Reference no: EM132932712

Question

A retail tenant is paying a base rent of $120,000.00 ($10,000.00 per month). In addition the tenant would pay 7 percent of gross store sales in excess of $143,000 per month as percentage rent. If the store produces $170,000.00 in gross sales per month, what is the percentage rent in that month? What is the total rent due?

Mr Smith has presented two lease proposals to the owner of an office building. The first alternative has a five year term and a contract rental rate of $170.00 per square metre in the first year of the lease. The rental rate then increases to 3 percent per year over the remaining term of the lease. Therefore the rental rate after first year would be $175.10 per square metre.

The second alternative is also a five year lease with an initial contract rental rate of $170.00 per square metre. However the rental rate on this lease is indexed to inflation with adjustment made at the beginning of each year, based on the actual rate of inflation in the previous year. It is believed that the inflation rate will increase at 3 percent per year over the five year lease term.

1) What are the owners's projected payments over the five year term for the two alternatives?

2) Which option is likely to be accepted by the owner and why?