10 Commercial Real Estate Terms You Should Know Before Leasing Space
Commercial real estate, much like many other industries, is full of its own lingo.
Brokers, attorneys, and contractors almost seem to speak in their own language when discussing commercial space because they work in the industry day in and day out.
There are several key terms that any business owner should know about commercial real estate before getting their search started.
After all - the more you know and understand, the better decisions you can make as an entrepreneur.
Below is a list of 10 terms that will help you embark on your leasing journey.
1. Usable Square Footage:
Commonly referred to as USF, this is the space in a commercial property that you can actually occupy. Spaces that aren’t exclusive to your lease are not included in USF and may include lobbies, stairways, restrooms, storage space, and hallways.
2. Rentable Square Footage:
Commonly referred to as RSF, is the space in a commercial property that includes the total usable square footage of the building plus the shared spaces.
3. Common Area Maintenance:
Referred to as CAM, is a fee paid to a landlord to maintain the shared space of the property, which can include items such as landscaping, parking lot maintenance, and common area restrooms. This fee is paid in addition to rent.
4. Tenant Improvements:
Changes that a tenant may make to the rented space to suit the needs and desired style of their commercial space. These changes and alterations should be negotiated before a lease is signed.
5. Letter of Intent:
Commonly called an LOI, this is a non-binding agreement written prior to signing a lease for the purpose of indicating strong intentions to move forward with pursuing the lease. This document outlines the terms of the lease.
6. Escalation Clause:
Outlines the ways in which rent may be increased each year. It is advised that you negotiate a cap on annual rate increases. Doing so will ensure that you will be able to afford the rent for your commercial space year after year
7. Sublease Clause:
Lays out the terms of whether or not you are allowed to sublease all or part of your commercial space. If you plan to sublease a portion of your rented property, then this must be negotiated with the landlord before signing the lease.
8. Landlord Representative:
Is the leasing agent and oversees the best interests of the landlord. Their goal is to keep costs low, while securing the highest rent possible. They work on behalf of the property owner and have experience with negotiating.
9. Tenant Representative:
Works on behalf of the tenant and is a commercial real estate agent. They negotiate on behalf of the tenant to secure the best deal for them. They do not work for the landlord and instead seek to achieve the best outcome and opportunities for the party that is wanting to sign a lease to rent commercial space.
10. Building Classifications:
These refer to the three main classes of office buildings – Classes A, B, and C. Class A buildings are high-end and upscale, Class B are usually average office spaces, and Class C are older buildings that may be a little dated or are in need of repairs.