Understanding Additional Rent: Maximizing Lease Benefits for Tenants and Landlords

What is Additional Rent?

When entering a commercial lease, tenants and landlords must understand the concept of additional rent. This term involves any amounts paid on top of the minimum or base rent, which is the core agreed-upon cost for leasing the property. Additional rent can arise from various components, impacting the overall rental cost.

Key Components of Additional Rent

Percentage Rent

Percentage rent is a common form of additional rent where tenants, typically in retail spaces, owe a portion of their gross sales revenue to the landlord. This additional rent aligns the landlord’s income with the tenant’s business success.

Example: A retail store might pay a base rent of $2,000 per month plus 5% of its gross sales over $50,000 in sales per month.

Overage Rent

Overage rent is similar to percentage rent but usually kicks in after the tenant reaches a certain sales threshold. This is a safeguard for landlords to benefit from a prosperous tenant.

Example: A coffee shop has base rent set at $1,500 monthly and agrees to pay an additional 4% of revenue once monthly sales exceed $30,000.

Common Area Maintenance (CAM)

Common Area Maintenance fees represent the shared costs of maintaining the common areas within a commercial property, such as lobbies, hallways, and restrooms. Tenants pay their proportionate share of these costs as additional rent.

Example: Tenants in a shopping mall may collectively cover costs like landscaping, security, and parking lot maintenance, which are divided based on the size each tenant occupies.

Benefits of Additional Rent

Additional rent models offer several benefits for both tenants and landlords:

• For tenants, usage-based additional rent models such as percentage and overage rent may align payment more directly with business performance.
• For landlords, additional rent helps with property upkeep and incentivizes tenant business success, creating a mutually beneficial relationship.

FAQs about Additional Rent

What differentiates base rent and additional rent?

Base rent is the fixed minimum rent the tenant must pay, while additional rent comprises variable costs like sales-based rents and CAM fees, on top of the base rent.

Is additional rent negotiable?

Yes, the aspects of additional rent are often subject to negotiation in lease agreements. Tenants and landlords can agree on the terms that best suit their mutual interests.

How are CAM fees calculated?

CAM fees are typically calculated on a prorated basis, taking into consideration the tenant’s share of the total property area as the percentage of the total operating costs for common areas.

Related Terms: Base Rent, Gross Lease, Triple Net Lease, Rent Abatement.