Signing a commercial lease can be a bit daunting, particularly if it’s your first experience with this sort of transaction. There are a variety of clauses and provisions that are fairly standard, and make a big difference in how the deal comes out for the tenant. As with any business move, it’s essential to be familiar with all of the language that’s used in the lease.

It’s always better to ask questions if you’re unsure about anything in a legal document. Rest assured, plenty of seasoned professionals do the same. If you want to get started boosting your commercial real estate I.Q., here are 10 essential commercial lease definitions you should commit to memory.

Usable Area

The space rented and used exclusively by the tenant. This is different from “rentable square footage”, which includes a portion of common areas, such as restrooms and lobbies.

Escalation Clause

Allows the landlord to increase the rent in the future when his/her own expenses (taxes, operating costs) increase. The increase may be fixed and periodical or tied to changes in the Consumer Price Index.

Net Lease

In this arrangement, the tenant pays the rent, plus other costs like property taxes, insurance, utilities, and even repairs (also referred to as a “triple net lease”).

Gross Lease

Here the tenant pays a flat sum for rent, which covers the landlord’s operating expenses. This makes the tenant’s monthly expenses more predictable.

Expense Stop

A fixed amount, typically quoted per square foot, in a lease where the tenant is responsible for all building operating expenses and taxes in excess of said amount.

Letter of Intent

This document is signed before the lease agreement is finalized. It’s non-binding, but signals the parties’ intention to move forward with the transaction.

Common Area Maintenance

This is additional rent charged to maintain shared areas of the property. It can include landscaping, exterior lighting, and other essentials.

Tenant Improvements

Any permanent changes made to the space by the tenant. Costs for these can sometimes be covered by the landlord with upfront negotiation.

Expansion Option

This is a right given to the tenant to add more space to its premises in the future.

Right of Offset

This clause gives the tenant the right to deduct from the rent any costs incurred through failure of the landlord to respond within the agreed-upon time frame to requests for repairs, etc. after given notice by the tenant.

These are some commonly encountered terms in commercial leasing agreements. You’ll doubtlessly encounter other unfamiliar language in a lease. It’s also important to know about different clauses and options that you may want to add to a lease yourself.

Make use of your professional contacts to get information on leasing terms, and take a look at our extensive glossary of terms for a convenient check of basic definitions.

And just remember, few people know every leasing term; asking questions demonstrates due diligence. Operate on the timeline that you’re comfortable with. Never sign an agreement without thoroughly understanding the language, as this can be a costly mistake.

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9 Responses to Ten Commercial Lease Definitions to Commit to Memory

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