When you enter the world of commercial real estate, one term is heard again and again – TMI, which stands for Taxes, Maintenance, and Insurance. This TMI is the additional expenses that a tenant has to pay in addition to the rent. Especially if you are in a Net Lease Agreement, the matter of TMI becomes even more important.
Meaning of TMI in Real Estate
TMI actually refers to three major expenses: Tax, Maintenance, and Insurance.
- Taxes: Property tax that has to be paid to the government; usually, the landlord collects it from the tenant.
- Maintenance: It includes things like building repairs, cleaning, common area care, HVAC system maintenance, parking, and landscaping.
- Insurance: A part of the property insurance taken by the landlord has to be paid by the tenant.
These expenses directly affect your monthly cost. Sometimes, TMI can be more burdensome than the rent if not properly understood and planned.
Why is it important to understand TMI?
When you rent a commercial space, such as a shop, office, restaurant, or warehouse, the base rent is not your only responsibility. Sometimes the rent is fixed on a per-square-foot basis, but TMI is added on top. This is where the tenant gets shocked when the total cost turns out to be much more than expected.
Understanding TMI can help you:
- Make your budget better.
- Avoid overspending.
- Have a proper conversation with the landlord.
Does the tenant have to pay TMI every time?
No, not every time. It depends on what agreement you have made with the landlord. In some cases, the landlord bears the entire TMI (like in a gross lease), while in agreements like net lease, double net lease (NN) or triple net lease (NNN), the tenant has to bear the entire burden of TMI.
How to know if you are paying too much in the name of TMI?
- Compare: What is the TMI of nearby properties?
- Get a cap: Ask the landlord to fix a limit on the annual increase in TMI.
- Read the agreement: Read every line carefully – are there any hidden expenses?
- Ask for an audit: You have the right to ask for an accounting of expenses.
What is the difference between TMI and TI?
TMI:– Expenses that the tenant pays for property maintenance, insurance, and taxes.
TI (Tenant Improvements): Changes or construction that the tenant does to meet their own business needs, such as building internal walls, changing decor, etc.
Can TMI change every year?
Yes, absolutely. Since it includes taxes and maintenance, which can increase or decrease every year. If the building is old and needs more repairs, the TMI portion will also increase.
Is TMI negotiable?
In most cases, this is a bit difficult, as the landlord does not want to give each tenant a different rate – this can lead to disputes. But as a good negotiator, you can ask for a cap on TMI, removal of certain services, or a clear breakdown of shared expenses.
A unique fact – TMI is not just an expense, it is also an investment
If you think of TMI money as just an expense, then change your mind. It gives your business access to better infrastructure, clean ambiance, and safe premises, which helps in attracting customers and growing the business. So, it is also a kind of investment in ambiance.
Summery,
TMI is not a hidden expense, but an important reality of real estate deals. Understanding this is as important for every tenant as knowing the base rent. With the right information and communication, you can turn TMI to your advantage. So next time you go to view a commercial space, ask about TMI and make an informed decision.
If you want, I can prepare a short video script or audio version of this, too!
