FAQ- Leasing Commercial Property

When negotiating a commercial lease there are some basic terms you need to be familiar with, understand and be able to discuss. For many landlords, commercial properties are their main business and they talk in these terms every day. Some may have no patience to teach you the terms and explain the details.

Also when you call to get some information understanding the terms and numbers quickly will help you decide if the property is even worth looking at.

Below is a small article I found that is a great start to covering the basics.

Leasing Commercial Property Frequently Asked Questions
By Thomas J. Raub CCIM

A lease rate is stated as $10.00/SF. What does this mean?

This is the yearly lease cost per square foot. Example 1000Sf space quoted at $10.00/SF = yearly rental rate of $10,000 which is a monthly rate of $833.33.

What is Rentable square feet?

This is the total square feet used to calculate the rental rate and may include an apportionment of the lobby, hallways, and other areas in the building available to and used by all the building tenants. This is oftentimes expressed as a multiplying factor of the Useable SF. Example: Rentable SF = Useable SF x X.XX%. The multiplying factor is building specifically with wide variations in actual numbers. ?Typical? multipliers would be 1.15 to 1.20.

What is Useable square feet?

This is the total square feet within the walls of the space being leased. The actual space available for the Tenants exclusive use.

What are CAM charges?

This stands for Common Area Maintenance charges and is the cost for items such as snowplowing, grass cutting, parking lot maintenance, common area lighting, etc. These charges are based on actual expenses and are apportioned among the Tenants. CAM charges are quoted as $X.XX/SF and are based on rentable square Footage. Typically these charges are paid monthly based on estimated costs for the year. At the end of the year, actual CAM charges are tallied and either a credit or debit is passed on to the Tenants.

What does NNN mean as quoted in a lease rate?

The NNN refers to additional actual expense items that are apportioned among all the Tenants. Typically included in NNN are CAM, building insurance, property taxes. This is referred to in most leases as Additional Rent. A cautionary note: ALWAYS ask what is included in the rental rate quoted and what additional items are you responsible for. NNN is defined differently by different landlords. Typically utility costs are NOT included in NNN expenses and are therefore a separate additional cost to the tenant.

What does Gross Rent include?

Typically a Gross Rent means the landlord is responsible for paying all the expenses outlined above as NNN expenses. The Tenant only pays the Gross Rental rate. The Tenant?s utilities may or may not be included in this gross rental rate. ALWAYS ASK!

Are Utility costs included in the rent? And how are they calculated?

In smaller spaces, the utility costs may not be separately metered and therefore are apportioned among the users. This may be a rent adder or included in the base rent. In larger spaces, the utilities are often separately metered and thus are paid by the Tenant in addition to any other rental amounts paid.

How short a lease can I get?

Typically, a landlord is looking for at least a year lease and many will have a 2 or 3-year minimum lease requirement. The longer the lease is, the more value it is to the landlord and thus the more receptive the landlord may be to negotiations of the lease.

What about changes needed to the space layout, new walls, special telephone lines, electrical, etc? Who pays for this?

The space layouts vary from business to business and rarely does an existing space work for a new Tenant. Therefore the landlord is reluctant to invest dollars in a tenant-specific requirement. Usually some painting, carpet cleaning, etc. are done by the Landlord. The length of the lease and terms also are a factor in what contributions the landlord is willing to make to the changes needed by the Tenant. In some instances, while the Tenant is responsible for the fitup costs, the Landlord will agree to amortize the fitup costs over the term of the lease.

The original article can be found here

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Ken