Of all the expenses to consider in running your new business, rent is one of the largest. In commercial leasing, "Base Rent" is generally marketed on a per square foot, annualized basis. However, one feature to be cognizant of is rent escalation based on the Landlord operational cost increases or the dreaded “Additional Rent”. Landlords want protection from uncontrolled cost increases that affect their return. So, they will bill back to all tenants a pro-rata share of the operational cost increases. The Base Year for calculating the additional rent can be as arbitrary as a negotiated number, or a true reconciled operational cost, based on EOY calculations. While this seems pretty straightforward, most tenants do not consider the compounding impact of Additional Rent on their bottom line. An experienced broker can help tenants properly negotiate this important lease provision.
As a wise man once said, "Those who understand compounding are destined to collect it and those who do not are doomed to pay it."