The most common lease agreement on the market, used by developers and investment funds, is the Triple Net Lease, also known interchangeably as an institutional agreement.

A rental agreement in the Triple Net Lease structure, is an agreement in which the tenant receives three separate invoices during its term. An invoice for rent at base rent rates, an invoice for service charges and an invoice for utilities according to meter readings.

Effective and base rent.

The rent that appears on the rent invoice is the base rent. This is the rate at which the rent is calculated. Interestingly, it is generally non-negotiable. This is mainly due to the need to maintain a high level of cash flow in ongoing investments, which affects greater flexibility in financing them and increases the value of the projects themselves.

Effective rent, is the rent that appears in a lease offer and is most often the first comparative indicator of lease price. It is a fully negotiable parameter of the offer, taking into account financial incentives for the tenant. The most common incentives are a rent-free period and a financial contribution, which the tenant can use for any purpose, for example: to cover moving expenses, additional adjustments in the building or other purposes he or she chooses.

It should be noted here that the annual rent indexation is calculated on the base rent rate.

Service charges – service chargé.

The second component included in the rental fees is the service charge, known colloquially as the service chargé. Service charges include costs related to property management, maintenance of common areas, maintenance, technical service and property security. These fees also include real estate taxes, occupancy taxes and property insurance.

Fees are collected on the basis of advance payments and billed to tenants on an open book basis. Depending on the landlord – quarterly or annually.

Media.

The third component of rental costs is utility charges, the consumption of which is an individual feature of each tenant. Each rental space is metered, and the costs of consumption are passed on to the tenant on a re-invoicing basis – without the landlord’s margin. Interestingly, the landlord often has a global agreement with utility providers and, thanks to the scale of its operations, gives tenants more favorable terms than the market offers (or is offering).

Rent is expressed in Euros, while service chargé and utility charges are expressed in Zloty.

Total cost and provisions in the lease agreement.

It must be acknowledged that a Triple Net Lease favors property owners and shifts the risk of rising costs to the tenant. The landlord must also have a guarantee of the tenant’s reliability in terms of financial health. Lease agreements and commitments are multi-year. A guarantee securing the payment of rent and service charges is required of the tenant and is inherent in Triple Net Lease agreements.

So how to bring rental offers to a common denominator for a fair comparison? How to negotiate an attractive rent and elements for indexation of financial terms? How to finally negotiate a good lease agreement? Feel free to contact us to learn more.