Does commercial rent include utilities? - Posted by Julia Anne

Posted by André on December 25, 1998 at 22:19:05:

There are two types of leases. Gross leases and net leases. Gross would include all servives rendered by a landlord, but normally net of electric, which could be $1,50 per sq. ft. in a moderately warm climate. Tenants normally pay for all their electric. Check with your utility company on the cost of the installation of sub meters, as it is unlikely that tenants would be willing to foot the bill. This is normally a landlord cost. I suggest you find someone who can give you a copy of a comprehensive commercial lease ( a slight bias to landlord would be nice)and study the provisions on operating cost (a.k.a. CAM). There may be books on the subject in your local library, or the local board of realtors may sell a form lease.

Net leases mean the tenants pay for most everything, but as with everything there are always variations.

At any rate, always have your lease language constructed to enable you to recover any increases in real estate taxes, insurance, common area utilities, trash removal etc.

Feel free to e-mail me with any questions. I’m not a know-all, but have managed commercial real estate for 14 years, and hold a BS Real Estate.

Does commercial rent include utilities? - Posted by Julia Anne

Posted by Julia Anne on December 23, 1998 at 18:02:54:

I have found a very nice deal on a 2 story, historical home one block from the new, multimillion dollar courthouse that is the home of several lawyers and a computer 2000 firm (in the state capitol city). The rents are borderline but not bad. However, the current owner, renting to some of his friends, has included the utilities in the low rents. He is also footing the bill for taxes, ins., maintenance. Would it be prudent to divide the utilities (water, gas, elec., garbage) among the tenants by square footage? Or even suggest that each get their own electric meter? The building has 5000 sq. ft. and 6 tenants with space for 3 more. Any ideas?

Re: Does commercial rent include utilities? - Posted by George

Posted by George on December 23, 1998 at 21:24:30:

It is rare for commercial rent to include utilities. With the exception of water and sewer, utilities are usually all seperately metered. I would put in seperate utilities, starting with heat if you are in a cold area. As each lease expires, make sure the new ones include tenant pays whatever utilities you can separate. Maybe even forego a rent increase the first year. You don’t want to chase the tenants unless you know you can replace them easily.
If replacing them may be difficult, take a close look at the tenants. Are they staying only because it’s a friends building? Did he give them a great deal just to get tenants so he can sell?