Commercial tenant lease

4 Replies

Hi all

I have to renew a lease with a tenant for a commercial space in a small building in NJ soon. I was wondering if others are charging "additional rent" ie having the tenant pay a portion of taxes and insurance beyond his rent payment. If so, is there a percentage others are using? Also, what time length ie how many years are others writing the lease for? Also, how much are others increasing the rent yearly?

Also in terms of collecting rent, any good suggestions aside from tenant mailing check? I am having tenant pay rent to the LLC. I deposit it in that account, but sometimes there's issues with getting lost in the mail etc, so I am looking to streamline that process while still being able to get the payment in the LLC account. Is it a problem to get the rent in my name and use Zelle and then use online banking to move the money into that account? Not sure if that breaches the LLC veil.

Thanks for any input!!

Hi @Amanda T.

So, first, additional rent is typically charged in multi-tenant buildings with common areas, and each tenant pays their pro rata share of the costs of taxes, insurance and common area costs depending on their floor area. Single tenant buildings (especially larger or national) typically pay their own bills directly to the taxing and utility authorities (NNN leases, typically), or pay gross rent. If they are mom and pop type tenants, you can usually collect gross rent in an amount a little bit above market rent so that you can pay the taxes and insurance yourself but you are compensated through their gross rent. If you have not been charging them for taxes and insurance all this time and you want to first start now, they will likely require a reduction in the base rent to account for the additional amounts paid to you for "CAM", so you should end up relatively even unless they are using a ton of utilities or taxes have gone up a ton, etc.

You can have them direct deposit your rent, or set up an auto pay to your account. What you suggested above does cause a problem with LLC protection.

Hope that helps!

Thanks Jessica!

The tenant has a previous lease that states there’s additional rent for insurance and tax increases but I’m not sure if it was actually collected from the previous owner. 

For direct deposit or auto pay, is there a worry about giving out the account number?  Just trying to see what’s the best option. 

No, I wouldn't worry about giving them the account number. Whenever you write a check it's on the bottom of your check anyway, so it's not really a secret. Obviously I wouldn't share passwords or pin numbers, but just the account number should be fine. Direct deposit is pretty common for tenants. 

Whether the past landlord collected those amounts, you have the right to. If it's a good tenant and rental income is good, you may want to compromise, but you certainly have the right to if the lease says so. Is this a real extension/renewal or a whole new lease?

We were just going to do a whole new lease since the original is from 2013 and will soon be over.  

Thanks for your input!  Extremely helpful!!  I really appreciate it!