Pay rent
Rent
The lessee is bound to pay the agreed rent and to use the property with prudence and diligence during the term of the lease.1 In order to understand and explain to your client the real financial impact of his rent, you need to familiarize yourself with the terminology and the different components of commercial rent. There are two main categories of leases: gross and net.
Gross lease
A gross lease is one in which the lessee simply agrees to pay a fixed monthly amount. Consequently, the lessor is responsible for all operating expenses. However, in such a situation, it will not be uncommon to see that the costs of energy consumed in the leased premises, or the share of municipal taxes, will be the responsibility of the lessee through additional clauses.
Net lease
Under a net lease, the lessee is responsible for some or all of the operating expenses of the immovable. This type of lease is composed of two types of rent: base rent and additional rent.
The base rent represents a minimum rent amount that can be based on various criteria such as: construction cost of the immovable and repayment of the debt related to its construction, age of the immovable, location, surface area of the leased premises, market, goodwill, etc.
Additional rent is rent that allows the lessor to recover the operating expenses of the immovable, including property taxes. This includes expenses for maintenance, insurance, building repairs, heating and air conditioning, management and administration. These definitions are not found in the Civil Code of Québec or in any other legislation; it is the parties who determine their meaning and scope.
1 Art. 1855 C.C.Q.
