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Commercial property net rent and gross profit 1


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Commercial property net rent and gross profit 1

  1. 1. Strategies To Improve Property Performance of Singpore Property Commercial Investment Property on Netand Gross RentWhen acting on behalf of the landlord in leasing commercial or retail Real Estate it is essential to understandthe rent structures that suit the legal circumstances of the property and also the landlords investment plans.So we have net and gross rents to consider and use in our leasing strategies. Which ones do we choose?Other smaller tenants will contribute towards rates and taxes plus insurance; and finally some smallertenants will contribute towards rates and taxes, insurance, and all building running costs. From a landlordsviewpoint, the base net rent should be adjusted upwards if the tenant is only paying for some of theoutgoings for the premises; in that way the landlord gets back the building operational costs. In the case ofoutgoings contributions it is necessary that a landlord comply with legislation regards outgoings disclosures,reconciliations, and notices.Net rents are a useful strategy to recover part or all of the landlords property operating costs, but there areseveral variations of net rent. Gross rents also have a place in the property performance plan.As the leasing or managing agent it pays for you to understand what rental situation best suits the landlordsneeds and the local laws as they apply to leasing of the premises. Here are some key lease rental differencesand variations.A gross rent is therefore higher than a net rent for this very reason. A gross rent is usually a rent thatincludes a component to the value of outgoings plus a projection for inflation on those outgoings. It is veryeasy to apply a fixed percentage rent review to a gross lease. The landlord has to take the risk of this processso the calculation of the gross rent has to be carefully considered. A gross lease does not normally requireany outgoings reconciliation or adjustment so it is a rent of choice when it comes to property management.Importantly the gross rental number has to be well considered and set at lease negotiation time; if this is notdone, the landlord can set a rent that loses them money over time.Net rent is essentially a rent that is paid by the tenant plus a component of outgoings for the premises thatthey occupy. The largely forgotten or underutilized fact of net rent is that there are variations. Some tenants(usually the larger ones) will contribute towards rates and taxes only.From the outset lets detail what a gross lease is and why it would be used. A gross lease is that whichapplies as one basic rental that puts the obligations fully on the landlord to pay for all rates and taxes,insurance, property running costs, and maintenance. The tenant does not pay for these as a direct payment orreimbursement. Logic says that a landlord using a gross rent strategy should ask for a gross rent that offsetsand recovers the financial burden of the outgoings normally payable for that tenancy by the tenant under anet rent.
  2. 2. So what rent is best? They both are, however the landlord and the property manager should consult on whatrent is acceptable for the premises, the market, and the tenant. On that basis a good lease can be created.soleil