What is the true cost of a commercial lease?
The true cost is far more than the headline base rent. Over a multi-year term you also pay annual rent escalations, additional rent (CAM, property taxes, insurance and building operating costs), and often sales tax on rent. Free-rent periods and tenant improvement allowances reduce it. Adding these across the full term shows the real commitment.
What is additional rent or CAM?
Additional rent — often called CAM (Common Area Maintenance) or 'net' charges in a triple-net (NNN) lease — is the tenant's share of the landlord's operating costs: property taxes, insurance, maintenance, utilities and management. It is charged per square foot on top of base rent and typically rises each year, so it must be budgeted separately.
How do rent escalations work?
Most commercial leases increase base rent each year, either by a fixed percentage (e.g., 3%), a set dollar step, or a consumer price index. A 3% annual escalation compounds, so a lease starting at $30 per square foot reaches about $34.78 in year five. Always model escalations across the full term rather than looking only at year-one rent.
Is a free-rent period really free?
A free-rent (rent abatement) period waives base rent for a set number of months, usually early in the term to offset fit-out time. It genuinely reduces your total cost, but additional rent and operating costs are often still payable during 'free' months, so read the clause carefully to see exactly what is abated.
How should I compare two commercial leases?
Compare total occupancy cost over the same term, not just base rent per square foot. Include escalations, estimated additional rent, any rent tax, and subtract concessions like free rent and improvement allowances. A lower base rent with high CAM and steep escalations can cost more than a higher base rent with a flat structure.