Commercial and retail leases use various rental pricing methods. The decision as to which commercial lease calculation method to use is frequently related to the type of tenant business. It could also have to do with the economy, balancing a need to retain an occupant with their ability to pay based on their business revenues.
Rent per square foot - Rent is set at $xx.xx per square foot of the leased space. This can be expressed either as an annual or a monthly amount.
Example with annual quote: A 2200 square foot office space is quoted a rent of $11.50 per square foot. 2200 X $11.50 = $25,300 per year for rent.
Example, same building and rent for monthly amount: 2200 X $11.50 = $25,300 Divide by 12 months to get a monthly rental amount of $2108.33.
Percentage Lease - Retail volume can vary significantly due to many factors, including the economy and also location. For this reason, it is a common practice for a landlord, in their commercial lease calculation, to determine a base rent that they absolutely need, and then to have the tenant pay a percentage of their retail gross income in addition to the base rate. This is logical as, if the location is a good one, then retail sales should rise and enable the tenant's ability to pay higher rent. There are two ways in which the percentage is normally calculated:
Minimum base rent + percentage over a certain base amount: In this case, the tenant pays a minimum base monthly rent, and then adds a percentage of all gross receipts over a certain base amount. Example: $1000 per month base rent, and 5% of all gross receipts over $50,000 per month. Using one month's gross receipts of $72,000, we do the calculation this way:
$72,000 - $50,000 = $22,000. $22,000 X .05 = $1100. $1100 + base of $1000 = month's rent of $2100.
Minimum base rent + percentage of all gross receipts: Here, we don't set a bottom line revenue before the percentage kicks in. Rent is paid on all gross receipts from $zero. Example: $500 base rent + 2% of gross business receipts. If we use the previous numbers, we'd take 2% of the entire $72,000 and add that to the base rent, as here:
$72,000 X .02 = $1440. $1440 + $500 = monthly rent of $1940.
Here's the commercial lease calculation spreadsheet for download.