The lease provides the tenant the option to extend the lease for 1 period of 5 years. The tenant also has the right of first refusal which much be exercised within 30 days of receiving notice of a bonafide offer to purchase. The tenant is also responsible for the payment of all expenses associated with operating, maintaining, and occupying the property commonly called a NNN lease.
The amount of rent, the terms of the lease, and the amount and structure of the agent's commission are all hypotheticals and do not necessarily represent actual market conditions.
It's very important to understand that the real estate agent's commission is calculated on the total value of the lease , meaning the amount of money that's collected by the landlord from the tenant. Contact us if you'd like more information the amount of real estate commission we would charge for leasing your property.
Calculating Leasing Commissions. Share 0. What does this really tell us? We can assume that this begins right when the lease begins, which is reasonable.
Generally speaking, you pay this out either right before the lease begins or right as its beginning. Now, the question of how much is actually paid out is very tricky to answer. And this is something that varies tremendously between different properties, different regions, and different countries. There are a number of ways you calculate this. And if you go down and read a little bit more about it.
Essentially the conclusion is that, it is pretty standard to send it up like this and make it a percent of the lease value. Take the lease dollar amount in each year, multiply by the number of years that the lease is good for. And then have that amount paid out in the beginning of the first year, or perhaps, over the course of one year or several years. The problem, though, is that the percentage part is easy.
We just have the percentages ready. But the total value of the lease across its entire term is somewhat tricky to determine. The question comes up, to determine the Total Lease Value, do we literally go from August of all the way until the very end of this period and then try to go beyond it and project out until the lease actually really ends?
Is that what we do? Or do we go in and just take the first month, right here, and then multiply this by 12, and multiply it by the number of years in a lease, and then determine it based on that? Or do we do something else altogether and just take the first year of the lease over here and multiply this by the number of years in the lease, and then multiply the percentage by that?
One of them extends out to , but then these other two extend out only to or The average life here, we could say, it looks like between five and six years or so. We have those to think about as well. Remember that we already have the average number of years in a lease, because it was one of the assumptions given to us. Of course, there are some problems with this as well. As you just saw, the rate could change because a new year starts in the middle, a new year often starts in the middle, unless the lease begins in January of course.
And you can go through and come up with a list of other problems here as well. They actually only last for about four or five years. Now for the Payout Period, this one is a little bit easier because the case study document tells us directly that the payment term is 12 months.
And then they are paid out over the next 12 months. Now you might think that this part is easy, because we can just divide the lease increment by 12 and then take that 12 all the way across. And also the case where we have multiple lease commissions that are occurred because a lease starts and then also ends within the period shown. We have to actually check for a number of conditions there. But one thing I want to mention and emphasize again is that with all these assumptions, the terms for the leasing commissions vary tremendously.
And going back to that PDF document, take a look at this if you want more. There are so many ways to set this up. We assume that both of them are incurred at the same time. The only difference is that the tenant improvements are paid out all in that month in cash, whereas the leasing commissions are paid out over time.
But we will go through a few cases there to look at what happens. And the logic is very similar to what we saw last time for the Tenant Improvements. But simply, we want to make sure that this is the first month where free rent occurs. Exactly the same as we did for the Tenant Improvements.
That gets us the total value of the lease. And then the question is, do we multiply by the Commission that corresponds the New Leases or to Renewal Leases? If the lease is ended or the lease is just beginning in the period shown in this model, because of the second condition, we want to be using the Renewal Lease Percentage Commission for either of those.
I have the three cases down here that you have to worry about. If the Abatement Period has begun or the lease itself begins in this period, we use the Renewal Lease Commission. And if then none of those are true, we use zero, because that case corresponds to something like what we saw before where we had a lease beginning at the end of and we had free months of rent that move in to in that case sometimes. The logic for the Non-Renewal Case is going to be very, very similar.
And then make sure the Free Rent last month was equal to zero. And then the one from last month should be zero. To get this, we can actually just go down to where we have the rents for the Non-Renewal Tenants. And then… somehow Excel has stopped working here. The next thing we need to do is go up and get our Rentable Square Feet as always, so we have that. And then we also need to get the Lease Term. And this is just a named cell, so we have that. We have all that in the beginning and now we need to check some of this logic for the Lease Start Dates and the Abatement Start Dates.
We have this long and complicated looking formula. Definitely the E and the F, and then other than that, it looks like everything else that should be anchored already is. Now, as a quick check, we can just make sure that the leasing commissions always occur in the same months that the tenant improvements do. And it looks like everything here matches up, so we have that set.
Now, for the next part in this, we need to go up and think about the Non-Renewal Case, which is actually going to be very, very similar for the most part. The rate is usually higher at the start of the lease and goes down over time. A typical structure is 6 percent of the total rent for the first five years of the lease, 3 percent of the total rent for the next five years and 1.
Optional lease extensions can result in an additional payment to the broker, generally at the lowest rate agreed upon in the lease. Commission percentages will vary by the market, property type and the broker herself.
As an example using the 6 — 3 — 1. If he decided to renew after that, the broker who negotiated the terms of the new lease renewal agreement would get paid, and the rate would likely be lower than that initially charged by the first broker. In general office spaces, the broker fee is generally calculated based on square footage of the rented space.
The rate is usually a dollar per square foot, but again, this may vary based on the market and the broker. Assuming a dollar per square foot rate, this commission is much easier to calculate.
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