Commercial Real Estate 101 Understanding Lease Terms, Chapter 1 – Basic Information

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A lease abstract is a document that summarizes specific, key information from a lease agreement. Leases can be lengthy documents with confusing legalese. Lease abstracts allow users to easily reference and review fundamental lease terms to ensure that both the tenant and landlord are in compliance with applicable obligations, timeframes, etc. This series will go through a typical lease abstract and explain the various terms with emphasis on what is important for a tenant to understand.

In this section, I will go through the basic information in a commercial lease.

Landlord

  • Name of legal entity that owns the subject property to whom rental payments shall be made
  • What’s important – understanding the ownership entity, i.e. individual, partnership, corporation, etc. and structure, i.e. fee simple, condo, coop, etc. This will impact landlord’s ability to make decisions, concessions, etc.

Tenant

  • Name of the legal entity that is leasing the subject property
  • What’s important – understanding the ownership structure, i.e. individual, partnership, or corporation. This will impact the number of individuals required to sign and/or secure/guaranty the lease. Will also impact other lease provisions such as assignment/subletting, bankruptcy, etc.

Property Address

  • Legal address of the subject property
  • What’s important – property address matches that of subject property

Floor #

  • Floor level of the leased premises.
  • What’s important – floor number matches that of leased premises

Suite/Unit #

  • Suite or unit number of the leased premises
  • What’s important – suite/unit number matches that of leased premises and is recorded by the County in which the property is located for occupancy permit purposes as well as mailing address

Rentable Square Feet

  • The square footage on which the rent is based. May be different from usable square footage depending on type of property and property’s core factor.
  • What’s important – confirmation that the rentable square footage has been measured according to acceptable standards, i.e. BOMA.

Usable Square Feet

  • Not generally included in leases but is the actual square footage of the leased premises not taking into account core factor.
  • What’s important – understanding the difference between the usable square footage and the rentable.

Core Factor

  • Percentage of subject property that is devoted to the building’s common areas (lobbies, rest rooms, corridors, etc.)
  • What’s important – the higher a building’s core factor the less usable area per rentable square feet. The more amenities a property has, i.e. fitness facility, conference facility, etc. and the more square footage they consume will increase the core factor and reduce the leased premises usable square feet.

Pro Rata/Proportionate Share

  • The portion of the subject property occupied by the tenant. Expressed as a percentage and calculated by dividing the leased premises rental square footage by the rentable square footage of the subject property. Tenant is responsible for paying it’s pro rate/proportionate share of operating expenses and real estate taxes over a base year.
  • What’s important – increases in operating expenses and real estate taxes are charged to the tenant as additional rent. A review of the past few years’ operating expenses and real estate taxes is advised.

Business/Building Hours

  • The timeframe in which the subject property is open to the public and heating and air conditioning are maintained at comfortable levels. Office building hours are generally 8:00am-6:00pm, Monday through Friday, and 9:00am-1:00pm on Saturdays. Retail landlords may require tenants to be open for business during certain hours and days of the week.
  • What’s important – if tenant’s business operates after regular business hours then additional heating and air conditioning costs must be considered. Landlords will typically make after hours HVAC available to tenant with notice and at a predetermined cost, which may be subject to change. For retail tenants, negotiating business hours that are in concert with the tenant’s use, business plan, etc. and/or understanding its obligations and ensuring they are in compliance.

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