Terms and Definitions

Net Rental Rate = Net Rate = Triple Net Rental Rate = Basic Rental Rate

Though the Net Rental Rate appears to be a single number and fixed, there is combination of variables which make it up.

Additional rent = Operating Costs and Taxes = Operating Costs

This is the variable rate which makes up all the costs associated with running the facility such as; taxes, maintenance, repairs, heat, hydro, insurance, landscaping, building management fees.

Gross Rental Rate = Net Rental Rate + Additional Rent

This figure multiplied by the Rentable Area is the Annual Gross Rent

Rentable Area = Gross Rentable Area

This is the actual area which you pay rent on, includes areas in a building which you need to run and access the building such as telephone rooms, washrooms, janitor closets, exterior hallways, lobbies. But not verticals. On average, in a multi-floor facility, this number ranges between 10-15%, in a single use facility its about 5-7%.

Useable Area = Net Rentable Area

This is the actual space which you use including columns, and interior walls.


Stairs and elevators

BOMA = Building Owners and Managers Association

The measurements above and how they are done are based on definitions created by BOMA, this should be in all leases or sure measurement can be distorted.

NER = Net Effective Rate = Net Effective Rental Rate

This rate is that which the landlord ends up with after all carrying costs have been taken out. The NER allows different transactions to be compared since it takes out all the variables and brings it back to one single number. The NER can be present valued back to time zero, or averaged out on an annual basis. We prefer to net present value it back since it is more accurate. The NER provides the base point for the Net Rental Rate. From rule of thumb, 8% semi-annually compounded should be the discount rate used for such calculations.

TIs = Tenants Work = Leasehold Improvements

These are items specific to the tenant and above and beyond the Base Building (carpets, partitions, distribution of HVAC and electrical, specialty items). Amortized over the term, it can be worked back to a square foot figure which is then added to the NER forming part of the Net Rental Rate. The longer the term, the less the annual cost of the TIs.

Base Building = Base Building Standard

Base Building is those items which are not specific to the tenant but required to provide a suitable building, such as; concrete floor, finished ceiling, prime painted walls, blinds, lobby etc. The amortization period for the Base Building is based on the life of the building (15-20 years). Therefore, it is beneficial to have as much tenants work as possible included in the Base Building.