Commercial Real Estate Terminology can, of course, be very useful when you are looking to buy or lease commercial real estate. But with so much jargon out there, we thought it would be helpful to define some commercial real estate terminology for you so you and your Menlo Group agent can speak the same language!
Here are 10 of the most common terms that you should be familiar with:
- Real Estate Broker: A broker is a state-licensed agent with expertise in the leasing process. Our brokers at the Menlo Group will not only help you find the right space for your business, but also help you with every aspect of your lease or purchase transaction.
- Usable Square Footage: The square footage rented and used exclusively by the tenant. It includes the footage for storage, private rest rooms, and any other areas used solely by the tenant. In contrast, Rentable Square Footage combines usable square feet, as well as a portion of the common area. It typically encompasses 10-15 percent additional space.
- Common Area Maintenance (CAM): The amount of additional rent charged to the tenant to maintain any common areas shared with other tenants. Some examples where CAM rent can be applied include landscaping, snow removal, exterior lighting, as well as insurance and property tax.
- Escalation Clause: A clause in a lease allowing the landlord to increase the rent in the future to cover changes in expenses paid by the landlord. Example of such changes may include real estate taxes, operating costs, etc. This clause can be reflected in three ways: 1) fixed periodic increases, 2) adjustments based on the Consumer Price Index, and/or 3) an increase tied to the increased costs of operating the property.
- Tenant Improvements: Any improvements to the leased space either by, or for, a tenant. It’s worth negotiating these with your landlord if you expect to make several improvements to the space. The Tenant Improvement (TI) Allowance or Work Letter defines the fixed amount that the landlord will contribute towards these improvements. Costs exceeding the fixed amount are then covered by the tenant (also known as the Tenant Finish Allowance).
- Full-Service Rent: An “all-inclusive” rent that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount.
- Gross Lease: A type of lease in which the tenant pays a flat sum for rent that covers all landlord-paid expenses. These expenses can include taxes, insurance, maintenance, and utilities. A Gross Lease can help you to better forecast your monthly expenses. It can also help avoid potentially high bills associated with these operating costs.
- Net Lease: With a net lease, you will pay for other building operating costs such as property taxes, insurance, repairs, and utilities in addition to your rent.
- Non-Compete Clause: This clause prevents the landlord from leasing property in the same development to a direct competitor of yours or another tenant operating the same type of business.
- Letter Of Intent: An informal, preliminary agreement between the tenant and the landlord indicating intent to move forward with negotiations.
While the amount of commercial real estate terminology vastly exceeds the 10 terms we have outlined above, knowing these will help get you off to a good start. The good news is that your Menlo Group broker will be there with you every step of the way when you are looking to buy or lease a commercial real estate property. And our brokers are outstanding interpreters!