Outgoings and Expenses Flashcards
What is a net lease?
Lessor recovers all outgoings from the tenant i.e. the tenant pays them directly or the lessor fully recovers them from the tenant.
What is a net lease?
Lessor recovers all outgoings from the tenant i.e. the tenant pays them directly or the lessor fully recovers them from the tenant.
What is a gross lease?
The lessor receives a single gross rent figure. Most leases provide for the lessor to recover “increases in outgoings above a base year” to allow the lessor to maintain the net return during the lease period until the next rent review.
Calculate the net annual income to the owner from the following information
A ten storey office building has a total lettable area of 16,000m2.
The entire building was leased to a single tenant and was negotiated effective 01/07/08 at a gross rental rate of $600 per square metre.
The tenant is responsible for the increases in outgoings above a base year of 30/06/08.
Outgoings are collected monthly in advance based on estimates for the ensuing year.
Base year outgoings:
30/06/08 $2,352,000 (actual)
30/06/09 $2,469,600 (actual)
30/06/10 $2,543,700 (estimated)
The date of valuation is 01/08/09
Gross Income = $600/m2 x 16,000 m2 NLA $9,600,000
Year 1 - 30/06/08
Lease Rent $9,600,000
Year 1 Total $9,600,000
Year 2 - 30/06/09
Lease Rent $9,600,000
Plus: Increase in Outgoings
($2,469,600 - $2,352,000) $117,600
Year 2 Total $9,717,600
Year 3 - 30/06/10
Lease Rent $9,600,000
Plus: Increase in Outgoings
($2,543,700 - $2,469,600) $74,100
Year 3 Total $9,791,700
Cap Rate @ 7.3%
= ( Gross Annual Income (Year 2) - Outgoings (Year 2) ) / 7.3%
= ( 9,600,000 - $2,469,600 ) / 7.3%
=$99,287,671.23
