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.
Evan Meyer is an experienced commercial broker that can assist with any real estate transaction! See how he can help you today.
A common question I get as a commercial broker is, "how does the tenant improvement process work?" Since most properties will not have a turnkey space for the tenant, alterations are frequently required.
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.
Landlords typically establish a tenant improvement allowance range before listing a commercial space on the market. The actual allowance offered will depend on the tenant's credit strength and the terms of the deal.
1. Landlord Conversion: The landlord will cover all expenses and use their contractor to deliver a turnkey space for the tenant. This is the most common when minimal modifications are required. Landlords may also be willing to offer an entire space conversation for solid tenants.
2. Tenant Improvement Allowance: In this scenario, the landlord would provide the tenant a specified dollar amount of modifications. The tenant then would hire a contractor to do the required work but will always need the landlord's approval before commencing work.
3. At Tenant's Cost: The tenant may be required to cover the entire cost of the needed tenant improvements. This situation may occur when there is weak tenant credit, a low rental rate, a short-term lease, or a landlord's lack of funds. Regardless of the situation, the tenant still needs landlord approval before commencing work. PRO TIP: If the landlord is unable to offer any money for tenant improvements, ask to offset the cost with free rent.
If you need help finding the ideal space and navigating the tenant improvement process, contact Evan Meyer. He can work on your behalf to get the best deal possible.
