Commercial Office Lease Terms and Definitions

Commercial Office Lease Terms and Definitions

Commercial Office Lease Terms and Definitions

The list below introduces you to some of the more common commercial office lease terms and definitions. Keep in mind, however, that every lease is unique, and the terms of each lease will be defined within the lease document.

“As is” Condition – Premises accepted by a tenant or buyer in the condition existing at the time of the lease or sale, including all physical defects.

Base Rent – Also commonly referred to as “Minimum Rent”, “Basic Rent”, “Net Rent”. The set amount used as a minimum rent in a lease. Base Rent may remain the same over the term of the lease or be increased over the term of the lease. The Base Rent does NOT include Operating Costs (CAM Costs). Basic Rent + Operating Costs = Rent

BOMA – The Building Owners and Managers Association. BOMA is an industry association that promotes the professional standards of commercial building ownership and property management

BOMA Measurement—The standard method of measuring office buildings (ANSI/BOMA Z65.1–2010). Most landlords use the BOMA standard to measure a building’s gross, rentable, and usable areas.

Build Out – The reconfiguring and finishing of space in accordance with a tenant’s specifications.

C.A.M. – Common Area Maintenance

CAM Costs, also commonly called Operating Expenses, are the actual costs of operating a property, including utilities, repairs, maintenance, property taxes, management fees, and insurance premiums.

Common Area – The total area within a building that is not designed for rental to tenants but that is available for common use by all tenants. Restrooms, hallways, elevator lobbies, and service facilities, such as
fitness facilities are examples of common areas.

Default – The general failure to perform a promised task or to pay an obligation when due. Specific examples are: (1) failure to make a payment of rent when due, or (2) the breach or failure to perform any of the terms of a lease.

Demising Walls – The boundaries that separate a tenant’s space from another tenant’s space and from a public corridor.

Estoppel Certificate – A statement for a third party (i.e. financial institution) concerning the status of the tenancy. It is a statement by the tenant stating that the lease is in effect and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified). An estoppel certificate is required if there is a change in the landlord’s situation, such as if the building is being sold or refinanced.

Gross Building Area is the total floor area of a building measured in square feet. This area extends to the outer surface of exterior walls and windows.

Gross-up Factor – The percentage of common area in a building that, when added to the net useable square footage equals the net rentable square footage. May be computed for a building or a floor of a building. See “Load Factor, R/U Ratio”

Gross Lease—A lease that provides that the landlord pays all expenses of the leased property, including taxes, insurance, maintenance, and utilities.

Holdover—A clause in a lease that explains what happens if the tenant retains possession of the premises after the lease expires.

HVAC – The acronym for heating, ventilating and air conditioning. Refers to the equipment used to heat and cool a building.

Lease – An agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).

Lease Commencement Date – The date on which beneficial occupancy commences and the legal terms of the lease go into effect.

Leasehold Improvements—also called “Tenant Improvements”—are improvements made to leased premises for the benefit of the tenant. Leasehold improvements are either paid for and built by the landlord, paid by the landlord (usually in the form of a leasehold improvement allowance) but built out by the tenant, or paid for by the tenant.

Leasehold Improvement Allowance – An allowance given to the tenant by the landlord as part of a lease negotiation to build out the leasehold improvements; usually on a $/sq ft basis. Also called a “Tenant Improvement Allowance” or TIA

Letter of Attornment – A letter from a landlord to a tenant stating that the property has been sold and directing rent to be paid to the new owner.

Letter of Intent—A formal method by which a prospective tenant or buyer expresses their interest in a property.

Load Factor – The percentage of common area in a building that, when added to the net useable square footage, equals the net rentable square footage. It may be computed for a building or a floor of a building. See “Gross-up factor, R/U Ratio”

Net Lease – A lease in which the tenant pays, in addition to Base Rent and CAM costs the additional costs associated with a leased property, including property taxes, insurance premiums, repairs, utilities and maintenance.

Net Rentable Area is the actual square unit of a building that may be leased or rented to tenants, the area upon which the lease or rental payments are computed.

Operating Expenses – Also commonly called CAM Costs are the actual costs of operating a property, including utilities, repairs, maintenance, property taxes and insurance premiums.

Option to Renew—The right of a tenant to renew (i.e., extend the terms of) a lease for a stated period of time and rent at a determined amount.

Pass-Throughs – Building and operating expenses that are paid by the tenant under the terms of the lease.

Relocation Clause – A clause in the lease document allowing the landlord, under certain conditions, to move the tenant to a comparable space in the building. Usually done to accommodate larger tenants.

Rentable Area—The area of a premises with all gross-ups applied or the area in which the lessor will charge a tenant for rent. See R/U Ratio.

Restoration Clause – A clause in the lease document whereby the tenant may be obligated to remove all or a portion of the leasehold improvements in the premises upon expiry or termination of the lease.

R/U Ratio – Rentable Area divided by Usable Area is a method of calculating proportionate share allocations and, ultimately, the rentable areas of tenants. It is most often used to determine the amount of common area space a tenant must pay for, considering the amount of usable area the tenant occupies. The resulting figure of dividing the total rentable area of a floor or building by the total usable area of a floor or building provides a gross-up factor, which can be converted to a percentage and subsequently multiplied to each individual tenant’s usable area, determining individual tenant rentable areas. Also called Gross-up Factor, Load factor

Space Plan—A graphic representation of a tenant’s office space requirements showing wall and door locations, room sizes, and some furniture layouts.

Tenant at Will – One who holds possession of a premise by permission of the landlord without a written agreement.

Turn-key—An office or building that is ready to occupy. In most cases, the landlord commits to bearing the cost of a build-out.

Usable Area – The actual tenant-occupied area of office space or commercial premises without alteration or gross-up applied.

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