How do I make sense of rental terms?

Q: I am trying to decide whether to open a small gift store in a mall, strip center or downtown. All the rental policies are different, and I'm having a hard time comparing the cost, especially with confusing terms like "triple net" and "gross leasable area." How can I be sure what I'm getting into?

A: Most retail leases are composed of a base rent (also called minimum rent or guaranteed rent) plus a percentage rent, according to veteran retailer Doug Dancer, now a marketing associate with Lansing-based real estate firm CB Richard Ellis Martin. The base rent is a fixed amount due each month. The percentage rent is an additional amount based on sales volume, typically one to three percent of sales beyond a set minimum.

A common type of lease in a smaller downtown area is a modified gross lease, in which the tenant pays a fixed base amount and the owner is responsible for all operating expenses for the property, excluding utilities.

In a mall or strip center, you'll most likely encounter a net lease, in which the tenant pays a share of the owner's operating expenses. Your portion of these expenses, known as pro rata share, is determined by dividing your store's gross leasable area (the square feet of floor space you are renting) by the total floor space of all stores in the center.

A net lease typically makes you responsible for your percentage of the center's property taxes, property and casualty insurance, and common area maintenance costs, such as upkeep of parking areas, sidewalks, hallways or courtyards. The terms net, net-net or net-net-net (triple net) may be used to indicate whether the lease includes one, two or three of these components.

Triple net is the most common retail lease in a shopping center or mall. Its chief disadvantage is that maintenance costs may vary from year to year, affecting your rent payments.

Make sure you know what is covered under common area maintenance costs. Some landlords include major capital improvements, such as replacing the roof or parking lot, in the costs.

Although taking a long-term lease may give you a guaranteed flat rent rate throughout the term, taking the minimum term with option to renew may be wiser for retailers just starting out. It's hard to predict the success of your business eight or ten years down the road.