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Base Rent

By on September 9, 2018

The base rent found on a lease refers to the minimum periodic rental amount in which the tenant will pay the landlord each month.

When base rent is mentioned on a rental agreement instead of just referring it as rent, it almost certainly means that there are other components that would make up total rent payable.

The other components that make up total rental might be fixed or variable.

For example in a commercial lease, sometimes landlords might charge a base rent plus a percentage of sales revenue. In this case, the percentage of sales is a variable component of total rent.

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The reason why landlords use such terms in lease contracts is firstly to create the perception that the rental is not a significant amount.

Secondly, it lets the tenant know that they might only have to pay such a low amount. However, the chances of tenants only paying the minimum at the end of the month is slim to none.

Thirdly, sometimes the base rent is artificially high but brought down to market rates due to the “generous” offer of “rebates” by the landlord.

For example, a landlord might state in the lease contract that the base rent is $4,000. But he is offering a $300 utilities rebate and a $100 maintenance rebate to the tenant, making the final rental $3,600. But with a market check, the tenant might realize that the market rate is already $3,600 give or take.

So while the tenant pay $3,600, the official base rental is actually $4,000.

This can have tax implications depending on the real real reasons the landlord decides to structure the agreement this way.

Moreover when renewal time arrives, the landlord can increase the rental collection by keeping the base rent but decreasing the rebates.

For example, the landlord decides to maintain base rent of $4,000 but decrease utility rebate by $100. Making the final rent liable $3,700.

This is an increase of $100. But in theory, the rental remained the same at $4,000 with no increment.

This is a common strategy of experienced landlords use to keep control over rent increases.



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