UCREW Presents: CRE Terminology 101 - Leasing

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Want to learn the language we use in our industry? UCREW is launching our new educational series for students and young professionals alike. Follow us at @crewvancouver on InstagramFacebookTwitter, and LinkedIn and keep an eye out for our CRE 101 posts and reels on our Instagram Highlights!

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1 / Comparables ("Comps")

Lease comps are used to determine what a property is worth by helping to determine the range of rental rates your property can expect to rent out for. Selected comps must be: 1) recently transacted; 2) an "arm’s length" transaction; and 3) have similar property features, tenants and lease terms as your Subject Property.

Property feature considerations include: Location (downtown vs. suburban), property type (street front retail vs. enclosed mall), quality of improvements, location within building (ground floor vs. tenth floor), and size of unit. Other business considerations include: The tenant’s use (grocery store vs. clothing retailer), tenant’s covenant (eg. public company vs. local business), and others (5 year term vs. 10 year term; termination rights, free rent, etc.).  

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2 / Base Rent & Additional Rent

Base Rent (ie. minimum rent, or face rate) is the negotiated rent that tenants must pay to their landlords. This is tied to the property value, and is influenced by the property features (see above). Tenants may have more leverage to negotiate lower base rents if they are looking for a longer lease term, larger space, and have good credit/covenant.

Additional Rent consists of the actual costs to occupy, operate & maintain the property. This rent is typically not fixed nor negotiated as it varies based on use. Landlords usually pay for the costs up-front, and recover these costs by charging tenants Additional Rent calculated on a pro-rata basis.

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3 / Types of Commercial Leases

The most common are Triple Net Leases ("NNN"), which ensures that the tenant pays for all (or their pro-rata share of) expenses related to the property. These leases are considered favourable to the landlord as the landlord will not have to pay for operating expenses and property taxes.

Semi-Gross Leases occur when tenants pay for some of the operating expenses, but not all. Gross Leases occur when tenants do not pay for any operating expenses. Both semi-gross and gross leases are more favourable to the tenant because landlords are required to pay out of pocket for some expenses. However, landlords may charge a higher base rent to capture some of the operating costs not recovered through additional rent. 

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