Which lease offer is really the cheapest?

The offers

Take the numbers from the letters of intent or draft leases. Leave a box at zero or blank if it does not apply. Rents and costs are per rentable square foot per year unless the label says otherwise.

Enter at least Offer A, then click Compare offers.

Result

How it is calculated

Schedule: for each month of the term, base rent is the square feet × rent ÷ 12, stepped up by the escalation at the start of each lease year and zero during free rent. Operating costs are square feet × NNN ÷ 12, grown by their own percentage each year, and payable during free rent unless you abate them. Up-front: your build-out minus the landlord's allowance, plus moving and other one-time costs, plus the deposit, which is returned at the end.

Net effective rent is (base rent paid − TI allowance) ÷ years ÷ square feet. Levelized all-in cost discounts every monthly payment and the up-front costs at your rate, then divides the present value by the annuity factor to give an equal monthly cost, shown per square foot per year. Offers are ranked by that figure. The counter-offer rent is exact because present value is linear in base rent. Early exit spreads the cost to that month over the months stayed, with the fit-out unrecovered.

Not modelled: percentage rent, personal guarantees, renewal and termination options, restoration obligations, taxes and lease accounting. Unverified: checked by hand calculation and unit tests only; compare the numbers with the lease before you rely on them.

Common questions

What is net effective rent?

Net effective rent is the base rent you actually pay averaged over the whole term after subtracting free rent and the landlord's tenant-improvement allowance. A lease quoted at $30 per square foot with three months free and a $20 per square foot allowance can have a net effective rent several dollars lower. It is the standard way to compare a landlord's headline rent with what the space really costs, but it ignores operating costs and your own fit-out, which this calculator adds.

What is the difference between net effective rent and the levelized all-in cost?

Net effective rent only nets concessions against base rent. The levelized all-in cost adds operating costs (NNN, CAM, taxes, insurance), the part of your build-out the allowance does not cover, and one-time costs, then discounts every payment at your own rate and spreads the present value into an equal cost per square foot per year. Because it discounts, a dollar of free rent in month one is worth more than a dollar of escalation in year five, which is why it can rank offers differently from a simple average.

How are free rent and escalations treated?

Free rent months abate base rent at the start of the term. Operating costs are still payable during free rent unless you switch that setting, because most leases only abate base rent. Base rent steps up by the escalation percentage at the start of each lease year; operating costs grow by their own percentage.

What discount rate should I use?

Use what the money is worth to your business: the rate on the loan you would otherwise pay down, or the return you expect on the cash you spend fitting out the space. Eight percent is the default. The ranking of two offers rarely changes across a sensible range, but a lease with heavy up-front concessions looks better at a higher rate.

What does the counter-offer figure mean?

For each offer that is not the cheapest, the tool solves for the base rent at which that offer would cost the same levelized amount as the cheapest one, holding its free rent, allowance, operating costs and term fixed. It is a negotiating reference, not a prediction of what a landlord will accept.

Why does leaving early cost so much per year?

The build-out and one-time costs are spent at the start and are not recovered when you leave, and free rent is used up at the start. The early-exit table spreads the cost of staying only to that month over the months you stayed. It ignores any termination fee or unamortised-allowance repayment your lease may require, which would make leaving dearer still.

What does this leave out?

Percentage rent, personal guarantee and default terms, expansion, renewal and termination options, restoration and removal obligations at the end of the term, the tax treatment of allowances and leasehold improvements, brokerage commissions paid by the landlord, and lease accounting rules. It prices the numbers you enter and does not read your lease.

Is my lease information uploaded anywhere?

No. Everything you type stays in this browser tab. There are no accounts, cookies or analytics vendors.