Quiz 22: Leases and Property Types

Business

In order to determine the amount that Tenant B is liable for, perform the following calculations: First, calculate rent will be paid by tenant B. To get it, divide the total amount of operating expenses recoverable from tenants in the current year by the total rentable area of the office building and multiply with rentable area occupied with tenant B: img At this point the tenant owes $7 per square foot rented. The tenant rents 10,000 square feet, so the debt at this time is $70,000. Next, determine the expense stop of $5.50 for each square foot and subtract $5.50 from $7 to get the difference of 1.50 and then multiply that number by the total square feet of the building that the tenant occupies: img Total amount of owners recover from Tenant B: img Therefore, with the expense stop, the owners will recover the amount of $15,000 from Tenant B.

A. Percentage lease.

Reason to a tenant prefers a lease with a higher effective rent than an alternative lease with a lower effective rent: • A higher effective rent may be preferable because the tenant may want to keep the space for a prolonged period of time or because the tenant believes that the rent rates will go up over the time of the extended lease. • Effective rent does consider costs related with releasing the property and is not flexible with terms. • In addition, effective rent does not provide for risks related to lease substitution or replacement. Therefore, by considering above reasons a tenant prefers a lease with a higher effective rent than an alternative lease with a lower effective rent.