Key Lease Terms
Commercial lease agreements can, at times, be very complex legal documents. Whether you are the landlord or the tenant, it is crucial to understand how these types of contracts will affect you and your business. Before signing any commercial lease agreement, it is important to understand the sometimes-confusing terminology of your contract.
Below is a list of commonly found terms you may typically find within your offer to lease along with their respective definitions:
Term: The length in which the premise will be leased by the tenant from the landlord.
Rate: Referred to as the rate per square foot that is being asked for in relation to a particular piece of property (ex. John has chosen to market his property at a rate of $8.00 per square feet).
Lessee: The one whom, the lease is granted to. Otherwise known as the “tenant”.
Lessor: The one whom grants the lease. Otherwise known as the “landlord”.
Early Occupancy: A specified period in which the tenant is allowed to occupy a premise prior to the commencement date of their lease.
Free Rent: A specific period in which the tenant is not required to pay for rent during the lease agreement. This is usually used to induce a tenant to leasing a specific premise.
Tenant Improvement Allowance: The amount of money contributed by the landlord towards the tenant’s improvements to their space. The tenant will pay for any costs that exceeds this amount.
Tenant Inducements: Incentives that are offered by a landlord to encourage a potential tenant to lease their space. Examples can include but are not limited to; a few months free rent or helping to pay for tenant improvements.
Start Date/Commencement Date: The date upon which the landlord and the tenant’s rights and obligations under the lease agreement begin.
Turn Key Project: A special project in which a third party, usually a developer, is held responsible for the completion of a space (including interior design, tenant improvements, and construction) to the specifications and requirements of a future tenant.
Gross Rent Lease: A type of commercial real estate lease agreement in where the tenant pays a fixed amount which includes the base rent and operating expenses as one monthly bill. Sometimes a Gross Rent will include utilities but not always.
Net Lease: A type of commercial real estate lease agreement under which the tenant pays the base rent plus a share of the operating expenses (usually property taxes, though in some cases, they might pay for utilities or insurance instead).
Double Net Lease: A type of commercial real estate lease in which the tenant usually pays the base rent plus two incidentals (usually property taxes and insurance) and the landlord pays for all other operating experiences.
Triple Net Lease: A type of commercial real estate lease in which the tenant pays the base rent and is completely responsible for all operating expenses associated with their proportionate share of the building. The landlord will be responsible for structural repairs.
Sub-lease: The renting of space by a tenant to a third party during a portion of the existing tenant’s lease contract. Usually in a sublease the original tenant remains the covenant on the lease in case the sub leasee defaults.
HVAC: An acronym used to stand for heating, ventilation, and air-conditioning systems. There is usually a HVAC clause that explains who is responsible for paying for these costs in most offer to lease agreements.
Utilize the help of a qualified commercial real estate broker or seek legal counsel before signing any agreement to ensure you understand all the terms found throughout your lease documents. Every agreement or contract is worded differently.
Feel free to contact Aaron Gunn at Aaron@topcommerciallistings.com or (403) 200-4026 if you have any questions regarding to lease agreements or any terms found throughout it.