Commercial Office Lease Terminology 101: What to know before you sign on the dotted line
You’ve found commercial office space, and you’re ready to sign your lease. But before you do, make sure you’ve done your homework.
Whether you’ve hired an attorney to help you negotiate or you’re a seasoned professional going it alone, it’s a good idea to brush up on your commercial office lease terminology. Here’s a quick primer on common lease types and commercial office lease terms and what they do – and don’t – mean.
Common Area Maintenance (CAM)
Common area maintenance costs derive from the care of building areas that are used by all tenants. CAM areas can include spaces such as hallways, lobbies, restrooms, sidewalks and parking lots. Your lease should spell out the CAM areas (and related maintenance services, such as snow plowing, landscaping, etc.) included in your rent.
Double Net Lease (NN)
A double net lease incorporates taxes and insurance into your lease payment, but the landlord is responsible for paying maintenance costs.
When you sign a gross lease, you agree to pay for your space’s square footage, and your landlord agrees to pay for all other operating expenses, including utilities, maintenance, insurance and property taxes.
“Leaseable area” is a blend of your office square footage plus a percentage of the square footage in the building’s common areas.
Improvements and Alterations
If you plan to customize or otherwise alter your leased space, make certain that you and your landlord are on the same page about who is responsible for doing the work, how long the work will take, and who will pay for it. You will also want to iron out how the changes you plan to make will impact your rent now and in the future.
Your landlord may require you to carry insurance to supplement policies they carry on your building. It’s a good idea to discuss your insurance needs with your insurance agent before you sign a lease. To learn more about commercial insurance needs, see Commercial Renters Insurance: Does Your Small Business Need It?
Maintenance and Utilities
This clause spells out your responsibility to maintain your leased space. Are you responsible for paying utilities or are they included in your rent? Is routine maintenance covered under your lease terms? How about housekeeping services? This section of your lease should answer these types of questions.
A net lease includes your cost per square foot, as well as some costs associated with daily operation of the property, including common area maintenance (CAM) costs, utilities, insurance and property taxes.
The permitted, or general, use clause will define how you are allowed to use your leased space. Permitted use will depend upon a number of factors, including building location and zoning laws, but might include such uses as manufacturing, retail and food service. Communicate your business as fully as possible when searching for space to ensure that your prospective landlord and prospective office space can meet your needs.
The premises clause should clearly define the space you’ll be leasing. In addition to physical office space, for example, your lease may give you access to common areas, such as conference rooms, break rooms, parking lots and storage rooms.
You may have a renewal clause in your lease giving you the right to extend your lease term. The renewal clause should include a start and end date and specify rent costs.
The term clause states your lease start and end dates. Although it seems like a no-brainer, be sure to read the fine print. Some lease terms begin the date you sign the lease; others begin upon move-in. Be sure the lease you’re signing defines your start date so you know when you can move in and when rent begins.
Triple Net Lease (NNN)
A triple net lease is a lease agreement where the tenant (or lessee) is responsible for the property’s ongoing expenses, including real estate taxes, building insurance, and maintenance, in addition to paying rent and utilities.
Signing a lease is a big step for your business, so it pays to make sure you know what you’re signing before you put your name to it.
“Don’t be afraid to ask your landlord to walk you through your lease, and be sure to ask questions along the way,” says Willard Anderson, partner at The Anderson Group. “A reputable landlord and a fair lease have nothing to hide.”
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