BOMA Lease Administration & Finance 1 — Questions and Answers
Question 1: In a typical commercial 'triple net' (NNN) lease, what costs does the tenant pay in addition to base rent?
- Property taxes, insurance, and maintenance/operating expenses (Correct answer)
- Utility costs and janitorial services only
- Capital improvements and structural repairs
- Management fees and leasing commissions
Correct answer: Property taxes, insurance, and maintenance/operating expenses
In a triple net lease, tenants pay base rent plus their pro-rata share of property taxes, building insurance, and operating/maintenance expenses.
Question 2: What is a 'base year' in a commercial office lease?
- The year whose operating expense level is used as the baseline for future expense pass-throughs (Correct answer)
- The first year of the lease term used to calculate annual rent escalations
- The year the building was constructed for depreciation purposes
- The fiscal year used for landlord financial reporting
Correct answer: The year whose operating expense level is used as the baseline for future expense pass-throughs
The base year establishes the operating expense level the landlord absorbs; tenants pay their pro-rata share of expenses that exceed the base year amount.
Question 3: What does 'expense stop' mean in a commercial lease?
- A fixed dollar amount per square foot above which the tenant pays operating expenses (Correct answer)
- A clause limiting how much expenses can increase annually
- The termination of expense reconciliation after lease expiration
- A cap on the landlord's controllable operating expenses
Correct answer: A fixed dollar amount per square foot above which the tenant pays operating expenses
An expense stop is a fixed dollar amount per rentable square foot; the landlord pays expenses up to that amount, and the tenant pays any excess.
Question 4: What is a 'tenant improvement allowance' (TIA) in commercial leasing?
- Money provided by the landlord to fund build-out of the tenant's space (Correct answer)
- A rent reduction given to tenants who improve the building's energy rating
- Reimbursement to tenants for costs of maintaining their leased space
- A security deposit credit applied to the first month's rent
Correct answer: Money provided by the landlord to fund build-out of the tenant's space
A Tenant Improvement Allowance is a landlord-provided sum used to fund construction and improvements customizing the space to the tenant's requirements.
Question 5: In commercial real estate, what is a 'gross lease'?
- A lease where the landlord pays all operating expenses and the tenant pays only a fixed base rent (Correct answer)
- A lease calculated on the building's gross square footage including common areas
- A lease where operating expenses are grossed up to reflect full occupancy
- A lease where rent is based on a percentage of the tenant's gross revenue
Correct answer: A lease where the landlord pays all operating expenses and the tenant pays only a fixed base rent
In a gross lease, the tenant pays a single fixed rent amount and the landlord is responsible for paying all operating expenses out of that rent.
Question 6: What is 'rent abatement' in a commercial lease negotiation?
- A period during which the tenant pays no or reduced rent, typically at lease commencement (Correct answer)
- A permanent reduction in rent due to building deficiencies
- A penalty assessed when the landlord fails to complete tenant improvements on time
- A rent credit applied when operating expenses decrease below the base year
Correct answer: A period during which the tenant pays no or reduced rent, typically at lease commencement
Rent abatement is a concession where the tenant pays no rent (or reduced rent) for a specified period, usually at the start of the lease while fitting out the space.
BOMA Lease Administration & Finance 1
In a typical commercial 'triple net' (NNN) lease, what costs does the tenant pay in addition to base rent?