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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Factors to Consider Before Signing a Commercial Office Lease

Posted on March 17, 2020 by bafcorp20

Moving into a new commercial space is a serious undertaking. There are several complex steps to complete in order to get your business back to fully-operating at peak performance following a relocation. But first you must sign a new lease. Before you do so, there are various considerations to apply to your decision in order to protect yourself from entering into a contract you later regret.

Continue reading to learn which factors should be at the forefront of your mind when discussing a new commercial real estate lease prior to signing.

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General Commercial Lease Inquiries

With all new commercial real estate leases, there are basic questions that you must ask. These answers will give you the foundation of knowledge you need to decide whether or not to move forward with the lease agreement. Such questions include the following:

What is the Type of Lease Offered? There are different types of lease agreements for commercial properties, including net leases, gross leases, triple nets, and absolute triple nets.

What are the Terms and Conditions? You must read through all terms and conditions, and derive questions pertinent to your overall objectives and limitations.

Is the Lease Negotiable? Most often, lease agreements are flexible, and landlords will negotiate certain elements in the lease’s terms and conditions.

Will Rent Increase? Rent escalation is common in commercial real estate, like stepped increases that periodically increase in fixed amounts, or increases tied to Consumer Price Index.

Can You Sublease? Long-term leases might contain a subleasing and assignment clause that allows you to lease out all or a portion of your space to another tenant in the future.

Comprehensive Facility Touring

Always be sure to tour the facility as thoroughly as possible before signing a lease. You want your potential commercial space to have an inviting and functional atmosphere. When taking your tours, be sure to focus your attention on cleanliness, attractiveness, curb appeal, practicality, degree of remodeling or renovation needed, and amenities available, like parking, cafeterias, bathrooms, break rooms, lobbies, and more.

Neighboring Properties

Before entering in a legal contract that binds you to a commercial office space, it is wise to first check out your future neighbors. Consider the local businesses and buildings surrounding your potential space, including the actual proprietors and contemporaries you will likely encounter on a regular basis. This could easily thwart your interest in a new commercial space. For instance, if your business is a Zen spa, you wouldn’t want to lease a space directly below a dance studio or next door to a drum store.

Renewal Processes

It is wise to ask about the lease renewal process before making any agreements. Inquire about the terms and conditions of renewing or terminating the lease. In some cases, a tenant is required to notify the landlord within a certain time period that they wish to remain in a lease, while others do not. Communication guidelines and requirements for commercial leases vary from landlord to landlord. So, always be sure you fully understand your role when it comes time to renew or terminate your commercial lease.

Leasehold Improvements and Maintenance

Another important topic of discussion to cover prior to signing a new commercial lease are leasehold improvements. This includes facility maintenance. Questions to ask include, “Are you allowed to modify the space to meet your business’s needs?”, “Is the landlord willing to make tenant improvements before you move in?”, “Is the tenant improvement allowance enough?”, and “Is a maintenance program included in your lease?”

Professional Commercial Space Planning in Indianapolis

Call BAF Corporation at 317-253-0531 to learn more about planning a new commercial space for your business. We provide full-service commercial space planning and permitting services in Indianapolis, and throughout Central Indiana for all businesses and industries. Whether you’ve already moved into a new space or still searching for one, our commercial construction management team has what it takes to meet your unique specifications. Call our office today to discuss your commercial space planning and tenant improvement needs, today.