Commercial Leasing Terms Explained

Here are some common office and commercial leasing terms and their general explanations. Some of these terms may be used differently in various regions of the country, so be sure to ask the precise meaning of a term when you are negotiating a lease.

• Lessor
  The lessor is the person who is granting the lease and who has the legal obligations related to the lease contract; the landlord. Sometimes this is an owner, but it may also be a property management company or commercial leasing company.
   

• Lessee
  The lessee is the person leasing the space; the tenant. Although you may need to personally guarantee a lease, your business entity should be the official lessee on all documents relating to the lease.
   
• Common Area Maintenance (CAM)
  This term describes costs for areas in a building which are not directly leased but which are a common responsibility, such as hallways, restrooms, stairways, and walkways. Most lessors add CAM costs to square footage costs to calculate lease payments.
   
• Fully Serviced Lease
  A lease in wich the rental payment includes other services, such as utilities, maintenance, and lawn/snow removal services.
   
• Gross Lease
  A lease which includes the landlord agrees to pay for all common expenses, including utilities, repairs, insurance and (occasionally) property taxes. The cost of a gross lease is higher than for other types of leases because all of these items are included in the amount of the lease.
   
• Net Lease
  A lease which includes the square footage costs, CAM costs, and all other ownership expenses, including utilities, repairs, insurance, and property taxes.
   

• Double Net Lease
  A lease in which taxes and insurance expenses are included in the lease payment. The lessor pays maintenance costs.
   
• Triple Net Lease
  A lease which includes all taxes, insurance, and maintenance costs in the monthly payment.
   
• Gross Square Foot
  The total square footage of the building or office being leased.
   
• HVAC
  An abbreviation for 'heating, ventilating, and air conditioning.'
   
• Build-out
  The improvements to the office or building to make it usable for the tenant. In accounting terminology, these costs are called "leasehold improvements," and they can be depreciated as expenses.
   
• Turn-key
  An office or building that is ready to occupy. In most cases, this is a commitment by the landlord to bear the cost of any build-out.
• Sub-lease.

A sublease is an agreement between the lessor and lessee to allow someone else to use all or part of the space. In some cases, a business may wish to have another business to share the space - and the rent. In other cases, the tenant may want to leave before the lease term is up, and to have someone else take over the lease, to avoid having to re-negotiate.

To help you negotiate the commercial real estate lease, Lahle Wolfe, Women in Business Expert, has a list of commercial lease terms you can negotiate.

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