The Gross Lease
In the gross lease the lessee pays a fixed rental escalating at a predetermined rate per annum and includes all operating costs, rates and taxes which are the sole responsibility of the lessor (generally excluding electricity).
The Net Lease
The net lease separates the net rental from the operating cost and rates and taxes and each component generally escalates at a different percentage per annum. The operating costs are the sole responsibility of the lessor, excluding electricity.
The Triple Net Lease
This agreement accounts for the net rental only with all operating costs, rates and taxes, etc. being the responsibility of the lessee.
Net rental excludes operating costs, rates and taxes, VAT and electricity. The net rental also excludes parking rentals.
Operating costs include the running expenses of a building, the most common being the following:
- Building insurance
- Refuse removal
- Sanitary fees
- Provision of toilet services
- Building security
- Garden maintenance
- Air conditioning maintenance
- Lift maintenance
- Cleaning of common areas
- Common area electricity
- Building maintenance
- Management fee
Electricity consumed in leased premises is usually separately metered for the account of the lessee. The cleaning of the leased premises are usually also excluded from operating cost and separately paid for by the tenant.
Rates & Taxes
Rates and taxes are usually allocated on a pro rata basis in terms of lettable area versus total lettable area of the building, and are adjusted as and when local authorities alter their assessment rates payable in respect of the property.
Value Added Tax
The net rental operating cost and rates and taxes usually exclude VAT, which is added on the total amount on the rental statement.
Gross rental includes the following:
- Net Rental
- Operating Costs
- Rates and Taxes
The gross rental excludes VAT, services charges such as electricity consumption, water consumption, etc. Parking expenses and VAT. When alternative proposals are evaluated the gross rentals in each proposal should be compared with one another.
Parking bay allocations are usually based on a number of parking bays per 100 m2 lettable space. Office buildings are obliged to provide X number of parking bays per 100 m2 lettable spaces depending on the zoning rights of the specific property. However, each building has a specific ratio that is applicable to the different types of parking bays available, for example covered parking and open parking space. Parking rental is over and above the cost not included in gross rental. A separate parking lease may be required in certain instances. Parking rental usually escalates on all annual basis or at a predetermined escalation rate.
Office Installation Allowances
Depending on the prevailing demand / supply situation standard office installation costs will either be covered by the landlord or required as additional costs from the tenant. The allowance is usually based on a list of specifications applicable for a specific building. These specifications refer to partitioning division, doors, wall finishes, floor finishes, power and telephone outlets, lighting levels, air conditioning outlets, thermostats and louver drapes. The allowance is based on the lettable area and most landlords also offer a free design service to assist you in laying out your premises.
Lease Agreement Criteria
Lease Periods and Option Clauses
Generally landlords require a lease term of a minimum of three years. Fitting out allowances are usually also dependant on the length of the lease. For lease periods exceeding five years a rent review would be a pre-requisite. Options to renew a lease after the expiry of an initial term can be granted.
Turnover Rental Clause
Turnover rental clauses are usually applicable to shops and restaurants.
Insurance with regard to the leased premises must be arranged by the tenant.
Bank Guarantees / Deposits and Surety ships
Landlords will require either an irrevocable bank guarantee to a negotiated amount as a deposit for the duration of the lease agreement of personal surety ships may be required from the directors or members. The latter indicates confidence of lease signatories in their own business which is obviously an assuring factor to landlords.
Most companies that lease equipment to tenants require the landlord to sign a hypothec waiver in the event of the tenant’s default in their commitment to the landlord. The landlord must be in possession of the signed hypothec waiver.
Monthly rental is usually payable in advance on or before the first day (which is not a Saturday, Sunday or public holiday) of each month. Lease fees and deposits are payable on or before the earlier of the date on which the tenant takes occupation of the leased premises.
The tenant is liable for maintaining at his cost the inside of the leased premises in good order and condition, fair wear and tear accepted. The exterior of the building and internal common areas are the responsibility of the landlord.
The landlord usually provides building security. The tenant is however in normal circumstances responsible for security and insurance with regard to the leased premises.
In most instances the tenant is responsible for the cleaning of the inside of the leased premises and the landlord is responsible for the cleanliness of the common areas and parking areas.
Most buildings have a set of house rules which provides the tenant with important information with regard to hours of attendance, building management, staff, air conditioning, parking, transport of stock in and out of the building and fire drill procedures.