Franchisee Real Estate Lease: TMI

TMI (Taxes, Maintenance and Insurance) is a commercial leasing term used to describe the additional costs a franchisee (tenant) is responsible for paying on top of their base rent.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

The complexity of the lease agreement for the commercial real estate that is used in the franchise operation can very easily equal, or even surpass, that of the franchise disclosure document and the franchise agreement, such that retaining the legal services of an experienced lawyer to decipher, explain and negotiate the commercial lease agreement and its schedules. And for over 25 years, we have been working with business owners, including franchisees, to understand and deal with commercial lease agreements that have been presented by landlords and are foundational to their business operations. To gain the most from our legal analysis and advice as to the commercial leasing arrangement, a franchisee would be well served to understand some of the most significant commercial leasing terminology, which we have undertaken to provide you with in-depth analysis.

TMI in a commercial lease agreement stands for Taxes, Maintenance, and Insurance, and is used to describe the additional costs a franchisee (tenant) is responsible for paying on top of their base rent. The term TMI is most commonly used in leases for single-tenant commercial buildings or in a triple-net (NNN) lease structure.

• Taxes: This is the tenant's pro-rata share of the property taxes assessed on the building. The landlord calculates this by taking the total annual property tax bill and dividing it among the tenants based on the square footage they occupy.

• Maintenance: This covers the costs associated with the upkeep and repair of the common areas of the building. This can include a wide range of expenses such as landscaping, snow removal, parking lot repairs, cleaning services for common lobbies and restrooms, and general maintenance of the HVAC and elevator systems.

• Insurance: This is the tenant's share of the property insurance the landlord carries on the building. This insurance protects the physical structure of the building itself, but it does not cover the tenant's personal property or business assets inside their leased space. The tenant is responsible for their own contents and liability insurance.

The methodology for calculating and charging TMI is directed by the landlord, in conformity with the commercial lease agreement. The landlord typically provides an annual estimate of the TMI at the beginning of the lease term. This is an educated guess based on the previous year's expenses and anticipated costs. The franchisee (tenant) pays this estimated amount in monthly installments along with their base rent. At the end of the year, the landlord performs a reconciliation. They calculate the actual TMI expenses incurred and compare them to the estimated payments collected from the franchisee (tenant). If the franchisee (tenant) overpaid, the landlord credits the difference toward future rent or issues a refund. If the franchisee (tenant) underpaid, the franchisee (tenant) is billed for the difference, which is often due within a specific timeframe (e.g., 30 days). It is important for a commercial tenant to understand how TMI is calculated and to have the right to audit the landlord's books to ensure the charges are fair and accurate.

Naturally, how the concept operates in the specific context of the particular lease agreement requires experienced legal analysis, such that you make the most out of your understanding of the commercial lease agreement for your franchise. For such legal analysis and advice for your franchise and its commercial leasing arrangements, we welcome you to contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com to schedule a confidential consultation.

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Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.