Base 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

Base rent is the set rental payments that a commercial tenant must pay to the landlord for leasing commercial real estate, as distinct from variable rental payments such as additional rent and percentage rent.

Base rent is established at the outset of the lease term and its renewal, with it being quite common for the base rent to escalate during the lease term and its renewal.

The calculation of base rent typically involves multiplying the square footage of the leased space by the agreed-upon rental rate per square foot. For example, if the base rent is $20 per square foot and the leased space is 1,500 square feet, the base rent would be $30,000 annually ($20/sq ft x 1,500 sq ft), resulting in monthly base rent payments of $2,500. The escalation of base rent over the course of the lease term might proceed by way of a step escalation, such that base rent might commence at $20 per square foot for the initial 4 years of the lease term, increasing to $22 per square foot for the next 4 years of the lease term, and a further increase to $24 per square foot for the final 2 years of the lease term.

Although many commercial lease agreements provide for a fixed base rent for the lease term, with prescribed step escalations in the base rent at set times during the course of the lease term, there are commercial lease agreements that allow for adjustments to the base rent at specified intervals to take into account actual inflation, market value, etc.

If the base rate is subject to adjustment at specified times during the course of the lease term, it is important to understand the methodology for calculating those adjustments to base rent, be it Statistics Canada cost of living adjustment, consumer price index, fair market rental value, arbitration, etc.

Base rent, together with its escalation over the course of the lease term, together with other rent payments, such as additional rent and percentage rent, if applicable, must be properly scrutinized prior to entering into a commercial lease agreement such that it is appropriately 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.

Base Rent in Commercial Leases

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