The language of commercial industrial real estate is a dialect unto itself. Unless you have a need to speak the language on a regular basis, the terminology can be as foreign to you as speaking in tongues. In an effort to help translate, below are definitions for the most often used words when you are considering signing a commercial real estate lease.
Lease Rate – This is quoted as the annual cost per square foot of a commercial industrial real estate location. For example, if the lease rate quoted is $5.00 per square foot and the size of the warehouse is 10,000 square feet, then the rate is $5.00 x 10,000 square feet, or $50,000 per year. Divide $50,000 by 12 to get your monthly rate of $4,166.67.
Base Rent – The minimum rent of the Lease Rate, net of Tenant Improvements.
Triple Net Lease – Many times the Lease Rate is quoted as a triple net lease, or, for example, $5.00 per square foot NNN. This means that the lease rate is quoted net of taxes, insurance, and Operating Expenses. Some lease documents refer to it as Additional Rent. In the case of the example above where the monthly rate is quoted as $4,166.67, there are additional costs on top of that to cover for the net charges. This can potentially be beneficial for a tenant because if the landlord can get their operating costs down during the year, the savings will be passed along to the tenant.
Gross Lease – This is a lease where the Net Charges, or Additional Rent, is built into the monthly lease rate, so the tenant ultimately pays a flat sum of agreed upon charges.
Utility Costs – Although we all know what utility costs are from home ownership, it is a lease standard for a tenant to pay the utility costs directly to the provider. It is aside from Additional Rent and Operating Expenses.
Lease Term – This is the length of time that a tenant is legally bound to pay rent. Most landlords prefer a longer lease term. And, the longer the lease term, the more negotiating power there is for the tenant.
Lease Agreement – A legally binding agreement between a Landlord and a Tenant where the Owner or Lessor gives the right of possession to a Tenant or Lessee under mutually agreed upon terms.
Operating Expenses – The costs associated with running commercial property. The expenses may include but are not limited to real property taxes, property insurance, landscaping, snowplowing, building maintenance, and all mechanical and electrical systems. As discussed above, tenants pay their own utility expenses directly to the provider. Refer to your lease for a full and complete description of everything that a lessee is responsible for.
Pro-Rata Share – This is the proportionate share of the building that the tenant occupies and therefore the share of the Operating Expenses that the tenant is required to pay.
Tenant Improvements – Tenant Improvements (or Leasehold Improvements) are enhancements or work done to a space that is specific to a tenant’s use. A Lease Agreement may or may not have improvements included. Generally speaking, the costs of the improvements are incorporated into the monthly lease rate.
There they are. Confusing at times when you don’t have a need to use them. If you have any questions at all, please feel free to contact us at 440.349.9000 or http://www.teamweston.com.