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If you are looking to lease space in a commercial property then we don’t have to tell you that it involves a lot of research and steps. From determining how much space you need to finding the right location to negotiating the best deal; leasing commercial property is a process.
To ensure that your personal and business interests are covered we strongly advise using an experienced commercial real estate Broker, and possibly real estate Attorney, to complete any lease transaction.
Even with the help of a professional it’s best that tenants are fully versed and comfortable with the contents of their lease agreement. After all, this is the legally binding document that dictates how much you pay, for how long, and outlines exactly what you are entitled to.
To protect yourself, your business and your peace of mind, we advise our clients to understand the terminology contained in their lease. Below we have pulled out some of the top-level terms anyone leasing commercial property should understand before they sign on the dotted line.
**For a complete glossary of real estate leasing terms, see this thorough list from The Center for Commercial Real Estate.
In the dictionary this is defined as, “the ending, reduction, or lessening of something.” In commercial real estate leasing, abatement refers to “Rent Abatement” and it is an incentive offered by the landlord/owner of a commercial property in the form of free or reduced rent, early occupancy and/or the reduction of fees.
In commercial property leasing Base Rent refers to the minimum amount of rent that a tenant must pay the landlord/owner each month. It is typically calculated according to the square footage of the space.
Common Area Maintenance (CAM)
Common Area Maintenance, referred to as “CAM”, is Additional Rent charged each month to a tenant (in addition to Base Rent). This charge covers a tenant’s portion of the various needs and costs associated with maintaining a commercial property’s common areas. Examples include: trash removal, security, property lighting, insurance, property taxes, etc.
Concessions are cash or equivalents offered by a landlord to incentivize a tenant to sign a lease. They can include rent abatement (which you learned about above), tenant finish allowances, moving expenses and more.
An Escalation Clause, or Escalator Clause, is a clause in a lease that guarantees a change (increase) in rent on an annual basis. This clause is typically used in long-term leases as a way to protect the landlord from factors beyond anyone’s control (i.e. inflation). Increases are typically based on a percentage of the Consumer Price Index (CPI) or increases in property taxes and/or operating expenses.
Letter of Intent
A Letter of Intent, referred to as a LOI, is a document that puts a tenant’s commitment to leasing a space in writing. An LOI summarizes the lease terms (timeframes, rent, concessions) and comes before anyone signs a lease agreement.
A Gross Lease is a lease for commercial property where (i) a tenant pays a flat rental sum each month and (ii) the landlord must pay for all property expenses (taxes, insurance, maintenance, utilities, etc.)
A Net Lease is a lease for commercial property where a tenant is required to pay Additional Rent on top of Base Rent for operating costs at a commercial property. These costs include property taxes, repairs, insurance, and maintenance.
There are a few types of Net Leases (Single Net, Double Net) but the most common is a Triple Net Lease (NNN). In a NNN Lease a tenant pays for the three net operating costs: taxes, insurance, maintenance. While rents are typically lower with a NNN Lease a tenant will want to ensure they utilize this lease type for newer commercial property only where there won’t be too many repairs or capital expenditures.
If you are currently seeking to lease commercial space and have questions or need help, make sure you reach out to a local commercial real estate Broker. For tenants seeking space in commercial property located in Baton Rouge and surrounding areas, reach out to the leasing experts at SVN | Graham, Langlois & Legendre. With vast experience in the Capital Region, our team has helped hundreds of clients get in the best space at the best price. See how our Advisors can help you, contact us today!