Glossary of Commercial Leasing Terms and Definitions
Understand the Legalese Before You Sign a Commercial Lease
Before you sign a commercial lease for office or retail space, be sure you understand the terms of the leasing you are signing. Here are a few of the most commonly used terms in commercial leases and their general definitions.
ADDITIONAL RENT: Additional Rent refers to items that a tenant may be charged for that are not included in the usable square foot or other rent costs. These costs can include after-hours services, HVAC, Common Area Maintenance (CAM) fees, percentage rent, and any other costs not included in base rent.
Examples: Jenna's Jewelry and Jems (JJJ) took over space in the mall for a base rent of $4,000 per month. JJJ must also pay a percentage of their monthly sales as required in their less as "Additional Rent."
BASE RENT: The term "Base Rent" refers to the minimum rent due under the terms of a lease that also requires the tenant to pay additional rent based on a percentage or participation requirement. This type of lease is commonly executed in retail stores in malls.
For example, Karen's Kat Corner, a pet shop, may pay a base rent each month of $1,500. But her lease has a percentage rent requirement that she also pays, on top of the base rent, a small percent of all sales she makes each month over a certain set amount.
See, also "Percentage Lease" and "Average Percentage Rents Charged in Commercial Leases."
BOMA: An international professional association that provides “information on office building development, leasing, building operating costs, energy consumption patterns, local and national building codes, legislation, occupancy statistics and technological developments.”
BOMA STANDARDS: BOMA publishes standards for measuring office space, lobbies on behalf of the commercial real estate industry, and hosts conventions. The industry guidelines published by BOMA are referred to as "BOMA Standards."
More information can be found on the BOMA Website.
BUILDING CORE: The Building Core includes portions of the building that are not rented but serve all tenants indirectly. The Building Core includes public restrooms, ventilation shafts, electrical distribution, elevator shafts, and stairwells. In most buildings, these elements are close together, typically near the center of the building.
Also see, "Gross Square Feet."
COMMERCIAL INDUSTRIAL SPACE: Commercial Industrial Space is property used for industrial purposes.
Industrial purposes include heavy and light manufacturing buildings; research and development parks; factory-office multi-use property; factory-warehouse multi-use property; and industrial parks.
Industrial buildings are often a warehouse or other large, unfinished space that can be used strictly as a warehouse or for purely industrial purposes. However, many industrial spaces are converted to serve as more traditional office space, or as a combination of storage/industrial/business use. Industrial park spaces are also now being used by many retail businesses.
To attract a wide variety of businesses, many industrial parks have now become more upscale so that on the surface they can be hard to distinguish from retail and business parks.
GROSS LEASE: A Gross Lease is a type of commercial lease that generally favors the tenant (lessee) because the landlord (lessor) pays all "usual costs" that are associated with owning and maintaining the rented space. In a gross lease, the landlord may cover costs including utilities, water and sewer, repairs, insurance, and/or taxes.
GROSS-UP: The term "Gross-Up" usually applies to Fully Serviced Leases (sometimes also called "full-service leases). In fully serviced leases the tenant pays fixed amounts for certain services on top of a rent for the actual space leased. For example, the landlord pays for common area maintenance (CAM) expenses. The landlord then divides this fee by the number of gross square feet in a building and charges each tenant an amount based on the percent of square feet the tenant occupies.
Gross-Up means if the building is less than 90-95% occupied, the expenses are still calculated for the tenant's pro-rated share of operating expenses.
LOAD FACTOR: Load Factor is a method of calculating total monthly rent costs to a tenant that combines usable square feet and a percentage of square feet of common areas.
Usable square feet + percentage of common area square feet = rentable square feet.
This calculation of the addition of a percent of the common area expenses to monthly rent is known is the "load factor."
Common areas can include restrooms, lobby, elevators, stairwells, and common hallways.
PERCENTAGE LEASE: A Percentage Lease typically requires a tenant to pay "Base Rent" and then on top of that amount, the tenant also pays a percentage based on monthly sales volumes. Percentage leases are commonly executed in retail mall outlets and other commercial retail leases.
Percentage leases should not take a percentage of all sales made but should include a percentage paid to the landlord (lessor) only when a tenant has made a certain amount in any given month. For example, a percentage lease might require a tenant to pay 5% of all sales that exceed more than $25,000 in any given month.
Also see, "Base Rent" and "Average Percentage Rents Charged in Commercial Leases."
Also Known As: Percent Lease; Percentage Leasing; Retail Lease; Participation Lease
Rentable Square Feet: According to BOMA standards, this term refers to a combination of "usable square feet" and some portion of the square feet encompassing the common area. Typically, there is a 10% to 15% difference between usable square feet and rentable square feet. Rentable square feet usually reflects a higher cost than usable square feet alone. It usually is calculated by adding the usable square feet and some percentage of the common area within the building.
That percentage is derived by dividing the square feet within the common area by the number of tenants and the amount of usable square feet each tenant occupies. For example, if a building has four tenant and Tenant A occupies 200 square feet and the Tenant B occupies 800 square feet, Tenant A would only be responsible for 20% of the charges for the common area.
SUBLEASE: In commercial real estate, a sublease is a lease (rental agreement) between a tenant who already holds a lease to a commercial space or property and someone (the sublessee) who wants to use part or all of the tenant's space. In a sublease, the tenant assigns certain rights that they already hold to the leased property, to the sublessee.
Sublessees pay rent directly to the rightful tenant (sublessor) to either share the space with the sublessor or take over the entire space from the sublessor.
A sublessor cannot legally assign rights in a sublessee that the sublessor does not also have rights to in their own lease. Additionally, a sublessor cannot sublease unless they are permitted to do so in their own lease.
TURNKEY: Turnkey is a term used to describe many things including employees, products, services, and real estate. When "turnkey" is used in commercial real estate it simply means that the space being rented or purchased is ready to move into. Specifically, all wiring, fixtures, flooring, and superficial decorative items (like paint and carpet) are already in place.
Simply put, you could describe "turnkey" as "a space ready to move into - just 'turn the key' and open the door."
USABLE SQUARE FEET: In commercial leasing, Usable Square Feet simply means the square footage that is rented to be used exclusively by the tenant. Usable square feet includes private (tenant-only) rest rooms, closets, storage and any other areas used only by the tenant.
Simply put, usable square footage means the square feet used directly by the tenant. It does not include common area square footage which is used in calculating "rentable square feet."
Also Known As: USF, Usable SF, Usable Square Footage