Two proposals can look almost identical on a listing sheet and cost a tenant very different amounts. Base rent is one number in a package of ten or so terms, and the package is what the tenant pays and the landlord earns. Your job on either side is to turn the package into numbers both sides can compare.

This lesson covers the parts of a lease deal, the NNN math, three ways to model escalations, and one method for net effective rent. Then it works a 25,000 SF industrial lease and a 2,400 SF retail lease step by step. Every rent, rate and percentage below is invented for practice, so use current comps from your broker.

It builds on Lesson 2 (measuring space), Lesson 3 (tenant side) and Lesson 4 (landlord side). The investor view of NNN clauses is in Course 13, Lesson 2.

The parts of a lease deal

Rent is quoted per rentable square foot (RSF) per year unless the quote says otherwise. Divide by 12 for a monthly figure. Confirm the unit and square footage basis before comparing.

Part	What it is	Who it moves
Base rent	Rent per RSF per year before pass-throughs	Both sides
Escalations	Scheduled rent increases: percent, dollar step or CPI	Landlord gains certainty
NNN charges	The tenant's share of property taxes, insurance and common area maintenance (CAM), billed monthly on an estimate	Tenant pays, landlord recovers
Tenant improvement (TI) allowance	Landlord contribution to the build-out, stated per SF, usually reimbursed after the work	Landlord capital, tenant benefit
Free rent	Months of base rent waived (also called rent abatement). Say in the proposal whether NNN is still payable during those months	Landlord gives up income
Other concessions	Moving costs, reduced early steps, yard or parking rights	Varies
Term and options	Lease length, renewal options, and a right of first refusal (ROFR) on adjacent space	Both sides
Security deposit or guaranty	Money held or a personal or corporate promise to pay, negotiated to fit the tenant's credit	Landlord protection

The label on a lease does not control. A "NNN" quote that passes roof and structure to the tenant is a different deal from one where the landlord keeps them. Read the lease with the NNN lease review checklist and the lease clauses decoder.

Office space is often quoted full-service gross, with pass-throughs folded into the rent. This course stays on industrial and retail, where NNN is common. See Lease types.

For rent periods that begin on or after October 1, 2025, Florida no longer taxes commercial rent, so do not add a sales tax line to current quotes. Lesson 7 covers the details.

NNN charges: total occupancy cost beats base rent

A tenant pays total occupancy cost: base rent plus NNN charges, plus whatever else the lease adds. Two buildings at the same base rent can differ by dollars per SF once taxes, insurance and CAM are added.

Item (year 1, illustrative)	Industrial: 25,000 SF in a 100,000 SF park	Retail: 2,400 SF in a 24,000 SF center
Base rent	$10.00 per SF	$28.00 per SF
NNN estimate (taxes, insurance, CAM)	$2.90 per SF	$8.00 per SF
Total occupancy cost per SF	$12.90	$36.00
Pro rata share (tenant SF divided by building or center SF)	25,000 / 100,000 = 25%	2,400 / 24,000 = 10%
NNN in dollars	$2.90 x 25,000 = $72,500	$8.00 x 2,400 = $19,200
Year 1 total at full rent	$12.90 x 25,000 = $322,500	$36.00 x 2,400 = $86,400

Ask what the denominator is. A share computed on leased space only pushes vacancy costs onto the tenants who are there.

How the charges are billed and adjusted

Estimate and reconciliation. The landlord bills a monthly estimate, then compares it with actual costs after year end and sends a true-up or credit. Industrial example: estimate $2.90, actual $3.12. The difference of $0.22 x 25,000 is $5,500 owed.
Gross-up. Some costs vary with occupancy. A gross-up adjusts them to what they would be at a stated occupancy, often 95%. Example: $240,000 of variable cost at 80% occupancy becomes $240,000 / 0.80 x 0.95 = $285,000, and a 25% share moves from $60,000 to $71,250. Grossing up normally covers only costs that vary, not taxes or insurance.
Controllable CAM cap. Landscaping, repairs and administration are controllable. Taxes, insurance and utilities are not. A cap limits yearly growth in the controllable pool only. Retail example: prior-year controllable CAM $3.00 per SF, cap 5%, ceiling $3.15. Actual is $3.40. The tenant pays $3.15 and the landlord absorbs $0.25 x 2,400 = $600.
Administration and management fees. Ask: percent of what, and is it capped? Illustration: 10% of $3.00 controllable CAM is $0.30 per SF, or $720 a year on 2,400 SF.

Capital replacements, roof and structure, and audit rights are lease-specific.

Escalations: three ways to model rent growth

An escalation is a scheduled increase in base rent. Model all three types on the same starting rent so you can see the gap.

Year	3% fixed bump	$0.30 dollar step	CPI, 2% floor and 4% cap
1	$10.00	$10.00	$10.00
2	$10.30	$10.30	$10.34 (CPI 3.4%)
3	$10.61	$10.60	$10.75 (CPI 5.1%, capped at 4%)
4	$10.93	$10.90	$10.97 (CPI 1.2%, floored at 2%)
5	$11.26	$11.20	$11.28 (CPI 2.8%)
Five-year total per SF	$53.09	$53.00	$53.34

The CPI readings are invented. The fixed bump is $10.00 x 1.03 = $10.30, then x 1.03 = $10.609, and so on. A dollar step is a shrinking percentage: $0.30 is 3.0% of $10.00 but 2.75% of $10.90. CPI adds uncertainty, so tenants ask for a cap and landlords ask for a floor.

Net effective rent: the method

Net effective rent (NER) is the average rent the tenant pays per SF per year after concessions. Sources define it differently, so state your method every time. Ours is straight-line and undiscounted:

Build the year-by-year base rent schedule.
Subtract the base rent waived as free rent.
Subtract the TI allowance.
Divide by SF x years.

Assumptions in every example: free rent applies to base rent only and falls in the first months, NNN is paid throughout, and the tenant actually needs the TI. A present value method discounts each year's rent and gives a lower number. Use the same method for both proposals.

Worked example 1: industrial (illustrative)

25,000 SF, five years, $10.00 per SF NNN start, 3% annual bumps, 3 months free base rent, $5.00 per SF TI.

Step	Arithmetic	Result
Year 1 rent	25,000 x $10.00	$250,000.00
Year 2	$250,000.00 x 1.03	$257,500.00
Year 3	$257,500.00 x 1.03	$265,225.00
Year 4	$265,225.00 x 1.03	$273,181.75
Year 5	$273,181.75 x 1.03	$281,377.20
Total face rent	Sum of five years	$1,327,283.95
Free rent	$250,000 x 3 / 12	$62,500.00
Base rent paid	$1,327,283.95 minus $62,500	$1,264,783.95
TI allowance	$5.00 x 25,000	$125,000.00
Net effective rent	($1,264,783.95 minus $125,000) / (25,000 x 5)	$1,139,783.95 / 125,000 = $9.12 per SF per year

The face average is $1,327,283.95 / 125,000 = $10.62. Concessions take about $1.50 off it.

Worked example 2: retail (illustrative)

2,400 SF, five years, $28.00 per SF NNN start, 3% annual bumps, 2 months free base rent, $20.00 per SF TI.

Step	Arithmetic	Result
Year 1 rent	2,400 x $28.00	$67,200.00
Year 2	$67,200.00 x 1.03	$69,216.00
Year 3	$69,216.00 x 1.03	$71,292.48
Year 4	$71,292.48 x 1.03	$73,431.25
Year 5	$73,431.25 x 1.03	$75,634.19
Total face rent	Sum of five years	$356,773.92
Free rent	$67,200 x 2 / 12	$11,200.00
Base rent paid	$356,773.92 minus $11,200	$345,573.92
TI allowance	$20.00 x 2,400	$48,000.00
Net effective rent	($345,573.92 minus $48,000) / (2,400 x 5)	$297,573.92 / 12,000 = $24.80 per SF per year

The face average is $356,773.92 / 12,000 = $29.73. Amounts are rounded to the cent each year.

Comparing two proposals for an industrial tenant

A tenant has two 25,000 SF buildings. Proposal A is Worked example 1. Proposal B is a different building. Both run five years with 3% bumps, with NNN held flat. All-in effective cost is base rent paid, minus TI, plus NNN, divided by 125,000.

Measure	Proposal A	Proposal B
Base rent, year 1	$10.00 per SF	$10.50 per SF
Free base rent	3 months	4 months
TI allowance	$5.00 per SF ($125,000)	$6.00 per SF ($150,000)
NNN estimate	$2.90 per SF	$2.40 per SF
Base rent paid, five years	$1,264,783.95	$1,306,148.16
NNN, five years	$362,500.00	$300,000.00
Net effective base rent	$9.12	$9.25
All-in effective cost per SF per year	$12.02	$11.65
Landlord capital (TI, free rent, commission)	$250,739.20	$302,807.41
Risk and flexibility	Higher NNN estimate to verify	Lower NNN estimate to verify against actuals

Proposal B asks more base rent and still costs less all-in: $46,135.79 over five years ($1,502,283.95 minus $1,456,148.16), about $0.37 per SF per year. That edge disappears if B's actual NNN runs about $0.37 per SF over estimate. Landlord capital uses the 5% commission illustration below.

(a) Presenting two proposals to a tenant

"Building B asks $0.50 more base rent than A, which looks worse. With NNN and concessions added, B costs about $0.37 less per SF per year, roughly $9,200 a year on your space. That holds only if B's NNN estimate holds, so I will ask B's landlord for the last two years of actual charges by Friday and send you the comparison table."

The landlord's return view

A landlord reads proposals as capital spent to earn rent. Landlord capital is TI, the commission and the free rent given up. Simple payback is the number of months, counted from lease start, until face (scheduled) rent has covered that capital. It is undiscounted.

Two retail proposals for the same 2,400 SF bay: five years, 3% bumps, $8.00 NNN. The tenants are invented.

Measure	Proposal X: first-time local operator	Proposal Y: established regional operator
Base rent, year 1	$28.00 per SF	$26.00 per SF
Free base rent	2 months	1 month
TI allowance	$20.00 per SF ($48,000)	$5.00 per SF ($12,000)
Base rent paid, five years	$345,573.92	$326,090.06
Net effective rent	$24.80	$26.17
Commission at 5% of rent paid	$17,278.70	$16,304.50
Landlord capital (TI, free rent, commission)	$76,478.70	$33,504.50
TI plus commission per SF per year, straight-line	$65,278.70 / 5 / 2,400 = $5.44	$28,304.50 / 5 / 2,400 = $2.36
NER after TI and commission	$23.36	$24.82
Simple payback	About 13.6 months	About 6.4 months
If the tenant defaults after month 10	Rent paid 8 x $5,600 = $44,800. Unrecovered capital $31,678.70	Rent paid 9 x $5,200 = $46,800. Capital recovered
Risk and flexibility	Personal guaranty, weaker credit	Corporate financials, stronger credit

For X, year 1 face rent is 12 x $5,600 = $67,200, which leaves $76,478.70 - $67,200 = $9,278.70 to recover at $5,768 a month in year 2 ($69,216 / 12): 12 + $9,278.70 / $5,768 = 12 + 1.6 = about 13.6 months. For Y, $33,504.50 / $5,200 = about 6.4 months, inside year 1.

Straight-line ignores interest. Landlords often price TI and commission as a loan repaid through rent. At an assumed 8% over 60 months, X's $65,278.70 costs $1,323.62 a month, or $15,883.40 a year, about $6.62 per SF instead of $5.44.

Why landlords trade rent for term or credit:

Face rent supports value. At a 6.5% cap rate (annual net income divided by value), $0.50 per SF more on 100,000 SF is $50,000 / 0.065 = $769,230.77 of value (illustrative).
A longer term spreads TI and commission over more months.
A stronger tenant lowers the odds that capital goes unrecovered.

(b) Recommending a proposal to a landlord

"On paper X pays $2.00 more per SF. After TI and free rent, Y nets about $1.40 more per SF per year and repays your capital in about 6 months instead of 14. If X leaves in month 10, you are still about $31,700 short. I recommend countering Y at $26.50 with the same term, and I will call their broker Thursday."

Tenant lenses: sales, pallets and orders

Retail: occupancy cost as a percentage of sales

Retail tenants judge a space by the share of sales it consumes. One commonly cited rule of thumb is roughly 6% to 12% of sales, varying widely by category. Treat it as a starting point and ask for real sales history.

For Proposal X, year 1 occupancy is $86,400 at full rent. At 10% of sales the tenant needs $86,400 / 0.10 = $864,000, or $360 per SF. At 8% it needs $1,080,000, or $450 per SF.

Percentage rent is a share of sales above a breakpoint. The natural breakpoint is base rent divided by the rate: $67,200 / 0.06 = $1,120,000. On $1,300,000 of sales, percentage rent is ($1,300,000 minus $1,120,000) x 6% = $10,800. A breakpoint set below the natural one is a stealth rent increase. See percentage rent leases.

Industrial: cost per SF versus cost per pallet or unit

Industrial tenants think in pallet positions, orders shipped or doors used. Proposal A at full rent costs $322,500 a year, or $26,875 a month. At 3,000 pallet positions that is $8.96 per position per month. At 12,000 orders shipped per month it is $2.24 per order. Both inputs are invented, so ask the tenant for real figures. The NNN quote leaves out labor, racking, forklifts and utilities.

For industrial outdoor storage (IOS), confirm whether a quote is per acre or per SF of yard before comparing.

Commissions in the deal

The commission is computed from the same schedule. Illustration only: 5% of base rent actually paid, split 50/50 between landlord rep and tenant rep, half due at signing and half at rent commencement. This is market practice that varies and is negotiable. No rate is set by law. Lesson 1 covers how you get paid.

Deal	Base rent paid	5% total	Each broker	Half at signing, each broker
Industrial (Worked example 1)	$1,264,783.95	$63,239.20	$31,619.60	$15,809.80
Retail (Worked example 2)	$345,573.92	$17,278.70	$8,639.35	$4,319.68

The basis matters. On face rent, the industrial fee is 5% x $1,327,283.95 = $66,364.20, which is $3,125.00 more. The retail fee on face rent is $17,838.70, which is $560.00 more. Say in the agreement whether the fee is computed on scheduled rent or rent paid. A written brokerage agreement also supports the Florida leasing commission lien (F.S. 475.800 to 475.813), covered in Lesson 7.

A reusable proposal comparison template

Fill one column per proposal. State assumptions at the top: free rent on base only, NNN held flat, straight-line NER.

Line	Proposal A	Proposal B	Notes
Building, SF, RSF basis
Term and options
Base rent year 1 and escalation type
Base rent paid over term
Free rent months and NNN during them
TI allowance, total and per SF
NNN estimate per SF
CAM cap, gross-up, admin fee
Net effective rent			State method
All-in effective cost per SF per year
Landlord capital and payback
Tenant credit and guaranty
Risk and flexibility

Key takeaways

Compare proposals on total occupancy cost and net effective rent, never base rent alone
NNN charges are estimates, so ask for two years of actuals, the pro rata denominator and any cap
State your net effective rent method and assumptions, then use the same method for both proposals
Face rent and effective rent can rank proposals in opposite order
Landlords trade rent for term and credit because TI, free rent and commissions must be recovered first
Put the commission basis in writing and confirm legal points with your broker of record and a Florida attorney

Next: Lesson 6 covers the LOI and lease negotiation.

Deal Economics and Comparing Proposals