Commercial Leases and Rent Rolls

A rent roll typically summarizes each unit, tenant, area, rent, lease dates, arrears and other key information. It is useful because it puts the building on one page, but it cannot reproduce every clause that affects economics.

The executed leases establish rent steps, recoveries, options, renewal rights, free-rent periods, termination rights, landlord obligations, assignment rules and other terms that can change the value of the income.

Base rent compensates the landlord for occupancy. Additional rent can include taxes, maintenance, insurance and other recoveries depending on the lease. Collected rent shows what is actually being paid. Market rent estimates what comparable space could command. Effective economic rent can be lower than face rent after concessions.

Underwriting becomes unreliable when the rent roll shows only the highest face-rent number and hides free rent, arrears or unreimbursed landlord costs.

A gross lease can place more operating expenses on the landlord; a net or triple-net structure can shift specified costs to the tenant. The exact drafting controls, not the marketing label.

For NOI, recoveries should be matched with the expenses they are intended to recover. The goal is to understand the landlord’s true recurring economics after the lease allocation of costs.

Free months, tenant-improvement allowances, moving allowances and other incentives can be required to secure a tenant. A five-year lease at $30 per square foot with six months free is not economically identical to five years of uninterrupted $30 rent.

The effect of concessions depends on timing, accounting and valuation methodology, but borrowers should disclose them rather than treating face rent as fully earned from day one.

A building that is 100% occupied today can face major rollover if a large share of rent expires in the same year. Underwriting can therefore examine a lease-expiry ladder and, for some assets, weighted-average lease term.

The risk is not just vacancy. Renewal can require downtime, commissions, fit-up, incentives and market-rent resets, all of which affect liquidity and future NOI.

If one tenant generates 60% of building revenue, the property is partly exposed to that tenant’s business and renewal decision. Ten small tenants create different management and turnover risk; neither structure is automatically superior.

The analysis considers tenant quality, business use, remaining term, space re-leasability and the economic cost of replacing the tenant.

An OpCo can lease a building from a related HoldCo, which may be a legitimate ownership structure. But a rent set purely to produce a desired appraisal or move profits between related companies may not represent market economics.

The lender/appraiser can compare related-party rent with market rent and must avoid counting the same operating-company cash flow twice as both business earnings and independent rental income.

Renewal options, expansion rights, contraction rights, early termination provisions, rights of first refusal and assignment/subletting clauses can change the durability or flexibility of the income stream.

A lease with ten years shown on a summary is not necessarily a ten-year guaranteed income stream if a tenant has an exercisable termination right much earlier.

In appropriate transactions, a lender or purchaser may seek tenant estoppels confirming matters such as the lease status, rent, deposits, amendments and known defaults. The exact form and legal effect depend on the documents and transaction.

An estoppel does not replace reading the lease; it can help reconcile whether landlord and tenant understand the current relationship consistently.

Commercial rent is generally different from long-term residential rent for GST/HST purposes. Whether tax is charged, collected or recoverable depends on the parties and applicable tax rules.

Mortgage underwriting should keep tax treatment separate from economic rent rather than quietly treating collected tax as property income. Borrowers should obtain accounting or tax advice for their specific structure.

The most reliable sequence is executed lease → rent roll → concessions/recoveries → actual collections → expiry/options → market-rent evidence → normalized NOI. Each step can explain why the number used for financing differs from the headline rent roll.

Current appraisal standards specifically recognize that existing leases can directly affect value, which is why lease analysis belongs in valuation as well as income underwriting.