Additional Rent in Commercial Real Estate Leasing
Contact Neufeld Legal PC for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Additional rent in a commercial leasing arrangement is a rental charge equivalent to the tenant’s proportionate share of the building and real property’s insurance, realty taxes and operating expenses incurred by the landlord.
The constituent parts for determining additional rent are set out in the commercial lease agreement, including the landlord’s incurred expenses from the operation of the building and real property, such as insurance, realty taxes (as opposed to the landlord’s income-related taxes), management, administration, maintenance, repair costs, common area costs, and a broad array of further operating expenses.
The specifics are generally set forth in the commercial lease agreement, which identifies what is included by way of both regularly recurring expenses and occasional expenses, including the specific scenarios where such expenses may be excluded (for example, where another commercial tenant is solely responsible for the particular costs).
The landlord will attempt to recover by way of additional rent as much of the expenses it has incurred and is permissible pursuant to the commercial lease agreement and the law; such that a commercial tenant needs to scrutinize the lease agreement against inappropriate or improper inclusions in additional rent.
Commercial tenants are typically charged their proportionate share (based on the square footage of the premises as a percentage of the total square footage leased of the building) of those permissible landlord expenses that are charged by way of additional rent. Due to specific tax considerations, commercial tenants only pay, in their proportionate shares, the equivalent of the landlord’s operating expenses due to the particularities of GST/HST taxation, that makes direct payment not tax advantageous.
It should also be noted that the amount of additional rent can change and fluctuate from year-to-year, with landlords oftentimes providing an annual estimate which tenants pay subject to a year-end reconciliation. This variability in additional rent from year-to-year cannot be underestimated given that the fluctuations can be considerable and the commercial tenant is contractually obligated to make payment thereon.
The financial impact and inclusionary breadth of additional rent are such that it must be seriously scrutinized prior to entering into a commercial lease agreement such that it is properly budgeted .
For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.
Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.