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Commercial Leases in Kansas City, Explained

Jeff Coppaken July 26, 2016

Kansas City Commercial Real Estate

Is your business ready for a move? Is it time to sign a new or first lease? Or is it time to take on a tenant?

If the thought of researching a commercial lease makes your head spin, you’re not alone. The terms of commercial leases can be intimidating. Luckily, the basics of commercial leases are simplified for you here. Generally, commercial leases assign responsibility for costs or maintenance to either the Landlord or the Tenant.

Commercial Leases can be structured in many different ways, I have reviewed leases in Kansas City and other markets, here are some of the most common terms that I see.

Terms Commonly Found in Commercial Leases:

Common Area Maintenance “CAM” — CAM charges are one of the net charges billed to tenants and are usually paid to the landlord. A CAM charge is on top of the tenant’s base rent. A CAM charge mainly consists of maintenance fees for work and upkeep of the common areas of a property.

Each tenant pays their pro rata share — or equal proportion — of a property's total CAM charges. The shares are each prorated by the percentage of the tenant's rented square-footage of the total, rentable square-footage of the property

Base Year — In a full service or modified gross lease, the landlord agrees to cover a tenant’s share of the annual operating expenses.

The landlord’s responsibility is equal to the expenses incurred in the first year or “Base Year.” This figure becomes the benchmark to determine the tenant’s share of excess operating expenses in future years. The tenant’s responsibility is referred to as a “pass through” in many leases.

Full Service Gross Lease “FSG” — In FSG leases, the base rent, CAMs, utility costs and janitorial services are clustered into one rental payment. You pay one set price per square foot for almost everything involved with the rental of your space. This allows you to easily budget for you rent for years to come. One of the drawbacks to Full Service Gross leases is that the tenant is subject to annual increases.

Triple Net Lease “NNN” — A Triple Net Lease, or an NNN lease, puts all of the financial responsibility on the tenant. The tenant will be responsible for base rent and their share of the CAM. The tenant is also responsible for utilities and janitorial services to the tenant’s premises. The tenant will pay their rent to the landlord and then pay for the other services directly to the service provider. The advantage of an NNN lease is transparency for the tenant.

Modified Gross Lease “MG” — A Modified Gross Lease adds the CAM charges into the base rent. All MG leases contain a “Base Year Expense Stop” to protect the landlord against increasing operating costs. Similar to NNN leases, a tenant with a Modified Gross Lease will pay for utility costs and janitorial services. Modified Gross Leases are commonly used for office leases.

These definitions, explanations, and examples are provided to give you a general idea of what to expect in each of these lease types. Commercial leases can be quite complex. If you need a business lawyer in Kansas City, contact Jeff today.