If you are a business owner or a CEO and have never seen a commercial office lease you may not quite understand the importance of knowing exactly what the terminology means before you sign on the dotted line. After attempting to read through a document that is often fifty or more pages long it is important to be certain that you are getting a fair and reasonable deal as a tenant. If you haven’t acquainted yourself with these important terms, you may be setting yourself for some huge headaches down the road. Let’s review a few of the most important terms and clauses of a commercial lease you should clearly understand.
Full Service Gross, Modified Gross and NNN (triple net) These are the three most common types of leases. As a tenant, you do not have the ability to choose which type you prefer, this depends on the building and the lease type the landlord has chosen for the building. Depending on your business and how you use your space, some lease types are more advantageous than others.
Common Area Maintenance (CAM) / Operating Expenses These are fee’s that are in addition to your rent. Take the time to read through what exactly these charges include, as to not be surprised when you see additional charges added to your base rent. Does your lease type include CAM’s? Being surprised you owe more than what you understood you would when you signed your lease could leave a bad impression with your landlord when you are scrambling to come up with the extra cash.
Rentable vs. Usable Square Feet Are you aware that there is a difference between the actual square footage of the space you lease and the square footage you are being charged when you pay rent (rentable square feet)? Welp, there is and it’s important to keep in mind through the lease process as to not affect your bottom line.
Base Years and Escalations Not all lease types include a base year. Typically, full service gross (FSG) leases and modified gross (MG) will include one. Your base year will affect your operating costs. Knowing if and how you can negotiate your base year can save your business money in the first several months of the lease term. If the operating expenses increase after your base year, you will need to pay the difference between your base year and any increase in operating costs.
Sublease options It is very common in any lease document to have a sublease clause. Your landlord will need to approve any future sublessee’s that you decide to either share your space with or lease to. Make sure you know the in’s and outs of how this process works with your Landlord and how it’s stipulated in your lease.
Hold Over Rent Some leases include this thing called a hold over clause. Doesn’t sound too scary but if you fail to move out at the end of your term, you will automatically roll into hold over which means you will be responsible to pay up to 125 to 200 percent of your currently monthly rate!
So the above mentioned are just a handful of the terms you will encounter after receiving a lease from the landlord. Knowing if terms are negotiable and or fair as a tenant is where engaging a tenant representation broker will become invaluable. Ask yourself if you want to spend countless hours studying, learning and risking losing money on your lease transaction? Ask us how we can guide you through understanding all the gibberish and assuring that you get the best deal possible either now or the next time you need to sign an office lease. We are happy to assist in any capacity.
