Free tool
Net effective rent calculator
Two landlords quoting $20 a foot are rarely quoting the same deal. Enter the commercial lease offer as it reads on the letter of intent and get one comparable number, the net effective rent (NER) per square foot per year, with every step of the arithmetic shown.
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What is net effective rent?
Net effective rent (NER) is what a tenant really pays for space once the inducements are taken out of the face rate: the net rent contracted over the term, less the free months and the landlord’s allowances, spread evenly over the term and the rentable area. It is quoted in dollars per square foot per year, the same unit as the face rent, so two offers with different terms, free periods and allowances can be read side by side as one number. Landlords use it to compare what they are really achieving; tenants and their brokers use it to compare what they are really paying.
How to calculate net effective rent
The convention is straight-line, which is what Canadian brokerage practice quotes and what a client will check by hand:
net effective rent = (net rent payable over the term − free rent − landlord’s allowances) ÷ term in years, per square foot
- Add up the contracted net rent over the whole term, month by month, honouring every step and escalation.
- Subtract the free rent at the rate in force during the free months. They sit at the front of the term, where a stepped deal’s rate is lowest; valuing them at the average rate overstates the inducement.
- Subtract the inducements: the tenant improvement (TI) allowance, cash or moving allowances, a fixturing period valued at the month-one rate, and, on a gross free-rent deal, the additional rent forgiven too.
- Divide by the term in years. The result is the tenant’s net effective rent in $/SF/yr.
- For the landlord’s side, also subtract leasing commissions and landlord’s work beyond the allowance. The tenant never receives those, so they move only the landlord’s figure.
Additional rent (TMI: taxes, maintenance and insurance) is never netted. It is a pass-through, not consideration for the space, and including it would flatter a net deal against a gross one. It is reported beside the headline as gross effective rent instead.
Face rent, net effective rent and gross effective rent
| Figure | What it is | What it is for |
|---|---|---|
| Face rent | The net rate written on the offer, averaged over the term | The number in the listing; says nothing about inducements |
| Net effective rent (tenant) | Face rent less free rent and allowances, straight-line | Comparing offers; the headline number |
| Net effective rent (landlord) | The tenant’s figure less commissions and landlord’s work | What the landlord clears from the deal |
| Gross effective rent | Net effective rent plus additional rent | Comparing a net quote with a gross one; total occupancy cost |
| Present value | The same cash flows discounted to day one, then spread back over the term | Institutional tenants and long terms, where timing matters |
A worked example
A 2,000 SF unit on a 28-month term at $16.30 net, with the first two months free and months 15 and 16 free again, a $20/SF improvement allowance and a $2/SF leasing commission.
- Contracted net rent: 24 paid months at $16.30 ÷ 12 = $32.60/SF ($65,200 on 2,000 SF); face rent averages $13.97/SF/yr over the term.
- Less the allowance: $32.60 − $20.00 = $12.60/SF net of inducements.
- Over 2.33 years: $5.40/SF/yr net effective rent to the tenant.
- Landlord’s side: less the $2.00/SF commission over the term, $4.54/SF/yr.
- Discounted at 12% a year: $4.13/SF/yr to the tenant and $3.16/SF/yr to the landlord.
and change one thing at a time to see what moves the number.
How the present value is calculated
With a discount rate, each month’s rent is discounted as paid in advance at an effective annual rate converted to monthly, allowances are taken at their face value at commencement, and the result is spread back over the term as a level payment in advance, so it is still a $/SF/yr a broker can put beside the straight-line figure. These are the conventions Canadian brokers’ own workbooks use. Institutional tenants discount; most brokers quote straight-line. Both are shown so neither side of that argument has to leave the page.
Questions
What is net effective rent?
Net effective rent (NER) is the net rent actually payable over the term, less free rent and the landlord’s allowances, spread evenly over the term and the rentable area, in dollars per square foot per year. It lets two offers with different face rates, free periods and allowances be compared as one number.
How do you calculate net effective rent?
Add up the net rent contracted over the term, subtract the free rent at the rate in force during it, subtract the improvement allowance and any other inducements, then divide by the term in years and the rentable area. The result is $/SF/yr. Additional rent is left out.
What is the difference between face rent and net effective rent?
Face rent is the rate written on the offer, averaged over the term. Net effective rent is what the tenant really pays once free months and allowances are netted out. Two offers with the same face rent can be several dollars apart on net effective rent.
Is additional rent (TMI) included in net effective rent?
No. Taxes, maintenance and insurance are a pass-through, not consideration for the space, so they are reported alongside as gross effective rent but never netted. Including them would flatter a net deal against a gross one.
What is the landlord’s net effective rent?
The tenant’s net effective rent less the landlord’s own costs of the deal: leasing commissions and landlord’s work beyond the allowance, spread over the term. The tenant never receives those, so they move only the landlord’s figure.
How is the present value of a lease calculated?
When a discount rate is entered, each month’s rent is discounted as paid in advance using an effective annual rate converted to monthly, allowances are taken at face at commencement, and the result is spread back over the term as a level payment in advance. The straight-line figure stays the headline; the present value is a second opinion.
What discount rate should I use?
The tenant’s cost of capital or the landlord’s target return; 7 to 12 percent a year is the usual range in Canadian practice. Leave it blank for a straight-line comparison, which is what most brokers quote.
The same code runs inside Frontage, the leasing desk for independent Canadian brokers, where it compares every offer on a deal and keeps the winner beside the client’s requirement. This page is the calculator on its own: no account, no tracking of what you enter. Last updated 19 September 2026.