The rental price of a retail space and the total rental costs are two different things. The base rent is the amount you contractually agree upon with the landlord, but the actual monthly costs are structurally higher due to service charges, VAT, and other additional items. For starting and growing retailers, this distinction is crucial: anyone who only looks at the base rent will quickly underestimate their actual rental costs by twenty to forty percent. This article answers the most frequently asked questions about the composition of rental costs for retail space.
What additional costs come on top of the base rent?
On top of the base rent for a retail space, there are typically service charges, VAT, a security deposit, and sometimes marketing contributions or fund contributions for shopping center promotion. The base rent is the basic amount for the use of the space itself. Everything the landlord charges in addition falls under additional costs, which can vary significantly per location and per contract.
In practice, the total package of rental costs for retail space consists of the following components:
- Base rent: the contractual base amount per year or per month, typically expressed in euros per m² per year
- Service charges: an advance payment for shared costs such as cleaning, security, energy for common areas, and management
- VAT: in many cases 21% on top of the rent, depending on the VAT option in the contract
- Security deposit or bank guarantee: a one-time security for the landlord, often equivalent to three to six months’ rent
- Marketing contribution: in shopping centers, sometimes a mandatory contribution to joint marketing or a business fund
Those who rent a retail space in a shopping center often also have to deal with a fund contribution for collective activities. For standalone retail properties in a shopping street, these items are usually absent, but costs for maintenance and management are sometimes charged directly.
How are service charges for retail space calculated?
Service charges for retail space are calculated based on an advance payment that is settled annually on the basis of actual costs. The amount of the advance is determined by the total operating costs of the building or shopping center, divided among tenants in proportion to their leased floor area or another distribution key established in the contract.
Common cost items covered by the service charge settlement include:
- Energy for common areas (lighting, heating, elevators)
- Cleaning of common corridors, restrooms, and outdoor spaces
- Security and camera surveillance
- Technical management and maintenance of installations
- Building insurance (property insurance)
- Administrative and management costs of the landlord
At the end of the financial year, the tenant receives a settlement statement. If the actual costs were lower than the advance paid, a refund follows. If the costs were higher, the tenant must pay the difference. It is advisable, when signing a lease, to ask for the historical service charge settlements from previous years. This allows you to see whether the advance is realistic and whether there have been significant fluctuations.
What is the difference between rent per m² and the actual rental cost?
The rent per m² is a unit of calculation that indicates what the base rent costs per square meter per year. The actual rental cost is the total amount a tenant pays monthly or annually, including service charges, VAT, and any contributions. The difference between the two can amount to thirty to forty percent of the base rent.
For example: a retail space of 80 m² has a base rent of 300 euros per m² per year. That is 24,000 euros per year, or 2,000 euros per month. But the actual monthly cost in practice looks as follows:
- Base rent: 2,000 euros
- Service charges (advance): 300 to 500 euros
- VAT (21% on rent and service charges): 483 to 525 euros
- Total per month: approximately 2,800 to 3,025 euros
This makes comparing on the basis of the m² price alone misleading. A location with a lower base rent but high service charges can end up being more expensive in total than a location with a higher base rent but low additional costs. When renting retail space, it is therefore essential to always calculate the total rental cost before comparing locations.
When is rent inclusive or exclusive of VAT for a retail space?
Rent for retail space in the Netherlands is standard exempt from VAT. However, landlord and tenant can jointly choose to make the rent subject to 21% VAT, the so-called VAT option. This is advantageous if the tenant is themselves VAT-liable, because the tenant can then deduct the VAT as input tax.
The choice for taxed or untaxed rent has direct financial consequences:
- Rent exclusive of VAT (exempt): the tenant pays no VAT on the rent, but the landlord cannot deduct VAT on investments and maintenance. This often leads to a higher base rent to compensate for this disadvantage.
- Rent inclusive of VAT (taxed): the tenant pays 21% VAT on top of the rent, but can reclaim this VAT if they file their own VAT return. For VAT-liable entrepreneurs, this is financially neutral.
For a starting retail entrepreneur who is VAT-liable, taxed rent is generally more favorable. Those who do not file VAT returns, for example because they provide exempt services, pay the VAT as a real cost item. It is advisable to always discuss this point with a tax advisor when concluding a lease for retail space.
Which cost items are negotiable in a retail lease deal?
In a retail lease deal, more cost items are negotiable than many tenants realize. The base rent, the rent-free period, the indexation, the amount of the security deposit, and sometimes even the service charge budget are all open for discussion. The room for negotiation depends on the market position of the location, the demand for the space, and the financial position of the landlord.
What can you negotiate regarding the rent itself?
The base rent is the most obvious point of negotiation. Landlords typically set an asking price that leaves room for a downward adjustment, especially if a property has been vacant for some time. Those who have access to current market data on comparable transactions in the same street or city are in a stronger negotiating position. KroesePaternotte has lease contract data going back to 1984, which means that every offer can be directly benchmarked against what has actually been paid in the same street.
What other conditions are negotiable?
In addition to the rent, the following conditions are regularly subject to negotiation:
- Rent-free period: a period at the start of the lease during which no or reduced rent is paid, intended to offset fit-out costs
- Lease term and break options: the ability to terminate the contract at fixed points during the lease term
- Indexation agreements: the way in which the rent is adjusted annually, typically linked to the CPI index
- Amount of the security deposit: sometimes reducible with a strong tenant or additional guarantees
- Contribution to fit-out costs: landlords sometimes offer a contribution toward renovation costs as an incentive
For tenants negotiating a retail space for the first time, engaging a specialized retail real estate agent is far from a luxury. KroesePaternotte guides retailers through the entire negotiation process and assesses lease contract terms based on current market data, so you know whether an offer is in line with the market before you sign. Contact us for a no-obligation conversation about your search.
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