If you are looking to sign a commercial lease for your first time, you are probably overwhelmed by the amount of confusing terminology often used by the industry. Here are 6 commercial lease terms that you should know in order to get the proper lease for you and your business needs, as well as avoid any surprises.
1. Net Lease - With a net lease, in addition to a rent payment, you will also get additional billings for things such as taxes, utilities and maintenance. These added items can greatly increase the cost of a lease, and can often come as an unwelcome surprise to you, the tenant. If you do decide to get a net lease, ensure that you ask your commercial real estate agent the projected costs for these additional services to avoid a shock when rent comes due.
2. Full Service Lease - A full service lease is a rental agreement that includes all of the expenses associated with renting the property. Since it is determined by the landlord and the tenant what these expenses are, the term is often times a bit ambiguous. This kind of a lease is most useful for when you think you are going to be renting space for quite some time, as it gives you a more solid expectation of the amount that will be due each month.
A full service lease normally includes everything from utilities to building and landscaping maintenance, as well as taxes and fees. There is more than one way to set up a full service lease. It can be set up as a pass-through lease that has a payment that will fluctuate from month to month due to the amount of heat, gas, water and maintenance costs each month. It can also be set up as a lump sum amount, so that the tenant has a consistent payment with no unexpected surprises.
3. Letter Of Intent - This letter is a preliminary measure, and often times an informal agreement, between the owner of the property and you, the tenant. The letter of intent shows a willingness for both parties to move forward in the negotiation process, before the actual lease is actually signed. The letter of intent usually needs to be looked over by an attorney if you want to ensure it is valid.
4. Usable Square Footage - Usable square footage is the square feet specified for the exclusive use of the tenant. The usable square footage includes any rest rooms, to be used exclusively by the tenants of the building, as well as storage and office space. The common areas of the commercial building, such as the lobby, staircases, and shared conference rooms, are included in the 'rentable square footage'. The common use areas will increase the square feet by the amount of square feet that the tenant is allowed to use for both private use and common use.
5. Common Area Maintenance (CAM) - CAM is additional amount of money, on top of your standard rent, that is charged to you for the common areas of the property. These costs will be shared by all the tenants who are leasing space in the area that the commercial real estate agencies owns, and include such things as: landscaping, snow and ice removal, exterior lighting and parking maintenance.
6. Non-Compete Clause - A non-compete clause prevents the landlord from renting space near your rented commercial real estate to a direct competitor. A non-compete clause is vital for service industries, such as dry cleaners and flower shops, who rely on steady foot traffic to feed their business. It is a valuable clause that helps to maintain repeat customers, as there won't be options for similar services nearby. You should ensure that this type of clause is included in any lease where near-by competition would harm your business
Renting commercial space can be confusing, but working with your real estate agent can help you navigate the muddy waters. Be sure to get more information on the concepts that you don't fully understand explained to you in-depth by your realtor before you sign any lease for your business.