease for a predetermined amount. For example a 5 year lease where the tenant is allowed to cancel after 3 years with the payment of some number of months worth of rent and any fees for improvements or leasing commissions that have not yet been covered by the rent. Buyouts can be helpful for tenants with unpredictable circumstances but they also can cause the landlord to be less negotiable on the rental rates.
Why Do I Want A Tenant Representative?
A tenant will lease space only a few times during their business career, whereas a landlord leases space on a regular basis. To best serve your business get someone on your side who knows the process and can make sure your needs are met.
So what can a Tenant Representative do for you? Simply put, save you time and money. Leasing is often a complicated process, and instead of just focusing on lease rate and term, a successful Tenant Representative will be your overall real estate guide. Real estate is one of the largest expenses companies incur and one that should never be taken lightly. There is much more to leasing than rent payments. For example, tenant improvements are often a large component to any lease agreement. With multiple contractors, architects and designers involved, tenant improvements are a significant process that requires a professional to sort out. Your job is to run your business. Your Tenant Representative’s job is to take care of your real estate related issues.
As an added bonus, the tenant representative is only paid when you actually find and lease space, and payment typically comes from the landlord. So there is no cost to your business in have someone representing your interests and making sure you get everything you need.
Contact us today to have us represent you in your next real estate transaction.
What Does the Typical Lease Process Look Like?
How does it all work? In the simplest explanation, you are paying someone for the use of a space. See the following steps for a little clarification of an often unfamiliar process.
For help at any point in this process contact us or see our tenant representation page for more information on what a representative can do for you.
Step 1 - Identify Your Need
What need do you have? Are you a new business looking for space? An existing business looking to cut costs? Or grow? Identifying first the type of need that you have, will clear the way for an easier process. Consult a Tenant Representative for help!
Step 2 - Define Your Criteria
Don’t waste your time driving around town calling on signs without a solid understanding of how you are going to use a space and how much you need of it. You can look at your need for exposure, signage, privacy, corporate image, security, parking requirements, location,etc. Once you have some criterion developed, then and only then, does the search begin.
Step 3 - Create the List
This step involves creating a list of potential properties and touring each. A time for evaluation and review will follow as the pool narrows. Once the final few properties have been identified, offers are submitted to each landlord.
Step 4 - Let the Negotiations Begin
This is why you hired a professional – they negotiate for you. It’s the role of the Tenant Representative to work with you and the building owner/agent to secure the best deal available for you. Whether rate, lease language or term is particularly important, a Tenant Representative can help position your company in a lease that makes sense, both now and in the future.
Step 5 - Build-Out and Commencement
Depending on the tenant improvements that are to be completed, this step may be simply when to pick up your keys, or it may require months of meeting with architects, contractors and the like to ensure the space is just as you need it. This time will require diligent follow-up and teamwork with both the landlord and the contractors involved. We walk you through this process step-by-step. Once completed, then it’s time to pick up your keys and put that desk in the just the right spot. Congratulations, you just leased space!