Real Estate Terminology in the Commercial Field
Absolute Net - Lease requiring tenant to pay in addition to base rent all costs associated with the operation, repair and maintenance of the building, all real estate taxes, and utilities including repair and maintenance of the building's structure and roof. Often the tenant is directly responsible both for all such costs and for the active handling of the items themselves. Distinguished from Triple Net (see below) by tenant's responsibility for maintenance and repair of the building structure and roof.
ADA - Americans With Disabilities Act passed by Congress in 1994 with intent to provide persons with disabilities accommodations and access equal to or similar to that of the general public.
Additional Rent - Any amounts due under a lease that are in addition to base rent. Most common form is operating expense increases.
Agency - Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.
Allowance - A set dollar amount provided by the Landlord under a lease to be used by the Tenant for a specific purpose. Examples include allowances for tenant improvements, moving expenses design fees, etc. If the expense exceeds the allowance amount, such excess is the Tenant's responsibility. If the expense is less than the allowance, the savings are retained by the Landlord unless their agreement specifies otherwise.
Alternative Workspace - Term embodies numerous concepts related to utilization of space including telecommuting, hotelling, office sharing and open office plans.
Amortization - Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments. May also be used in a lease where the landlord incurs costs for additional tenant improvements which are effectively treated as a debt and repaid by tenant over the term of the lease.
Assignment - A transfer to another of any property, real or personal, or any rights or estates in said property. Common assignments are of leases, mortgages, deeds of trust, but the general term encompasses all transfers of title.
Base Building - The existing shell condition of a building prior to the installation of tenant improvements. This condition varies from building to building, landlord to landlord, and generally involves the level of finish above the ceiling grid.
Base Rent - A specific amount used either as a minimum rent in a lease (retail) which uses a percentage of sales or overage for additional rent or sets a base onto which is added expenses and taxes in a net lease or increases in those items in a fully serviced lease.
Base Year - The 12 month period upon which a direct expense escalation of rent is based. Typically the calendar year the lease commences.
BOMA - Building Owners and Managers Association. BOMA publishes the definition of rentable and useable area, which is used to determine the square footage leased in most commercial office buildings.
CAM Charges - Common Area Maintenance charges. Those charges levied on or the expenses incurred in maintaining the common areas of a building.
Churn - Moving people from one workspace to another within the leased premises. Usually involves relocation of furniture, phones, and the like and can be very expensive and time consuming. A high churn rate is to be avoided.
Circulation - Those areas (hallways, corridors, etc.) in an office space that are used to travel between offices, cubicles and the like.
Commencement Date - The date on which a lease begins. This is typically but not always the day on which the tenant takes possession of the leased space, which usually occurs upon substantial completion of the tenant improvements. (See occupancy Date).
Class - Class is usually used in conjuction with an office property and refers to the quality of property. Class definitions fall with the following guidelines. Class A+: Landmark quality, highrise building with prime central business district locatation (the best of the Class A buildings). Class A: Generally 100,000 sf or larger (five or more floors), concrete and steel construction, built since 1980, business/support amenities, strong identifiable location/access. Class B: Renovated and in good locations. Newer building are smaller in size, wood frame construction, and/or in non-prime location. Class C: Older, unrenovated of any size in average to fair condition.
Common Area - Common area is the area used in common by the tenants of an office
building. Common area includes building and elevator lobbies, restrooms and the corridor leading from
an elevator lobby to a tenant space.
Contingent Fees - Fees to be paid only in the event of a future occurrence. Examples include: Attorneys (especially in negligence cases) paid based on winning the suit and collecting damages; and a broker's commission paid only upon closing the sale of a piece of property.
Certificate of Occupancy (COO) - A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied.
Demised Area - The walled off and secured area of a leased space, separated from spaces leased to others (by a "demising" wall). Also measured as useable area. Discount Rate - The rate of interest used in a present value analysis representing the "time value of money".
Effective Rent - The average per square foot rent paid by the tenant over the term of a lease. Takes into account only free rent and stepped rents. Does not include allowances, space pockets, free parking and other similar landlord concessions.
Effective Useable Area - Excludes those areas within the Useable Space (see below) that the tenant pays rent on but effectively cannot use such as columns and sharply angled spaces.
Equivalent Level Rate (ELR) - The ELR is the flat rate per square foot that, if paid each year in nominal dollars, will equal the same total present value as a proposed lease's variable cash flows. The ELR is calculated by discounting all cash flows to a net present value per square foot and then amortizing this lump sum amount evenly over the term of the lease on a cost per square foot basis.
Escalation - A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as: (1) fixed increases -- a clause which calls for a definite, periodic rental increase; (2) cost of living -- a clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes; (3) direct expense -- the rent adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.
Estoppel Certificate - An instrument which itself prevents individuals from later asserting facts different from those contained in the document. Often required by the buyer of an office building. The tenant and landlord both sign the estoppel certificate, confirming the lease and pertinent facts thereto. Thereafter, neither party may make claims to the contrary.
Expansion Option - A right granted by the landlord to the tenant whereby the tenant has the option(s) to add more space to its premises pursuant to the terms of the option(s).
Expense Stop - A fixed amount (typically per square foot) in a lease where the tenant is responsible for all building operating expenses and taxes in excess of said amount.
Extension Option - An agreed continuation of occupancy under the same conditions, as opposed to a renewal, which implies new terms or conditions. In a lease, it is a right granted by the landlord to the tenant whereby the tenant has the option to extend the lease for an ad.
Fair Market Rent - The rent which would be normally agreed upon by a willing landlord and tenant in an "arm's length transaction" for a specific property at a given time, even though the actual rent may be different. In a lease, the term "fair market rent" is defined in a number of different ways and is subject to extensive negotiation and interpretation.
Free Rent - A concession granted by a landlord to a tenant whereby the tenant is excused from paying rent for a stated period during the lease term.
Fully Serviced Lease - A lease in which the stated rent includes the operating expenses and taxes for the building. Same as Gross Lease. Opposite of Net Lease.
Gross Lease - A lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease. Opposite of Net Lease.
Gross Up - An adjustment made to operating expenses to account for the occupancy level in a building. When operating expenses are "grossed up", it means that the building's variable expenses have been adjusted upwards to the level that those expenses would be incurred if the building was fully occupied (typically 95%).
Ground Lease - A lease of land only, (either vacant or exclusive of any buildings on it). Usually a net lease on a long term basis (30 years+). Ground rent should not be charged back to the tenant as an operating expense.
Hotelling - An alternative workspace concept where rather than having an assigned exclusive workspace, an employee accesses one space, perhaps being one of many such spaces in common with others on an as needed basis, and otherwise works outside of the office.
Hotelling - (Another usage is what those members of an office relocation committee are entitled to after going through a relocation or office redesign, making use of a commercial shelter offering food, lodging, etc.; preferably in some warm spot like Hawaii.)
HVAC - Heating, Ventilation, Air Conditioning. A general term encompassing any system designed to heat and cool a building in its entirety, as opposed to a space heater.
Landlord (Lessor) - The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).
Lease Term - The specific period of time in which the Landlord grants to the tenant the right to possession of real estate.
Lessee (Tenant) - The party to whom a lease (the right to possession) is given in return for a consideration (rent).
Lessor (Landlord) - The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).
Letter of Intent - There are potentially multiple uses of this term. Generally a written statement that two parties to a prospective transaction (buyer/seller or lessor/lessee) intend to proceed to a final agreement in good faith on stated principal business terms of the deal to be entered into. This meaning applies when executed by both parties. Alternatively such a document may be signed only by one party and is then an indication of a willingness to enter into agreement on the stated terms and conditions. To avoid legal issues regarding offer and acceptance and thus formation of a binding contract, care should be taken to include a clause stating that there is not a specific offer and no intent to be a legally binding obligation. However, an obligation to continue to negotiate in good faith to conclusion can be created.
Load Factor - In a lease, the load factor is the multiplier to a tenant's useable space that accounts for the tenant's proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.). The load factor is usually expressed as a percentage and ranges from a low of 5% for a full tenant to as high as 15% for a multi-tenant floor. Subtracting one (1) from the quotient of the rentable area divided by the useable area yields the Load Factor. At times confused with the "loss factor" which is the total rentable are of the full floor less the useable area divided by the rentable area. (If a full floor broken up into multiple tenancies has a useable area of 18,000 s.f. and a rentable area of 20,000 s.f., the load factor is 11.1% and the loss factor is 10%.
Master Lease - A lease controlling subsequent leases. May cover more property than subsequent leases. For example: "A" leases an office building, containing ten offices, to "B". "B" subsequently subleases the ten offices individually. The ten subleases from "B" as sublessor are controlled by the lease from "A" to "B" (master lease).
Net Lease - (See also "Triple Net"). Today this generally indicates a lease in which the stated rent excludes the insurance, utilities, operating expenses and real estate taxes for the building. The tenant is then responsible for the payment of these costs either directly or as additional rent. Opposite of Gross or Fully Serviced Lease.
Net Present Value (NPV) - The calculation of NPV takes into account both the netting of cost and benefits and the time value of money. See Present Value.
Net Rentable Area - (Same as Rentable Area). The area (square footage) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards. Net Rentable area includes the tenant's premises plus an allocation of the common area directly benefiting the tenant, such as restrooms, common corridors, mechanical and janitor's rooms and the elevator lobby on the tenant's floor.
Nondisturbance - So long as lease is not in default, its rights to occupancy under the lease will not be disturbed by the lessor or it's successors or assigns.
Occupancy Cost - Any cost or charge incurred by a tenant pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.
Occupancy Date - Unless specifically stated otherwise in the lease, it is the date on which the tenant takes possession of its leased premises. (See also "Commencement Date").
Operating Expenses - The cost of operating an office building, such as janitorial, management fees, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for replacement of items which periodically wear out. Should not include capital expenses such as roof replacement nor expenses associated with the production of income such as leasing commissions and legal fees.
Owner's Representative - An agent who is an advocate for the owner and/or landlord.
Pass Throughs - An increase in operating expenses over the base year amount that is billed to the tenant as additional rent. See escalation.
Premises - Typically the entire rentable area leased by lessee. Sometimes used to designate solely the useable area leased by lessee, i.e. that for which the lessee has exclusive occupancy as opposed to the common areas.
Present Value - The present value is the amount that must be invested now to produce the known future value. For any sum invested at a given interest rate, the amount one would receive at the end of the period can be determined by taking the investment times one (1) plus the interest rate of the period to the power of the period. For example, if $10 is invested in an interest rate of 10% for one year, the investment would grow to $11 at the end of the year. It follows, then, that $11 one year from now is worth $10 today; that is $10 is the present value of $11.
Reasonable Consent - A standard applied in a lease (most often in a sublease clause) which limits the landlord's ability to withhold consent in its sole discretion. If a reasonable person would give consent to an action given the circumstances, so must the landlord.
Renewal Option - The right of a tenant to renew (extend the term of) a lease for a stated period of time at a rent to be determined (i.e. 9.5% of "fair market rent").
Rent - Consideration paid for the occupancy and use of real property. Also a general term covering any consideration (not only money).
Rentable Area - The (square footage) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.
Rental Rate - The amount of Rent paid for the occupancy and use of real property. Typically stated on a per square foot per month or per year basis.
Request For Proposal (RFP) - A document typically issued by a tenant's agent to an owner(s) of real property, inviting the owner(s) to submit a proposal to the tenant for the leasing of a vacant space. The RFP sets forth the specific areas of concern to the tenant, such as the space in question, the lease term, expansion and renewal options, rental rate, and tenant improvements and other allowances to be provided by the owner.
Right of First Offer or First Opportunity - A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. Unlike under a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be sold or leased to a third party.
Right of First Refusal - A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. The owner must have a legitimate offer which the tenant can match or refuse. If the tenant refuses, the property can then be sold or leased to the offeror.
Right of Offset - A specific clause in a lease where the tenant has the right to deduct from the rent certain costs which are due to the tenant from the landlord. Included may be the costs incurred by tenant to cure defaults of the landlord, after notice and failure by landlord to cure the defaults. These are called "self help".
Space Planning - Term is often loosely used. Most often it is the planning of the layout of the interior space of a building to meet the needs of the user. Can also include detailed interior design and preparation of construction drawings. Space planning and interior design only need not be licensed architects. Preparation of construction drawings for permit have to be prepared by architects licensed in the jurisdiction.
Space Pocket - A portion of a leased premises that is set aside to accommodate future growth on the part of the tenant. The space pocket is typically fully improved at the commencement of the lease and no rent is due on the pocketed area until the earlier of "actual use" or a specified future date.
Sublease - A lease, under which the lessor is the lessee of a prior lease of the same property. The sublease may be different in terms from the original lease, but cannot contain a greater property interest. Example: "A" leases to "B" for five years. "B" may sublease to "C" for three years, but not for six years. (Rent can be greater or less than that in the prior lease.)
Subordination - To make subject or junior to.
Substantial Completion - Generally used in reference to the construction of tenant improvements (TIs). The tenant's premises is typically deemed to be substantially completed when all of the TIs for the premises have been completed in accordance with plans and specifications previously approved by the tenant. Sometimes used to define the commencement date of a lease.
Tenant (Lessee) - A holder of an interest in property for a specific term under a lease or other rental agreement (generally a right to occupancy and use).
Tenant Improvements (TI's) - Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and be paid for by the landlord, tenant or part by each.
Tenant Representative - An agent who is an advocate for the tenant.
Triple Net - A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property leases, such as taxes, insurance, maintenance, utilities, cleaning etc. The terms "net net", "net net net", "triple net", and other such repetitions are used.
Turnkey - Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory, if any. Turnkey tenant improvements are provided at the landlord's expense according to plans and specifications previously agreed upon by the parties. Unlike an allowance where the tenant pays for costs in excess of the allowance amount, the landlord bears the risk of construction in a turnkey situation.
Value Engineering - Process by which costs can be decreased or benefits can be added to an undertaking or project through redesign, prioritization or other similar actions.
Useable Area - The secured area (square footage) occupied exclusively by tenant within a tenant's leased space. The useable area times the load factor for common area results in rentable area on which rent is charged. Useable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.
Virtual Office - An office that moves with the person. Typically used in a sales organization where the salespeople are given portable computers, modems, and cellular phones in return for having their offices taken away.
Vertical Transportation - Elevators, stairs or escalators moving people or freight between floors in a building.
Work Letter - Specifications for tenant improvements usually attached to a lease and/or letter of intent. The work letter provides the basis for working drawings and contractor pricing and may allocate costs between the parties. Also establishes critical dates for approval of drawings and processes.
Working Drawings - Drawings prepared by a licensed architect and used by contractors in the construction of tenant improvements. Shows all architectural detail such as electric, plumbing, partitions, etc.
4525 East Skyline Drive
Suite #113
Tucson, AZ 85718
520-299-3400
Department of Real Estate
Commercial Real Estate Tips
About Commercial Property Brokers - A full service broker receives as well as initiates transactions. They develop strong problem solving and negotiating skill. Full service brokers often work on more transaction than their tenant rep counterparts.
About Commercial Property Brokers - A qualified commercial property broker will put you in control of your lease transaction. Since you are the one who will live with the lease, control is exactly what you need.
About Commercial Property Brokers - Agency is an action; if a real estate licensee acts as your agent, they become your agent. A broker owes you a fiduciary duty. In other words: an absolutely faithful duty to perform in your best interest, and to do no harm.
See more tipsAbout Commercial Property Brokers - Any broker, even a tenant rep, can inadvertently become a dual agent in a transaction by performing an agency action for the other party.
About Commercial Property Brokers - Brokers are paid upon the completion of the transaction, and not paid if the transaction fails for any reason. Commissions are calculated in two ways: a percentage of the rent for all the years of the lease; or a certain number of dollars per square foot based upon the lease term.
About Commercial Property Brokers - Commercial leasing brokers fall into two categories: full service brokers, who serve as agents for both landlord and tenant; and tenant-only representatives. You will benefit from attaining the skills of a tenant rep.
About Retail Lease Proposals - Operating your business next to a business that may be morally objectionable such as an adult arcade can be a business killer. Have your attorney draft language to protect you from the owner leasing to such uses.
See more tipsAbout Retail Lease Proposals - Take a close look at how your potential neighbors are using utilities in the center and research whether or not you are sharing utility meters with high-demand users. Adjustments may need to be negotiated if separate meters are not possible.
About Retail Lease Proposals - When proposing your lease term, think about the best month for your lease to terminate. If your business thrives during the year-end holiday season and you open your business before the holidays, you may want the lease to end in January or February, rather than an annual anniversary of the commencement date.
About Retail Lease Proposals - Within the operating expense budgets for shopping centers you are likely to pay for promotion and media fees. Be sure these are reasonable and will benefit your business. You may want to have limits placed on how much these can increase annually, or you may find a weak center spending more than you can afford in order to save the center if business falls off.
See more tipsAmericans with Disabilities Act - Do not attempt to tackle the Americans with Disabilities Act compliance without the help of a professional. If employing a space-planning architect, it will be their responsibility to keep you informed about ADA. At minimum you must go to the planning department and ask that the building file be reviewed and that a building inspector visits the site before you sign the lease.
Common Lease Clauses - Most leases contain a provision stating that this is the entire agreement and that you have not relied upon any other representation and that there are no other outside agreements. To make sure this is accurate, review all your proposals and notes on the transaction and check to see everything you have been promised is in the lease.
Common Lease Clauses - Normally you will have access to your premises 24 hours a day, 7 days a week, 365 days a year. And you can expect the electrical plugs and lights and elevators to operate. Many of the other services the owner is obliged to provide will only be available during the building operating hours - these include HVAC, guard services, building engineers, etc. If you need any of these types of services to be extended beyond the buildings operating hours, the cost of these, if even available, will be passed on to you. This is a big issue for some properties, and a footnote for others.
See more tipsCommon Lease Clauses - Regardless of whether or not you are reimbursing the owner for their insurance policies, you will be required to provide your own insurance. Start by sending this part of the lease contract to your insurer along with any clauses that deal with attornment, indemnification and/or subrogation.
Common Lease Clauses - Some forms describe the premises by defining both the rent able and usable square footage, while others just give the suite number and refer to an exhibit: an architectural drawing of the space. Always ask how recently the space was measured and by whom. When an architect is involved it should be easy to obtain accurate area calculations.
Common Lease Clauses - Some of the aspects of assignment and subletting are becoming more and more restrictive. Be sure you know your rights and obligations as well as the rights retained by the owner. The owner will always require that they consent to any assignment or subletting.
See more tipsCommon Lease Clauses - Some smaller properties, owned by individuals, will not want to go through all the calculations and ensuing discussions with tenants about increases in rent. Instead they might simply ask for a flat percentage increase annually. While this is easier for both parties, typically this kind of increase is based upon the entire rental payment. Expense increases are only applied to that portion of the rent that goes toward a particular expense - you could pay more for the convenience of flat percentage increase.
Common Lease Clauses - Sometimes tenants are concerned with outgrowing the space before the lease expires. Usually the solution is to sublet or assign the lease. However, if the sublease and/or assignment provisions are too restrictive, you may want to negotiate an early termination of the lease. There are costs associated with the right to terminate early. Normally you will be expected to pay several months of rent while the owner finds a substitute tenant. If the owner provided you substantial amounts of improvements, you should expect to repay the unamortized portion of that fee. While early termination penalties are expensive, for some tenants this is preferable to being a sub-lessor and the potential liabilities of those duties.
See more tipsCommon Lease Clauses - The "drop-dead-date" is the date by which, if the premises are not delivered, a tenant has the right to cancel the lease and reclaim any money on deposit. How long a tenant may have to wait to cancel a lease is a negotiable item, but 60-100 days is typical. Frequently a delay in possession does not extend the term of the lease, leaving the tenant with a shorter term than anticipated. Be sure any delay in possession automatically extends the expiration of the lease term to get the full benefit of your bargain.
Common Lease Clauses - The balance of the lease must be reviewed by your legal counsel and discussed thoroughly to make sure you understand what you are signing. Do not get lulled into thinking the bulk of the lease is boilerplate; you never know what may be buried in the miscellaneous provisions.
Common Lease Clauses - The late charge is used to offset the cost incurred by the owner in collecting late rent and as a preventative measure against late rent. Most leases do provide a grace period: 3-5 days is typical. You can often negotiate more days, but I think it might be better to negotiate one or two forgiveness' of late charges per year as this will probably save you more money if you forget to pay on time. The interest rate is for longer, uncured monetary defaults and is applied to those overdue amounts in addition to any late charges.
Common Lease Clauses - The lease will set out the obligations of the parties for maintenance and repairs of the premises and you must be sure this accurately reflects your understanding. As a general rule, in a full service gross lease used for office space, or in any kind of lease covering multi-tenant property, the tenant will be responsible for the interior and the owner for the exterior and common areas.
See more tipsCommon Lease Clauses - The operating expense increase clause, or additional rent clause, allows the property owner to pass through increases of operating expenses to the commercial tenant. Normally the pass through begins in the 2nd year of the lease term. The 1st year is referred to the base, or comparison, year and increased expenses are compared to the base year - the difference is apportioned to all the tenants and passed through as an operating expense increase.
Common Lease Clauses - The term includes the commencement date, expiration date, and contemplates a possible delay in possession. If the space is vacant and in move-in condition, then barring strikes, riots, natural disasters or other acts of God, you will likely not have any delay in possession of the premises. If the space is subject to construction work, you may need to anticipate delays, or even establish a "drop-dead-date."
Common Lease Clauses - The use clause will appear with the basic business points and is important because if too tightly written it can affect what you are permitted to do in the premises later if your business model changes and your rights to sublease or assign the lease at a later time. Think about the ramifications of this clause with respect to your business, particularly if you are a retail or industrial tenant.
See more tipsCommon Lease Clauses - There are many erosive forces at work that can silently reduce a commercial property value. Property taxes increase annually, insurance costs constantly creep up, utilities and other operating expenses must be monitored and re-negotiated. The lease contract rent is a promise to pay, and is paid in future dollars. Inflation causes the future value of money to have less purchasing power - this is why commercial leases contain protective clauses against income erosion. These are known as escalation clauses.
Common Lease Clauses - You are likely to encounter the term "Substantially Complete" with respect to the owner's delivery of the premises. This is intended to mean ready to occupy, with only a punch-list of items to be completed or corrected. Make sure you negotiate for at least 30 days to submit your punch-list to the owner, as you will certainly be too busy with other matters to do it in less time.
Common Lease Clauses - You may receive assurances that the owner has no intention of selling during your lease term; that is not enough. The property may be transferred for estate planning reasons or by reason of death. If the owner says they have no intention of selling, then giving you a cap on tax increases should not be a problem.
Common Lease Clauses - You will be required to sign up to four copies of the lease in original signature. I suggest you initial every page of the lease when you are signing to prevent any accidental substitution of pages. You will next need to provide good funds to cover the first month's rent and any security deposits, or contribution to tenant improvements. You also need to deliver an insurance binder from the insurer.
See more tipsCommon Lease Clauses - Your lease will start with the basic business points, either in an outline form or using fill-in-the-blanks as with form leases. The lease will describe the legal entities involved in the transaction - be very sure this is done correctly, as mistakes here can be costly. If your business is a corporation or limited liability company, you certainly want to maintain the protection that theses business structures afford.
Creating a Proposal to Lease - A well-written proposal to lease will get you well into lease negotiations. Once the proposal stage is complete, you will be provided a draft lease for you and your legal counsel to review and fine-tune into a contract that accurately defines your agreement. An experienced broker can help you write a successful proposal to lease.
Creating a Proposal to Lease - Be aware that if you are offered a reimbursement for tenant improvements provided by you, it could cause a taxable event. Consult a tax advisor before agreeing to any cash allowance that comes as a reimbursement.
Creating a Proposal to Lease - If the property is a multi-tenant property you will need to define the owner's obligations related to the common areas.
Creating a Proposal to Lease - If you are negotiating for more than one space, I advise you not to go much beyond the 1st round of proposal responses or into multiple space-planning sessions without informing the property owners. Creating competition in a softer market can work well I your favor, so letting the other side(s) know you have other options can garner some nice concessions.
Creating a Proposal to Lease - If you have been provided with a floor plan of existing conditions, mark it up and include it with your proposal.
See more tipsCreating a Proposal to Lease - If you use hazardous materials, it is important to discuss that up front to avoid wasting everyone's time. In industrial space you will want assurances the space is clean before occupancy: Be sure to ask the owner for a complete written disclosure about prior uses of the premises.
Creating a Proposal to Lease - In preparing letters of intent, I prefer the approach which makes the proposal simple. This means to gain agreement on the big issues first and set aside smaller issues to work out later in the lease negotiations. This negotiation strategy relieves much of the inherent tension in negotiating, and makes agreement on the side issues easier to obtain.
Creating a Proposal to Lease - Most tenants are concerned about expansion rights so they can avoid moving if they outgrown the space. Owners are reluctant to grant any options since options never serve the owner's interests. Options to expand or renew are definitely considered concessions by property owners. Ask for what you want, but expect the owner's attempt to water down your rights as much as possible. In tight markets, option concessions tend to dissipate.
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