Continuing from the commercial real estate terms blog, here are an additional 16 common commercial real estate terms, along with their definitions.
Lease Extension Option
A lease extension option allows the tenant to extend its lease past the current lease expiration date. The tenant is not obligated to extend, but the landlord is.
Lessee
A lessee is a person who is leasing property. Also known as a tenant.
Lessor
A lessor is an entity or person who leases property to another entity or individual. Also known as a landlord.
Letter of Intent (LOI)
A letter of intent (LOI) is a written document that declares one party’s commitment to do business with another party. The LOI is used to state one’s full intentions to work with another entity. Typically, LOIs are not legally binding.
NNN (Triple Net) Lease
A NNN lease, also called Triple Net lease, is a type of lease agreement in which the lessee agrees to pay for the three net expenses: (1) real estate taxes, (2) property maintenance, and (3) insurance. In this type of lease, the lessee is responsible for paying these fees in addition to their base rent fee.
Option to Buy Clause
The Option-to-Buy lease clause allows the tenant or lessee to purchase the property it is currently leasing. If this clause is added to the lease, terms of the sale typically are included.
Rent Concessions
A rental concession is an act of rebate made by a landlord or property owner to adjust lease terms to attract tenants. Typically, a landlord may reduce the rent, including a tenant improvement allowance, or offer free amenities.
RSF (Rentable Square Footage)
Rentable Square Footage refers to the usable square feet of a property plus a percentage of the building’s shared common areas such as bathrooms, hallways, and lobbies.
Tenant
A tenant is an entity or individual that occupies a property that they rent from a landlord.
Tenant Improvements
A tenant improvement is a modification made to a space that makes it more operable for the tenant. For example, if a space has three offices, but the tenant needs four, building the fourth office is considered a tenant improvement.
TI Allowance (Tenant Improvement Allowance)
A TI allowance is a set amount of money allocated by a landlord to be used to make tenant improvements on their property. The TI allowance will be negotiated between the landlord and tenant, and the agreed-upon amount is included in the lease contract.
Triple Net Expenses
The Triple Net expenses include property taxes, property insurance, and CAM (common area maintenance) fees.
Usable Square Footage
Usable Square Footage refers to the area that a single tenant will occupy. This number should only reflect the wall-to-wall square footage of the space that is reserved for the tenant.
Vacancy Rate
The vacancy rate determines the percentage of physically vacant space in a building or market. It compares the amount of available square feet to leased square feet.
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