FAQs in Commercial Real Estate

Bonita Springs commercial real estate

1. What is the difference between Triple Net leases (NNN) and Gross leases?

 

Answer: In a NNN Lease, the tenant is responsible for rent and operating expenses. The NNN refers to insurance, real estate taxes, and Common Area Maintenance (CAM). The tenant is responsible for any risk of unexpected changes in operating expenses.  In a Gross Lease, the Landlord is responsible for all operating expenses. 

 

2. What is CAM?

 

Answer: CAM refers to Common Area Maintenance. CAM fees cover maintenance and cleaning of shared areas in a muli-tenant building. For example, parking lots, landscaping, lobbies, and elevators, to name a few. The tenant's portion of CAM is based on a pro-rata share of the tenant's lease space and the leasable area of the entire building. 

 

3.  Is there sales tax on commercial real estate?

 

Answer:  (from dor.myflorida.com) "The total amount of rent paid for the right to use or occupy commercial real property is subject to sales tax and applicable discretionary sales surtax, unless the rent is specifically exempt. If the tenant makes payments such as mortgage, ad valorem taxes, or insurance on behalf of the landlord, those payments are included in the total amount of rent paid and are subject to sales tax and surtax. The $5,000 limitation of surtax for tangible personal property does not apply to the lease, rental, or license to use commercial real property. Payments for separately stated services that are required under the lease or license are part of the total amount of rent paid.

 

Examples of commercial real property rentals:

 

• Office or retail space

• Warehouses

• Convention and meeting rooms

• Mini-warehouses

 

Rentals, leases, and licenses to use or occupy commercial real property by related persons, as defined in section (s.) 212.02(12), Florida Statutes (F.S.), are also subject to sales tax and surtax. For example, the lease of commercial real property by a parent corporation to one of its subsidiaries, or by a shareholder to a corporation, is subject to sales tax and surtax."

 

4. Who pays the broker's commission on a commercial lease?

 

Answer:  Commissions are paid in the lease transaction based on the representation of both parties:

 

1. After a lease is signed, the landlord and/or owner of the property usually pays a commission to the Listing Agent (or Landlord Rep) and the Tenant Rep.

 

2. Commission ranges may vary and can depend on the value of the transaction.

 

3. In terms of tenant rep situations, a tenant doesn't typically pay a commission to their rep - it is paid by the owner at the time the lease is executed unless otherwise negotiated.

 

5. What is the difference between Rentable square feet and Usable square feet?

 

Answer: Usable square footage consists of the actual space occupied, wall to wall. Rentable square footage is Usable square footage PLUS a portion of shared space in a building (restrooms, lobby, hallways, etc).  

 

6. Phase I vs. Phase II environmental assessment . . . what's the difference?

 

Answer: A Phase I environmental assessment determines if there are any environmental hazards (may include soil contamination, quality of surface and ground water, presence of mold or mildew, air quality, etc). If a Phase I environmental hazard is found, a Phase II assessment may follow.  A Phase II environmental assessment includes a more in-depth look at collected soil and water samples to determine suspected contaminents. 

 

7. Who pays the title insurance? What is the Butler Rebate?

 

Answer: Title Insurance provides coverage for future claims/losses due to title defects created by a past event. This past event refers to something happening prior to the acquisition of the property. For example: falsification of records; mistakes in recording legal documents; forged mortgages, deeds or releases; misinterpretation of wills; errors in tax record, etc.

 

Butler Rebate: S. Clark Butler, a Florida developer, challenged his insurance agent for refusing to negotiate insurance premiums . . . and ended up going all the way to the Florida Supreme Court.  The result of the case allows Florida buyers, property owners, and lenders the right to try to negotiate insurance premium rates with their insurance company. The Florida Butler rebate gives Florida title insurance agents the option to offer the paying party rebates on a percentage of the insurance premium. 

 

8. What is a CAP rate?

 

Answer: The definition of a Capitalization rate (CAP) is the rate of return on a real estate investment property based on the expected income generated by the property. CAP rate is used to estimate the investor's potential return on his/her investment. This is calculated by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property.

 

Capitalization Rate = Yearly Income/Total Value

 

9. What is a COI and who should be on it?

 

Answer: The Certificate of Insurance (COI) is used to verify the existence of insurance coverage under specific conditions granted to individuals listed on the document. More specifically, it lists effective date of the policy, the type of insurance coverage purchased, and the types and dollar amount of applicable liability. 

 

10. What is a Letter of Intent (LOI)?

 

Answer:  Letter of Intent is a non-binding agreement between two or more parties who look to enter into a real estate transaction such as a lease or sale. It provides an outline of the proposed transaction, which can be negotiated before going to contract. If either party isn’t satisfied with the terms, a counteroffer can be proposed. If accepted, the LOI is revised and reviewed again by both sides. Either party can reject the deal before the final sale contract or lease is signed.

 

11. What is a CO, CC, and a Business Occupational License?

 

Answer: A Certificate of Occupancy (CO) is an official document issued stating the building conforms to government regulations and can be occupied. A Certificate of Completion (CC) is a document certified by an architect and/or an engineer stating the construction project has been completed in accordance with the terms, conditions, and specifications contained in the job contract. A Business Occupational License is a document required to legally conduct business in the state or county. 

 

 

 

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