Retail versus Office Leases

Often times people get confused in the differences between a lease for a retail shopping center versus a lease for an office building. When you are comparing lease rates you need to know what the differences are.

In an office lease it is typically quoted using a number that is inclusive of everything. That means the base rent and any additional charges such as property taxes, insurance and the expenses of the building are included. These types of leases are typically called a gross lease. Sometimes you will hear it called “Full Service Gross”. Most of these leases will include janitorial services (check to see how many days a week the service is provided) utilities etc.

Sometimes the leases are modified in some way and will generally be noted as a “modified gross lease”. Find out what the differences are between this lease and a “standard” gross lease.

Office leases sometimes include an “Expense Stop”. This means the landlord will pay all of the expenses up to a certain dollar amount and any and all charges over that will be paid by the tenant. That dollar amount should be identified clearly and you want to make sure what the current expenses are so you can determine if the pass though expenses will come soon or not at all.

Other offices leases might include a “Base Year”. In this type of lease the landlord will pay all of the expenses during the first year and pay only that dollar amount in subsequent years. If the expenses increase by 5% in the 2nd year, those increases will be passed on to the tenant.

Most Retail Leases are what is called a Net lease or NNN lease (triple net lease). The difference is that the base rent will be quoted and then you need to know the CAM (Common Area Maintenance) charges or NNN charges. Often times you will hear it called CAM charges but technically NNN charges are:

Property Taxes, Property Insurance and CAM charges

The CAM charges relate to items that are common to all tenants. Items such as parking lot lights and maintenance, snow removal, landscaping, monument signage etc. Typically items such as the roof or foundation are the responsibility of the landlord. It is good to know what is included in the CAM charges because they differ from property to property. You need to try to compare apples to apples.

When checking out properties, it is important to determine both the base rent and the CAM rent because you are going to pay both. While base rents are often competitive in close geographical areas, CAM charges can and will vary by quite a bit. Sometimes landlords will offer a lower base rent because they know their CAM rents are higher and they want to be competitive in their rates.

This information is intended only as information as should not be relied upon for anything more than information. Any lease you sign is a legal document and you need to understand the lease and we recommend legal counsel review these documents.