-Every profession has its own jargon, and real estate is not exceptional. If you interact with real estate veterans, you may be confused with some of their terms. Sure, most assume you know what they talk about.
So, if you’re looking for a space for your home or business, in that case, it would be best if you equip yourself with some of the real estate jargon; to help you navigate through the commercial lease negotiations.
Luckily, this post covers essential commercial lease clauses, common structures, and their detailed meanings.
But first;
Here Are Some of the Lease Structures
Commercial leases may vary in structures, depending on the number of tenants, type of property, and business. We have;
Full-Service Lease
This is a structure that requires the lessee only to pay their monthly base rent. Even better, it makes the landlord responsible for all expenses and costs related to the maintenance of the property.
Even though a full-service lease seems a better option, it however not that cheap. Why? The chances are high that the landlord would want to insure themselves from the unexpected expenses. So, the possibilities of increasing the base rent are very high.
Triple Net (NNN)
This is the gold and most typical or common structure of commercial lease. It makes the tenants or the lessee responsible for paying base rent with significant costs such as property taxes, utility, and building insurance.
The tenant also pays for the common area maintenance- areas within the building that are not directly leased to the tenant but are a common responsibility of the lessee. These areas include restrooms, stairways, and pavements.
It may also include standard property maintenance like HVAC- heating, ventilation, and air conditioning. That implies that the tenant might hold responsible for the systems maintenance.
Although the triple net leases dictate that the tenant pays all the costs related to property, it’s however, never spares the landlords. Still, they are responsible for the building’s structural maintenance. Things like the roof, walls, or the foundation of the building are under the landlord’s care. But, the responsibility can only be share if the tenant has an absolute triple net lease giving them control over the building structure.
Modified Gross Lease
This lease structure demands that the tenants pay the base rent with a few operating system expenses. For instance, if a tenant decides to open any service based business like a salon, there would be an additional expense on the cost of power. So, a modified lease ensures the tenant pays their regular bill alongside the added electric bills.
The above structures can be delivered in different conditions or states. For instance, you may lease a skeleton space without anything; you’re the one to build it up. However, you can also get space with everything you need for your operations.
So, you may have:
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Vanilla shell lease- these structures come fully packed with different amenities like HVAC, elevators, and completed restrooms with finished ceilings and lighting.
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Cold dark shell- these are structures with no amenities. The tenant has to start from scratch to build what they need. It’s precisely the skeleton of the design.
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The second-generation- these are spaces that require more minor constructions. Why’s that? With the second generation, tenants only have to renovate or recreate what was there. For instance, if you’re looking to set a salon business, it would be best to find a space that was initially a salon.
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Common Lease Clauses
Sub-Lease
This agreement between the landlord and the tenant allows the tenant to use some part of the unused space. For instance, the landlord may allow a tenant to lease their space for other functions or businesses. So it’s entirely dependent on the agreement between the laser and the lessee. And any operation of the tenant must be consented to by the landlord.
Rent Escalation Clause
Rent escalation covers any increase that might occur on the leased space. So, in case the landlord has plans to increase the rent to a certain amount, the tenants must have prior knowledge of the increment. It entails the details on when and how much the rent would increase.
Exclusive Lease
This agreement gives the tenant the full authority to sell or operate a particular service or product within the space leased. This happens especially when a business doesn’t want to lose potential customers to a new or competitive interaction.
At our website you may create a commercial lease agreement for any state in US.