Navigating through the leasing process can be intimidating for any tenant but especially when you begin to encounter unfamiliar terms found in many commercial leases. Working with an experienced broker who can answer your questions and educating yourself on the following concepts will help ensure you are making wise decisions before signing on the dotted line.
Here is a list of 10 essential lease terms you should know before you lease space.
- Useable Square Feet – The measurement of commercial space you occupy and use for your business.
- Rentable Square Feet – The measurement of the entire space the tenant leases including spaces shared with other tenants such as public corridors, stairwells, elevators, janitorial closets etc.
- Common Area Maintenance (CAM) – Fees the tenant pays to the landlord, in addition to rent at either a variable or a fixed rate. These could include security, trash removal, snow removal, landscaping fees etc.
- Abated Rent – Rent the tenant doesn’t have to pay (aka free rent), which can be negotiated with the landlord. This is typically provided in the first few months of the lease when the tenant moves into their space.
- Base Rent – The amount of rent that is set as the minimum with provisions to increase over the term of the lease.
- Escalations – Adjustments made to the base rent over time to cover certain operating & maintenance expenses encountered by the landlord.
- Concessions – Negotiated allowances for tenants including discounted or free rent for a fixed period, reduced escalations, or tenant improvement allowances.
- Holdover Clause – Clause that states if the tenant does not vacate the space before the termination date, they are responsible for a specific amount of additional rent usually between 2-3 times the previous rent.
- Tenant Improvement Allowances (TI) – An agreement from the landlord to compensate the tenant for all or a portion of the funds required to construct the commercial space to the tenant’s specifications.
- Letter of Intent (LOI) Proposal – Written document solidifying the tenant’s commitment to rent the space prior to the actual signing of the lease (Non-legally binding).