Tenants are often unaware of the difference between these two terms, but it's vital to understand. Face rent is a rent figure that disregards incentives such as rent-free periods, rent reductions (a.k.a, rent abatements) and fit-out contributions.
Under an effective market rent review, your rent would be lower than it would be under a ‘face’ market review. Face or effective rent review - which path to take?
BASE RENT: This term can be confusing because sometimes it includes all building costs and sometimes it doesn’t. If you are reviewing a lease document, the term Base Rent should be defined in the document. If you are viewing someone’s listing, you will have to use context clues or ask the listing agent to clarify.
Effective Rent is not the only thing to consider when comparing leases, but it’s a good way for you to do an apples-to-apples comparison when evaluating offers with varying lease rates, expenses and concessions.
Tenant Tip #4: 'Face' and 'effective' rent reviews: What's the difference?
While mid-term rent reviews have been less prevalent in recent years, in a post-COVID market, they may be able to secure their tenants on longer terms. That's because, in the current conditions, the same income, guaranteed for a longer period, is worth more to a landlord.
At Tenant CS, we strongly advise our clients to undertake an effective market rent review (i.e. factoring in all incentives) when exercising their option or weighing up market alternatives. This helps to ensure that their rent is not subject to false inflation.
Although the market rent review process is relatively standardised, negotiating a market rent review is not straightforward. And some traps can trip up tenants – the devil is in the detail.
There’s an old saying that “you don’t get what you deserve, you get what you negotiate”. This saying certainly applies to negotiating commercial leases and rental rates.
When it comes to market rent reviews, it's important to understand the process and fine print. Tenants must stay aware of landlord tricks. They should also be prepared to dispute, even if the proposed increase seems negligible.
When you are considering an industrial or office lease (new lease or renewal), it is important that your real estate advisor conducts a financial analysis to compare the Effective Rent for each of your building options. That is an important first step (but not the only one) in determining which option is best for you.
BASE RENT: This term can be confusing because sometimes it includes all building costs and sometimes it doesn’t. If you are reviewing a lease document, the term Base Rent should be defined in the document. If you are viewing someone’s listing, you will have to use context clues or ask the listing agent to clarify.
Simply put, Effective Rent is the average amount of money that will come out of your pocket each year or month when averaged out over a period of time, typically your lease term. This is the number you want to use when comparing lease alternatives.
Effective Rent is not the only thing to consider when comparing leases, but it’s a good way for you to do an apples-to-apples comparison when evaluating offers with varying lease rates, expenses and concessions.
Face Rent may or may not include building expenses, depending on if the rent is quoted as “Gross” or “Net”. GROSS RENT: The rent calculated inclusive of all building costs (i.e., property insurance, taxes, common area maintenance expenses, etc.) NET RENT: The rent calculated excluding building costs. On an office listing, you may see the rent ...