Commercial Lease Terminology You Need to Know Before Signing

Posted on October 22, 2021 by bafcorp20

Before signing on that dotted line, be sure you are clearly interpreting the commercial real estate leasing jargon on your contract. Continue below to review some of the most common commercial lease terms and definitions you need to know if you want to make an informed and intelligent decision on your new office or business space.

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Vocabulary Terms on a Commercial Office Lease

Understanding the terms and conditions of your commercial lease is quite difficult if you are not familiar with the standard terminology used within such contracts. It can be especially troublesome if you wish to amend or get out of your commercial lease at some point.

Some of the most common terms you will come across, on your standard commercial office lease that is, include common area maintenance, load factor, option to purchase, parking ratio, right of first refusal, rentable square footage, usable square footage, and request for proposal. Let’s start with these:

Common Area Maintenance

Common area maintenance (CAM) is a general term used to describe the stipulations surrounding shared maintenance expenses for the building you are leasing within. In a multi-unit building, each tenant may be required to contribute to such costs, which are typically decreed within the lease.

Load Factor

Load factor, or core factor, is a calculated number generated by the property management company or landlord of the building. This number represents the division of common area square footage among each tenant. This number allows you to interpret the value or fairness of your rentable square footage.

Option to Purchase

Option to purchase is a term typically reserved for leasing a whole building, not just a unit within a multi-tenant office building. Option to purchase is a section that will describe clauses for a tenant who wishes to buy the building outright one day. An Option to purchase agreement should take into account the amount of rent paid to date.

Parking Ratio

Parking ratio simple refers to the number of parking spaces allotted to the tenant’s rented space. For a multi-tenant office building, there could be a certain number of spaces assessed for employees and visitors.

Right of First Refusal

Commercial leases that have a Right of First Refusal clause gives tenants an upper hand when new space becomes available in the building. A landlord must notify you and offer you any newly available space before advertising it to the general public. Basically, you have first dibs, plus to right to refuse it.

Rentable Square Footage

Rentable square footage is the total square footage of the space you are leasing, plus any shared or communal spaces that other tenants use as well, such as outdoor break areas, hallways, break rooms, cafeterias, bathrooms, and elevators.

Usable Square Footage

Usable square footage is generally less than the rentable square footage. It represents the total square footage of the space that can actually be occupied and used. For instance, if an office space has a basement level that is unfinished, it is not usable, and therefore, would not be included in the usable square footage value.

Request for Proposal

A Request for proposal is also called an RFP document. This document is constructed by you and your broker, then submitted to the commercial landlord to notify them of what you expect and want with your leased space. The landlord can respond by informing you if their facility meets your needs or not. This document tends to commence the lease negotiating process.

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What is a Commercial Lease Abstract?

Posted on June 29, 2021 by bafcorp20

If you have ever signed a contract before, you know that they are incredibly long and complicated pieces of literature that are virtually impossible to understand without a thorough comprehension of real estate law and liability. For this reason, when signing a commercial lease agreement, it is common to request a lease abstract.

Continue reading to learn what a commercial lease abstract is, and what should be included in one before making a commitment.

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Commercial Lease Agreements and Abstracts

It is unrealistic to fully read through and understand every element of a commercial lease agreement. Commercial lease abstracts play an important role in a tenant’s ability to understand what contractual agreement they are signing into, and what is expected of them during their occupation. Basically, a lease abstract is a summary of all the primary and important aspects of the lease agreement.

Sort of like CliffsNotes for a book you forgot to read in college, a lease abstract covers the basics of the contract and informs you of all the vital facts you need to know, and in a language you can understand. Lease abstracts are constructed to be free of confusing industry jargon, and allow a potential corporate or commercial tenant to fully understand the liability and responsibilities they are taking on if they choose to enter into the lease.

What Should Be Included in a Lease Abstract?

Although a summary of the full contract, a lease abstract will (and should) contain a lot of information. The basic information it should have includes:

☑ Tenant’s Full Name
☑ Total Cost of Rent
☑ Square Footage of the Rental Space
☑ Lease Start/End Date
☑ First Rent Payment Due Date
☑ Premises Specifications
☑ Authorized Use of the Premises
☑ Parking Space/Requirements
☑ Accountable Party for Repairs and Maintenance
☑ Co-Tenancy/Sub-Leasing Terms
☑ Expansion/Build-Out Rights
☑ Tenant Improvement Allowances
☑ Assignability and Exclusivity (if the lease can be transferred)
☑ Estoppel

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Options for Getting Out of a Commercial Lease

Posted on April 29, 2021 by bafcorp20

One might think that breaking a commercial lease is a major error, but there are some cases in which it’s the best decision for a business. If you find yourself in a commercial lease that is no longer viable for your business objectives, you might want to consider your options. Continue below to learn some tips on how to get out of your commercial office lease, and where you can get professional assistance if things get too complicated.

Indianapolis Indiana Commercial Office Space Construction

How to Get Out of Your Commercial Office Lease

Exit Clause

Also known as break clauses or early termination clauses, exit clauses can help you responsibly and safely get out of your commercial lease. These clauses are found in the fine print of the lease agreement, and allow commercial tenants to break their contract before the original completion date. Check your leasing contract terms and conditions to see if it provides such a clause. When negotiating a commercial lease prior to signing it, it is important to discuss if such clauses should be incorporated into the agreement.

Subleasing

Another option that poses less of a challenge, and perhaps even abates penalty, is to sublease your office space. Commercial subleasing is a common business practice for proprietors who are still obligated under contract, but need to move office locations or planning to close. A sublease is a formal arrangement in which another tenant takes over your lease payment and inhabits your commercial space, but you are still the leaseholder, and still liable for the overall lease. Be sure to check with your landlord to ensure that subleasing is a viable option. Most allow it, but others strictly prohibit it under any circumstances.

Licensing Your Space

If a sublease is not an option because your landlord will not allow it, you may be able to license your premises instead. This means would involve renting out certain areas of your commercial space, such as meeting rooms, conference areas, loading docks, storage units, and so forth, to other businesses. Again, you would need to check if your lease agreement allows this practice.

Lease Buy-Outs

In the case that you cannot break your lease under any other options, your best case scenario would be to find another proprietor to buy out your lease entirely. This means that you would be 100% relinquished of all liability from your lease, and the new tenant would take over and finish it out under their own liability. Often times, landlords allow this option.

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