A lease term is the specific period of time in which the Landlord grants to the tenant the right to possession of real estate.
A Pass Through is an increase in operating expenses over the base year amount that is billed to the tenant as additional rent.
Taxes, Insurance & Common Area Maintenance charges. Those charges levied on or the expenses incurred in taxes, insurance and maintaining the common areas of a building.
In real estate, the expenditures for real estate taxes, salaries, insurance, maintenance, utilities and similar items paid in connection with the operation of a rental property that are properly charged against income. More broadly, all expenditures made in connection with operating a property with the exception of debt service, capital reserves (and/or capital expenditures), and income taxes.
A lease agreement that designates the lessee (the tenant) as being solely responsible for all of the costs relating to the asset being leased in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay for net real estate taxes on the leased asset, net building insurance and net common area maintenance. The lessee has to pay the net amount of three types of costs, which how this term got its name.
In a gross lease, the rent is all-inclusive. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rents received from tenants. Utilities and janitorial services are included within one easy, tenant-friendly rent payment.
When negotiating a gross lease, the tenant should ask which janitorial services are provided, and how often they are offered. Excess utility consumption beyond building standards is sometimes charged back to tenant; so if the tenant is a big consumer of electricity, this point should be clarified in the lease as well. The tenant pays his own property insurance and taxes.
A benefit of this type of lease is that it is supremely easy for the tenant, which can forecast expenses without worrying about an unexpected lobby maintenance charge, for example. The landlord assumes all responsibility for the building, while tenants concentrate on growing their businesses.
In a net lease, the landlord charges a lower base rent for the commercial space, plus some or all of “usual costs,” which are expenses associated with operations, maintenance, and use that the landlord pays. These can include real estate taxes; property insurance; and common area maintenance items (CAMS), which include janitorial services, property management fees, sewer, water, trash collection, landscaping, parking lots, fire sprinklers, and any commonly shared area or service.
Commercially rented space may have to be customized to fit a tenant’s needs. You and the landlord will have to reach an agreement about who does the design, who does the work, when it gets done, and who pays for it. The lease clause that addresses these issues will be titled “Improvements and Alterations.”
The most common way for landlords and tenants to allocate the expense of improving commercial space is for the landlord to give you what’s known as a tenant improvement allowance, or “TIA” or “TA” for short. The TIA represents the amount of money that the landlord is willing to spend on your improvements. It’s stated either as a per-foot amount or a total dollar sum. Generally, if the improvements cost more than the agreed-upon sum, you pay the extra.
When you lease commercial space you pay for more than just the actual square footage you will occupy. In many commercial leases, and in particular retail and industrial space leases, extra fees are often referred to as “Common Area Maintenance” (CAM) fees. In non-industrial spaces, you may hear this expense referred to as “Load Factor,” which includes CAM fees.
There are two basic calculations for CAM fees: Variable CAM fees, in which the amount a tenant is required to contribute increases based on a number of factors; and flat CAM fees where the fees are a fixed amount.
Tenant upfit typically involves “fitting” an office or building to meet the needs of a specific business or enterprise. Tenant upfit is a mainstay for design/build firms in which the architect can initially conduct a thorough code review, develop a concept sketch, and the contractor can provide a preliminary price before demolition is done.
An amount that is used as a minimum rent, providing for rent increases over the term of the lease agreement. The base rent is the initial rent, and depending on the lease provisions it may change over the term of the lease. In commercial properties, the base rent is the minimum due each month, with extra payments due based on, for example, a percentage of sales.
Usable square feet includes the specific area the tenant will occupy in order to do business. For a partial-floor lease, this includes all office space plus any storage or private restrooms. There are no exclusions for columns, recessed entries, or the like, either–column space is fair game in the calculation of total usable square feet.
When a tenant occupies a full-floor, the usable square feet amount extends to everything inside the boundaries of the building floor, minus stairwells and elevator shafts. This can include non-usable areas like janitorial closets, or mechanical and electrical rooms. It also encompasses private bathrooms and floor common areas, like kitchenettes, hallways, and reception areas that are specific to that floor’s use.
In an office building, the area on which rent is based and which generally includes the space available for tenants’ exclusive use plus identified common areas less any major vertical penetrations (air shafts, stairways, elevators) in the building. The term is applied to the building as a whole, to individual floors, and to portions of floors.
A provision of a contract which calls for an increase in price in the event of an increase in certain costs. For example, an escalation clause may specify that rent due will increase with inflation. OPPOSITE of de-escalation clause.
Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.
The Building Owners and Managers Association (BOMA) classifies office space into three categories: Class A, Class B, and Class C. According to BOMA, Class A office buildings have the “most prestigious buildings competing for premier office users with rents above average for the area”. BOMA states that Class A facilities have “high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence”. BOMA describes Class B office buildings as those that compete “for a wide range of users with rents in the average range for the area”. BOMA states that Class B buildings have “adequate systems” and finishes that “are fair to good for the area”, but that the buildings do not compete with Class A buildings for the same prices. According to BOMA Class C buildings are aimed towards “tenants requiring functional space at rents below the average for the area”. The lack of specifics allows considerable room to use personal judgment.
Represents a cap on the operating expenses that a landlord or tenant will pay. This type of provision is often included in a lease or addendum and agreed upon by involved parties. The provision may require the renter to pay certain fees up to a certain level and then anything beyond that ceiling will be covered by the landlord.
Lease concessions come in many shapes and sizes. Some of the typical lease concessions that are bargained for are free rent, tenant improvement allowances, reduced starting rent and fixed rates for a period of time. All these elements interplay with one another. For instance if a business owner opted for free rent, he may get a reduced tenant improvement allowance and pay the asking lease rate.
Property management is the operation, control, and oversight of real estate as used in its most broad terms. Management indicates a need to be cared for, monitored and accountability given for its useful life and condition.
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
During challenging times, receiverships offer a lucrative opportunity for educated, savvy real estate professionals to assist lenders with their distressed assets.