Rent


The Rent clause in Lease Agreements is one of the core, standard clauses of the agreement. However, there are many components to the clause aside from the actual rental amount paid. The Rent clause specifies the timeframe and locations for payment, calculations of prorations, increases or late charges and other related terms.

Much of the language in the Rent clause is fairly consistent, with obvious variations in amounts. Some of the example leases differ in the specificity of terms such as calculating prorations, late charges or increases or the timeframe for payments of additional rents. Analysis also revealed several different methods for proration, with the method outlined below being the most common.

Standard Clause

Rent. The Basic Rent shall be paid monthly, in advance on the first day of each calendar month during the term, commencing on the first month of the Lease term and continuing on the first day of each month thereafter, except that the first month's rent shall be paid on execution of this Lease. In addition to the Basic Rent, Tenant agrees to pay Additional Rent amounts in the form of rental adjustments and other charges required by this Lease.

Proration. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

Payment. All rental shall be paid to Landlord, without prior demand and without any deduction or offset except as expressly provided herein, in lawful money of the United States of America, at the address of Landlord designated on the signature page of this Lease or to such other person or at such other place as Landlord may from time to time designate in writing.

Late Charges. In the event Tenant fails to pay any installment of rent within [five days] of when due or in the event Tenant fails to make any other payment for which Tenant is obligated under this Lease within [five days] of when due, then Tenant shall pay to Landlord a late charge equal to [5% of the amount due] to compensate Landlord for the extra costs incurred as a result of such late payment.

Optional Additional Clause Elements

Base Rent Increases. During the initial Lease Term (and any Option Term), commencing on the one year anniversary of the Lease Commencement Date, and on each annual anniversary thereafter during the Lease Term (the Adjustment Dates ), the Base Rent shall be increased by [3%].

Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (Additional Rent): (i) Tenant's Share of Operating Expenses (as defined in this Lease), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

Tenant Adjustments. Tenant shall have no right at any time to abate, reduce, or set off any rent due hereunder except where expressly provided in this Lease.

Examples from EDGAR

Base Rent.

3.1 (a) During the Lease Term, Tenant shall pay to Landlord as annual base rent (used interchangeably as “Base Rent” or “base rent”) for the Premises, without set off, deduction or demand, an amount equal to the product of Forty-Seven and 00/100 Dollars ($47.00), multiplied by the total number of square feet of rentable area in the Premises as set forth in Section 1.1, which amount shall be increased as provided in Section 3.2 below. The annual base rent payable hereunder during each Lease Year shall be divided into equal monthly installments and such monthly installments shall be due and payable in advance on the first day of each month during such Lease Year. Concurrently with the signing of this Lease, Tenant shall pay to Landlord the sum of Eighty-Three Thousand Eight Hundred Sixteen and 67/100 Dollars ($83,816.67) (“Advanced Rent”), which sum shall be credited by Landlord toward the monthly installment of annual base rent due on the first (1st) day of the first calendar month falling after the month in which the Lease Commencement Date occurs (subject to any abatement to which Tenant is entitled pursuant to Section 3.1(b) below). In addition, if the Lease Term begins on a date other than on the first day of a month, rent from such date until the first day of the following month shall be prorated on a per diem basis at the base rate payable during the first month, and such prorated rent shall be payable in advance on the day immediately following the last day of the Abatement Period (as hereinafter defined).

(b) Notwithstanding anything to the contrary contained in this Article III and provided no Event of Default by Tenant has occurred, Landlord hereby agrees to grant Tenant an abatement of the annual base rent payable hereunder (and the Operating Expenses payable pursuant to Section 4.1(a) below) for a period of twelve (12) full calendar months from the Lease Commencement Date, as defined in Section 2.2 above (the “Abatement Period”). Thereafter, commencing on the first day of the second (2nd) Lease Year, Tenant shall pay the full amount of annual base rent due in accordance with the provisions of this Article III (and the full amount of Tenant’s proportionate share of Operating Expenses due in accordance with the provisions of Article IV). Notwithstanding anything to the contrary in this Section 3.1(b), the rent escalation, as required by Section 3.2 below, shall be based on the full and unabated amount of rent payable for the first (1st) Lease Year as set forth in Section 3.1(a) above.

3.2 (a) Commencing on the first (1st) day of the second (2nd) Lease Year and on the first day of each and every Lease Year thereafter during the Lease Term, the annual base rent shall be increased by two and fifty hundredths percent (2.50%) of the amount of annual base rent payable for the preceding Lease Year.

(b) Based on the foregoing, the Annual Base Rent and Monthly Base Rent payable for the Premises during the initial Lease Term shall be as follows (subject to Section 3.1(b) above):

[Rent Table Omitted]

3.3 All rent shall be paid to Landlord in legal tender of the United States at c/o Boston Properties, P.O. Box 3557, Boston, MA 02241-3557, or to such other address as Landlord may designate from time to time by written notice to Tenant. If Landlord shall at any time accept rent after it shall become due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord’s rights hereunder. If any sum payable by Tenant under this Lease is paid by check which is returned due to insufficient funds, stop payment order, or otherwise, then: (a) such event shall be treated as a failure to pay such sum when due; and (b) in addition to all other rights and remedies of Landlord hereunder, Landlord shall be entitled (i) to impose a returned check charge of Fifty Dollars ($50.00) to cover Landlord’s administrative expenses and overhead for processing, and (ii) to require that all future payments be remitted by wire transfer, money order, or cashier’s or certified check.

3.4 Landlord and Tenant agree that no rental or other payment for the use or occupancy of the Premises is or shall be based in whole or in part on the net income or profits derived by any person or entity from the Building or the Premises. Tenant further agrees that it will not enter into any sublease, license, concession or other agreement for any use or occupancy of the Premises which provides for a rental or other payment for such use or occupancy based in whole or in part on the net income or profits derived by any person or entity from the Premises so leased, used or occupied. Nothing in the foregoing sentence, however, shall be construed as permitting or constituting Landlord’s approval of any sublease, license, concession, or other use or occupancy agreement not otherwise approved by Landlord in accordance with the provisions of Article VII.

(Lease, July 25, 2011, [Square 54 Office Owner LLC and Vanda Pharmaceuticals Inc.])

Base Rent. Tenant shall deposit monthly installments of Base Rent, along with applicable value added tax, directly into the Rent Payment Account or at such other place designated by Landlord, monthly, in advance, on the first day of each calendar month during the Term, without notice or demand and without any setoff, abatement or counterclaim. Any change of Landlord’s payment address should be within Mexico and with one month’s advance notice. Deposits of rent will be made by Tenant directly into the Rent Payment Account by, at the election of Tenant, wire transfer or intra-bank or inter-bank transfer of funds within the Mexican banking system or by check drawn on an account in a Mexican bank. Landlord agrees to render to Tenant monthly rental invoices, which shall comply with all applicable Mexican legal and tax requirements and include a breakdown of the value added tax. Said rental invoices shall be issued and delivered to Tenant at Tenant’s Notice Address on the date rent is paid and shall contain the amount of rent paid in United States Dollars, as well as the corresponding amount in Mexican Pesos, according to the exchange rate published in the Official Journal of the Federation (Diario Official de la Federación) on such date. Landlord acknowledges that Tenant has the right to pay rent in Mexican Pesos. In the event that rent is paid in Mexican Pesos, such will be paid at the rate of exchange in effect for selling Mexican Pesos to purchase United States Dollars, according to the rate published in the Official Journal of the Federation (Diario Official de la Federación) on the date Tenant pays Landlord such rent. If the Commencement Date does not occur on the first day of a calendar month or if the Term does not expire or terminate on the last day of a calendar month, rent payable hereunder shall be prorated for such partial month on the basis of a thirty (30) day month. In addition to all other rights and remedies provided Landlord, all amounts payable hereunder which remain unpaid for five (5) days after their respective due dates and Landlord has given written notice to Tenant, shall bear interest five (5) days from the date that Tenant receives the written notice from Landlord and payable to and including the date of payment, at the rate of twelve percent (12%) per annum.

(Lease Agreement, June 24, 2011, [Inmobiliaria Ayusa, S. de R.L. de C.V. and Lucent Technologies Microelectronica de Mexico, S.A. de C.V.])

Discussion

"A lease or rental agreement sets out the rules landlords and tenants agree to follow in their rental relationship. It is a legal contract, as well as an immensely practical document full of crucial business details, such as how long the tenant can occupy the property and the amount of rent due each month. Whether the lease or rental agreement is as short as one page or longer than five, typed or handwritten, it needs to cover the basic terms of the tenancy.

Here are some of the most important items to cover in your lease or rental agreement...

Rent. Your lease or rental agreement should specify the amount of rent, when it is due (typically, the first of the month), and how it's to be paid, such as by mail to your office. To avoid confusion and head off disputes with tenants, spell out details such as:

  • acceptable payment methods (such as personal check only)
  • whether late fees will be due if rent is not paid on time, the amount of the fee, and whether there's any grace period, and
  • any charges if a rent check bounces."

Ten Terms to Include in Your Lease or Rental Agreement (via NOLO)

"While a tenant would like to fix the base rent for an extended period of time, most experienced landlords will insist on an escalation provision to account for inflation. In a down real estate market, however, the tenant should be able to negotiate for a fixed base rent for at two, if not three years. Rent escalations are often tied to one of the many indexes, the most common of which is the Consumer Price Index. Which index to use, whether to place a cap on any annual rental increase, and whether or not the rent will remain fixed for a certain number of years, are all negotiable items.

Although the amount of the base rent is an important consideration, it should not be the only consideration. Rent is usually comprised of multiple items: (1) Base Rent (stated monthly rent); (2) Operating Costs for Common Area Maintenance (a.k.a. Pass Through CAM expenses); and (3) Required Insurance. As stated above, the Base Rent is typically a fixed monthly fee, but many commercial leases also seek to require the commercial tenant to pay a proportional share of the landlord's operating costs incurred in connection with the management, operation, repair and maintenance of the property. This too is negotiable and a common trap for the unwary tenant who may not realize that these pass through operating expenses can substantially increase. "

Melissa C. Marsh, California Commercial Lease Agreements – Traps For the Unwary Tenant and Landlord (via Law Office of Melissa C. Marsh)