Base Rent, Escalations and Money Due at Signing

What this clause does

Base rent is the fixed charge for the right to occupy the building. In a triple net lease it covers occupancy alone; property taxes, insurance and common area costs are billed separately. Industrial rent is usually quoted per square foot, monthly in some markets and annually in others, and the lease converts that rate into a dollar schedule for each year of the term.

The section also sets the due date (typically the 1st), the payment method, and how partial months are prorated at the start or end. Read it for what it does not say, too. Many leases put no obligation on the owner to send an invoice, and an incorrect invoice does not change what you actually owe. Rent is due whether or not a bill arrives.

Escalations add up quietly

Almost every industrial lease raises rent each year. Justin's tenant book describes how that norm has shifted: increases tied to the Consumer Price Index were still common in the mid-2000s, a flat 3 percent became standard for years, and tight markets later pushed fixed increases to 3 to 4.5 percent.

A point and a half sounds small in a negotiation. Compounded over a five-year term, Justin calculates it at roughly two extra months of rent. Treat the escalation rate as a real economic term. Compare it to where you expect market rents to go, and if you accept a CPI-based increase, ask for a cap as well as the floor the owner will want.

Watch the timing too. If the lease includes free rent, confirm whether the first increase lands 12 months after the lease starts or 12 months after you begin paying. The difference is real money on a large building.

How your payments get applied

Many leases let the owner apply any payment first to late charges, interest and other outstanding items before base rent, no matter what you write on the check or wire memo. If an earlier charge is unpaid, your full rent payment can leave rent itself short, and a late charge follows.

Accepting a partial payment usually does not waive the owner's right to the rest. A returned payment can bring a fee and a demand for certified funds going forward. Automate payments, keep your accounts payable team aware of the lease's grace period, and reconfirm payment instructions in writing whenever the building sells or the management company changes.

Money due at signing

Most leases list the amount due at signing: typically the first month's base rent, the first month's estimated operating expenses, and the security deposit. Many owners will not countersign until those funds have cleared, so budget for the wire before your target signing date.

Ask for one clear statement of the total due and wiring instructions, and confirm those instructions by phone with a known contact before sending funds. While you are at it, make sure the lease commencement date, rent commencement date and possession date are each defined. Confusion among those three dates causes more rent disputes than the rent rate itself. Have a real estate attorney review the final schedule against your letter of intent.

Comparing rent across buildings

Two buildings quoted at the same rate can cost very different amounts. Compare total occupancy cost, meaning base rent plus operating expenses, and do it over the full term with escalations included. A lower starting rate with steeper annual increases can end up more expensive than a higher rate with flatter bumps.

Concessions change the math as well. Justin's landlord book describes how owners compare proposals on a net effective basis: total rent over the term, less free rent and other concessions, spread across the years of the lease. You can run the same calculation on your side to compare offers on equal footing.

Finally, confirm how the rent was calculated. In most industrial leases the monthly rent is a fixed dollar figure even though it was negotiated per square foot, so a later remeasurement usually does not change it. Settle any question about the building's size before you sign, with help from an architect if needed, rather than after.