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Understanding Commercial Real Estate Language

August 7, 2020
David CairnsbyDavid Cairns
office lease language

Commercial real estate language can be complex if you’re not exposed to it on a daily basis. In this post, you’ll come to understand what some of the most common terms in Commercial Real Estate mean, providing clarity for your journey in finding a new office space.

Refer to this glossary as much as you need and let us know if there’s anything you think we have missed, that you’d like us to cover.

Price Per Square Foot (per sq.ft.)

This is the most common way to determine how much you will pay when leasing a new office space. Price per square foot times the number of square feet available to lease equals how much you’ll pay on an annual basis.

Net Rent or Basic Rent

This is the part of your monthly rent that is negotiable when making an offer on a space.  It is also the portion of your rent that your Landlord draws most of its profit from. It excludes realty taxes, operating expenses and electricity. Typically, it’s quoted on a per square foot, per year amount.

Additional Rent or Op Ex (Operating Expenses)

This is the portion of your monthly rent that covers all the costs to run a building – realty taxes, operating expenses (cleaning, snow removal, insurance, repairs, maintenance of equipment etc.).  This amount is stated as an estimate at the beginning of each calendar year (it gets reconciled at the end of the year which could mean you have to pay more OR you may get a rebate) and is proportionally shared by all the tenants in the building based on the size of their office space. This is also quoted on a per square foot, per year amount.

Vacancy Rate

This is the amount of space that is currently available within a market or building.

Availability Rate

This is the vacancy rate plus what will be coming onto the market in the future. Your broker will have intel on what buildings are being built and in turn what companies will be leaving space behind as they move to a new (or existing) building.

Building classes

Building class describes the condition/quality of a building. For example, RC stands for retrofit/converted and describes brick and beam space. “A” class represents the best of the best, with B, and C next in line. The building class will be determined based on things like recent renovations, how old it is, access, amenities etc.

Letter of Intent or Term Sheet

A Letter of Intent (LOI), is used to express interest in a space and typically outlines the main business terms such as the day you’ll move into the space, the date your lease would expire, size of the space, the rent you’ll pay and any conditions like parking, free rent etc. Usually, it’s non-binding. An offer and/or lease will follow.

Offer

Essentially a more detailed LOI or Term sheet. It contains more legal terms and clauses that will detail the rules around using your new office space. It is a legally binding document once any conditions have been waived by the parties to the agreement.

Lease

A detailed legal document that outlines the terms and conditions that will govern when and how you can use the space. Your lawyer will need to advise you on this document before you sign it.

LAA / Lease amending agreement

A Lease Amending Agreement is used whenever a change needs to be made to a Lease. You will typically see these when you renew your Lease, take on more space, or give back space.

TIA / Tenant Improvement Allowance

This is a cash allowance provided to a tenant. It’s intended to help cover the costs of building out the office space to suit the needs of the business. It’s used as an incentive for a business to lease an office space that may not be fully suitable for their needs.

Fixturing period

A period of time, before the lease commences, where you are given access to the space to get it ready to move in (construction, furniture, etc.). This time will likely be provided to you free of net and additional rent. However, you will be required to pay for utilities, provide proof of insurance, and have had executed the lease.  If there is still time remaining on the Fixturing Period after you’ve completed the tasks necessary to get your space up and running it will often be the case that you don’t have to pay rent (you still have to pay utilities/insurance) until the Fixturing Period elapses.

Sublease

If you have leased space from a Landlord but no longer require all/part of the space, you can release the space to a different company. The length of the sublease will depend on the current expiry date as you cannot allow the subtenant to stay past your existing lease expiry (unless they negotiate with your landlord).  Having the right to sublease your space is very important as often a company’s needs change before the natural expiry of a lease.

 

Remember, brokers speak this language daily with all clients, and it doesn’t cost you to talk to one – their fee is paid through the landlord. When the time comes to renew your lease or secure a new office (anywhere in the world!) you can contact us via [email protected] or leave your details below for updates.

David Cairns

David Cairns

Co-Founder CBRE Forward, David help's Canadas best enterprises and scale-up companies create dynamic office environments. Senior Vice President Office Leasing at CBRE Canada. For more insights into how to approach your office space needs, connect with him on LinkedIn.

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