Understanding commercial lease terminology is crucial if you own a business or plan to start one. Leasing commercial real estate can be a complex process, and it’s essential to have a good understanding of the terminology used in commercial leases. In this blog post, we will discuss some key terms that every business owner should know when entering into a commercial lease.
1. Base Rent and CAM Charges
Base rent is the fixed amount tenants pay their landlord each month for occupying the space. It does not include any additional fees such as utilities, property taxes, or maintenance costs. These additional fees are known as Common Area Maintenance (CAM) charges. CAM charges are usually divided among all the tenants in a building and cover expenses related to shared spaces, such as lobbies, hallways, elevators, and parking lots.
2. Triple Net Lease
A triple net lease is a type of lease where the tenant pays for all three types of net costs – property taxes, insurance, and maintenance – in addition to their base rent. In a triple-net lease, the tenant is responsible for all expenses associated with the property, including structural repairs and maintenance. This type of lease is commonly used in commercial real estate transactions involving retail or office spaces.
3. Escalation Clause
An escalation clause allows the landlord to increase the rent over time. This clause typically includes a pre-determined percentage or formula for calculating the rent increase. It’s essential to understand how much and how often your base rent will increase before signing a lease with an escalation clause.
4. Rentable vs. Usable Square Footage
When leasing commercial real estate, it’s crucial to understand the difference between rentable and usable square footage. Rentable square footage is the total space that a tenant occupies in a building, including any shared spaces such as hallways and restrooms. On the other hand, usable square footage only accounts for the actual space within the leased premises. The cost per square foot is usually calculated based on rentable square footage, so it’s essential to know the difference when negotiating lease terms.
5. Sublease and Assignment
A sublease is a type of agreement in which a tenant rents out all or part of their leased space to another party. In this situation, the original tenant becomes the landlord to the subtenant and assumes responsibility for collecting rent and managing the space. An assignment, on the other hand, occurs when a tenant transfers their entire interest in the leased property to another party. In an assignment, the new tenant takes over all responsibilities and rights under the original lease.
By understanding these common commercial lease terms, you can enter into your lease agreement with confidence and avoid any surprises or misunderstandings in the future. If you have any questions about these terms or need assistance with finding and negotiating a commercial space, be sure to consult a reputable commercial real estate agency like Daniels Greer Commercial Real Estate in Tulsa, Oklahoma. We have the expertise and knowledge to help you make informed decisions regarding your commercial lease. So, don’t hesitate to reach out at (918) 740-1015 and gain a better understanding of the leasing process!