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15 Commercial Leasing Terms

15 Commercial Leasing Terms

15 Commercial Leasing Terms

 

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Commercial leasing terms  –

Commercial Real estate, like any business – has its own set of jargon. Knowing some of the most commonly used commercial leasing terms is important. It may give you an advantage during negotiations.

Read on and get yourself familiar with these commercial leasing terms.

Letter of Intent (LOI)

This is usually the first step in negotiating a commercial lease, making it an important commercial leasing term to know. It provides an overview of the transaction before any party commits. This is where parties state their intent to enter an agreement.

Landlord or Lessor

This is one of the must-know commercial leasing terms. A landlord is a person who leases (rents out) the property to the tenant. The landlord is the party that is responsible for coming up with the lease agreement.

Tenant or Lessee

The tenant is the one that agrees to the lease and occupies the landlord’s premises by renting it. Like landlord this is also one of the most important leasing terms to know.

Tenant Representation

This is an exclusive agreement where a real estate agent represents a client during the negotiation of a commercial lease.

Tenant Improvements

When a tenant wants the premises better suited to their requirements, they may make improvements. The landlord or the tenant may cover the costs of these improvements. Who does this depends on the agreement made during negotiations.

Lease Commencement Date

This is the date when both parties in a lease become responsible for upholding their part. This is also the date when a tenant can move into the premises.

CAM (Common Area Maintenance)

These are fees charged to the tenant and meant for the maintenance of common areas. Examples include restrooms and parking lots. The tenant is the one who covers these additional fees.

Class A, B, or C

Building classifications are important commercial leasing terms to know, since they help in reporting marke data. High-quality buildings that usually have extra amenities are Class A buildings. Class B buildings are usually older and generally still in good shape. They also have great tenants and management. Class C buildings are also older, in poorly located neighborhoods. These building also require extensive renovation and have no amenities.

Double Net Lease

A lease agreement where the tenant makes himself responsible for covering maintenance costs only. The landlord covers the insurance and tax expenses.

Triple Net Lease

A lease agreement where the tenant makes himself responsible for covering maintenance, taxes, and insurance. The is also one of common commercial leasing terms that you need to know.

Gross Lease

A lease agreement where the landlord makes himself responsible for paying all common expenses. These include taxes (occasionally), insurance, maintenance, and utilities.

Build Out

This is when a tenant finishes building any raw (unfinished) space in the building. The tenant makes this raw space suit his or her own needs after signing the lease.

Effective Rate

The is money that a landlord gets after covering all the property’s operating costs. This also includes costs of making the property ready for occupation.

White Box

A white box is a commercial property with an interior that features minimal finishes. These finishes include concrete floors, lighting, ceilings, plumbing, interior walls, and electrical outlets. This property is considered ready for tenant improvements (TI’s).

Sublease  

A sublease is when a landlord and tenant agree to allow another party use all or part of the premises.

 

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