The Commercial Real Estate Blog

What are the types of commercial real estate escalations

People who need space to rent for their business should search for commercial real estate property to lease. Whether they need a restaurant, an office space, an industrial warehouse, a retail strip, or other type of building, they will be required to sign a lease agreement. These documents may differ from location to location, and with every management company. However, there are escalation clauses that might be similar in a large number of lease contracts.

Escalations, Rental Rate and Term

Large numbers of commercial rental rates are determined by the size of the area that business owners are leasing on a monthly basis. In general, the larger the space they lease, the lower their rate per square footage. When bargaining a commercial real estate property, tenants should work toward the shortest period with the lowest lease rate.

In the interim, the proprietor will want prospective tenants to sign a long-term contract and will propose the lowest lease for the longest period that prospective tenants will agree to. Nonetheless, rental escalations will amplify their rate automatically every year, thus tenants must know how much their cost will be in the years that follow. A few escalations are based on a fixed percentage of the rent for inflation and enhanced costs of the proprietor over the length of the term.

Triple Net

Commercial real estate areas such as strip malls, restaurants, and office buildings may necessitate tenants to pay additional costs as a fraction of other expenditures. Triple net lease, or NNN, includes expenditure for maintenance, hazard insurance, and property taxes. The total is prorated according to the size of the property that a business owner leases, so that tenants in the building pay a fair sum.

Common Area Maintenance (CAM)

CAM is the sum charged for maintaining spaces shared by all the tenants, for instance, elevators, walkways, parking lots, and stairways. This disbursement is calculated as part of the NNN commercial real estate lease.

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