Commercial leases are one of the most effective real estate options for anyone looking for a property for their business. It works by activating a monthly or yearly contract with a lessor instead of paying a fixed monthly rent for the commercial space. A commercial lease is also an excellent option if you don’t want to buy the property outright.
Generally, such an agreement affords the lessor and tenant more advantages than regular leases or purchases. However, you must note the different variables on which commercial lease deductions depend.
Therefore, you might want to accurately calculate your commercial lease charges, regardless of the agreement type. But how does a typical commercial lease calculator work? Do the calculations change depending on the rental property type as well?
This piece highlights some of the intricacies you must note when employing a commercial lease calculator for your contract.
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What Does a Commercial Lease Calculator Cover?
A commercial lease involves paying for specific units in a building each month instead of renting the entire property. You could either rent the total square footage of space or the common building areas you operate throughout your tenure.
In some other cases, the lease could include property tax and insurance on the entire commercial property. You can use a commercial lease calculator for double net or triple net lease property types. A typical calculator would cover gross and net lease agreements on shopping malls, office spaces, and retail outlets.
The system would consider the base rent and total additional cost you’d have to pay monthly or annually. Generally, expect to pay a higher additional charge if the base rent is low, as in a triple-net commercial lease. The arrangement is to cover maintenance, repairs, and taxes separately.
On the other hand, you could have a full-lease arrangement with higher base rent and none of the hefty add-on costs.
Commercial Lease Calculator Formulas
Since the commercial property owner and tenant could choose from several agreement types, the commercial lease calculator would arrive at a rent value using certain variables. Some of them are:
Usable Space Per Square Feet
You could agree with the lessor to calculate the base rental rate using the space available to you for your business per square foot. Most commercial property owners go with this arrangement when considering the company itself and its operation scale. You could either pay for space per square foot annually or monthly.
The commercial lease commission calculator could work out your annual rent by multiplying the rate for each unit of usable space by the total rentable space per square foot. For instance, the yearly rent for a property with a $10/sq.ft area and 1000 sq. ft rentable space comes to about $10,000.
Such a calculator is most suitable for medium to large businesses that find it more cost-effective to make a one-time annual rent. Since they’d pay a lump sum to the lessor, the company could negotiate for add-on charge waivers and more included services. It’s also a practical commercial lease option for tenurial business models that need to determine their yearly profits seamlessly.
You could pay for usable space per square foot on a commercial lease monthly. All the lease calculator has to do is divide the annual rent equation by 12. Therefore, using the previous example of the property whose rate is $10/sq.ft, the monthly rent would be $10,000/12. The total comes to approximately $833 monthly.
Monthly rent calculations are most helpful for small businesses and startups whose models and annual profits are still in flux. This arrangement also shields them if the lessor’s company takes the plunge. The tenant could terminate the commercial lease contract and trigger their security deposit refund.
However, monthly rents on commercial leases often come with additional charges such as maintenance and operational expenses.
As a result, your commercial lease calculator might have to handle them separately. It’ll help if you approach the lessor to negotiate these add-on costs, especially when there are other tenants elsewhere in the building.
Rental By Percentage
Another formula your commercial real estate rent calculator can use is the percentage rental agreement. It involves the property owner receiving a percentage of your business’s total profits. However, it has to be a mutual agreement between both parties, with the rates depending on the tenant’s revenue potential.
Generally, you’d still have to pay a small base rent, with the percentage rent going against the other areas you use on the property. The two ways to calculate rental by percentage are:
Fixed-Base Profit Percentage
This method involves the lessor charging a base rent and a percentage of the tenant’s profit when it reaches a predetermined mark. For instance, a commercial property may have a base rent of $1000 per month, with the owner specifying a fixed-base profit percentage of 10% on the tenant’s revenue over $10000.
If you made a gross profit of about $35,000, you’d have to enter 10% over the additional $25,000 in your property lease calculator. The equation comes down to $1000 + ($35,000 – $10,000) × 10%. The total in this example would come to $3500.
Gross Profit Percentage
The lessor could also use the gross profit percentage instead. This method requires the tenant to pay a portion of their gross profits. Using the previous example, the tenant would only have to input the 10% over the gross profit of $35,000 in the commercial rent increase calculator. The result gets added to the base rent of $1000, making the total payable charge $4500.
While it might seem like you’d end up paying more on your commercial lease with the gross profit percentage equation, it’s more economical for businesses whose gross profits are low or in constant change.
A commercial lease agreement could ensure that the property owner and tenant enjoy more benefits over a certain period. The lessor gets to have more profits from each building unit than a regular rent. On the other hand, the tenant only pays for the space used.
Businesses use a commercial property lease calculator to draw up an exact lease cost they’d have to bear monthly or annually. The system uses one of the formulas and rates discussed above to determine the monthly or annual rent. Overall, it’s essential to go over the various lease payment options with your lessor to see which suits both parties best.