# Rent, deposits, and occupancy cost

Item 7 often contains a real-estate line, but that does not mean the total
contains the lease obligation. The row may cover a security deposit, utility
deposits, a short period of prepaid rent, a brokerage charge, or some
combination. Recurring rent over the lease term remains an operating cost.

The distinction follows the purpose of Item 7. The FTC's [Franchise Rule
compliance guide](https://www.ftc.gov/system/files/documents/plain-language/bus70-franchise-rule-compliance-guide.pdf)
defines initial investment around opening and the initial operating period; it
expressly distinguishes future rent over the life of the agreement. A small
deposit line can therefore sit inside a large long-term occupancy commitment
without contradiction.

## Separate the first checks

Build a schedule for each amount due before and around opening:

- security deposit held under the lease;
- first month's or prepaid rent;
- utility deposits;
- key money or acquisition payment, if any;
- legal, brokerage, and guaranty costs;
- rent during design, permitting, and construction;
- common-area, tax, insurance, or other pass-through estimates; and
- storage or temporary-space costs created by delays.

Some amounts may be refundable, some credited, and some earned immediately.
The Item 7 amount column alone does not answer which. Read “when due,” “to whom
paid,” and the footnote, then reconcile each item to the lease.

## Model total occupancy cost

Base rent is only the beginning. Depending on the lease structure, the tenant
may also pay a share of common-area maintenance, property tax, building
insurance, utilities, waste, security, repairs, management charges, and
percentage rent. The City of Seattle's public [commercial lease
tool](https://www.seattle.gov/documents/departments/economicdevelopment/oisi/english%20final%20full%20lease%20tool.pdf)
explains minimum rent, percentage rent, and operating-expense pass-throughs and
provides questions for reviewing how they are calculated.

Convert every recurring component into a monthly cash schedule. Keep base rent,
estimated pass-throughs, utilities, and percentage rent separate so escalation
and sensitivity are visible. A per-square-foot quote is not comparable until
the rentable area, expense basis, annual increases, free-rent period, and
percentage-rent definition are known.

## Construction time is occupancy time

The lease should identify what starts rent: execution, delivery, possession,
permit issuance, completion of landlord work, or opening. A delay can consume
free rent and working capital before revenue begins. Tenant-improvement
reimbursement can arrive only after lien waivers, inspections, and proof of
payment, leaving the operator to fund both construction and occupancy in the
meantime.

Second-generation premises can reduce construction while carrying higher rent,
an acquisition payment, or inherited repair obligations. A shell may offer a
larger allowance but require a longer build. Item 7 cannot decide which lease
has the better economics because it does not model the full term.

## Use the filing without overreading it

On generated cost pages, the original real-estate labels remain unchanged:
“Lease & Utilities deposits,” “Real Property,” and “Real Estate Lease Deposits”
are shown as the filings state them. They should not be renamed “rent” simply
to make the rows line up.

Treat the Item 7 real-estate figure as the disclosed opening cash estimate.
Treat the signed lease as the source for deposit conditions, commencement,
escalations, pass-throughs, guaranties, improvement funding, and the long-term
occupancy obligation. Both belong in diligence, but they answer different
questions.

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