Entering into a commercial lease contract takes preparation in understanding what the terms and conditions are and whether or not your business is a good fit. Navigating the world of commercial real estate can be challenging when you don’t understand the jargon used.
Thankfully, this article is meant to give you a brief look into what is commonly used during the commercial leasing process and help build a niche vocabulary as you navigate it.
Commercial Leasing Terms You Should Know
Gain confidence and understanding next time you interact with commercial real estate brokers and discuss commercial leasing terms.
Here are some of the most common words you should know:
Lessor: Also known as the landlord, this person or company issues the lease and has legal obligations according to the lease contract and the roles and responsibilities outlined in the lease. The lessor may also refer to a property management or commercial leasing company.
Lessee: If you are the person signing the commercial lease, your business entity is considered the lessee. This term refers to the person leasing the commercial space, also referred to as the tenant. Your business entity should be named in all documents related to the commercial leasing process.
Fully Serviced Lease: A lease in which the rental payment includes other services, such as utilities, maintenance, and lawn/snow removal services. The lessor pays these fees and passes them on to the tenants in the lease. This may benefit a tenant since it saves them from having to pay these additional fees.
Common Area Maintenance (CAM): This term describes costs for areas in a building that are a common responsibility, such as hallways, restrooms, stairways, and walkways. Sometimes lessors will add the CAM costs to square footage costs to calculate lease payments.
HVAC: Stands for Heating, Ventilating, and Air Conditioning. This refers to your leasing property ventilation system.
Build-out: You might hear this term or one of its replacements, “Leasehold Improvements” or “Tenant Improvements”. All these terms mean the same thing, they are improvements needed to the office or commercial building to make it usable for the tenant.
Gross Lease: A lease where the landlord is agreeing to pay for all common expenses, including utilities, repairs, insurance and sometimes even property taxes.
Net Lease: A commercial lease, including costs of the square footage, CAM, and all other ownership expenses. This might also include utilities, repairs insurance and sometimes property taxes.
Double Net Lease: A commercial lease type that includes the expenses regarding taxes and insurance. The lease payment in a double net lease will include these costs in the lease payment.
Triple Net Lease: This type of lease includes all taxes, insurance, and maintenance costs in the monthly payments due.
Research in Commercial Leasing is Key
Continuing to conduct research in the area of commercial real estate and how best to navigate the various leases we’ve outlined above is key. You’ll also want to take notice of zoning laws, environmental expectations and nuisance laws. All these aspects may have an impact on your decision of signing a commercial lease or not.
You’ll also need to have a clear understanding of what a lease transfer looks like should your business close or wish to change locations.
Plaza Companies is the Premier Choice in Commercial Real Estate
Plaza Companies is a full-service real estate firm specializing in the leasing, management, construction, and development of some of the most innovative commercial real estate projects in Arizona. Plaza Companies is successfully competing in the commercial real estate space. Remaining compliant with all accessibility needs is a top priority along with all other legal obligations. Our firm specializes in staying connected and conscientious of all emerging trends.
Contact us today to learn more about leasing the right space or anything else we offer!