Commercial real estate terms you need to know

Posted by Admin | September 18th, 2015

Commercial real estate is a bit more complicated than residential real estate, and if you are leasing a business space for the first time, there are some terms you should become familiar with.

Gross lease
A gross lease is a type of lease where the tenant pays one sum to the landlord every month and it covers all costs for the space and use of the building, including taxes, insurance, utilities and maintenance. This is the best type of lease to have if you like your costs to be predictable every month. With a gross lease, your lease costs will be the same every month that your lease is in effect

Net lease
With a net lease, you pay the rent for your space to the landlord every month and then are separately responsible for paying your own insurance, utilities, maintenance and your share of the real estate taxes on the building. With this type of lease you can save money if you feel you can operate very efficiently, but you also could face wildly varying monthly costs for your space.

Escalation clause
If you have an escalation clause in your lease, it means your rent will go up by a certain fixed amount at certain times. For example, if you have a three year lease, the rent might go up 2 percent after the first year is up and another 2 percent after the second year is up. The landlord might also base the increase on an index of costs, such as the Consumer Price Index.

Tenant improvements
Tenant improvements are work either you or the landlord do to the space to make it suitable for your purposes. Your landlord may pay for all the costs and then add them onto your lease costs, or he may pay a fixed amount, leaving you responsible to pay any overages.

Non-compete clause
Non-compete clauses are important to have in your commercial lease. They prevent your landlord from renting another space in the same building or development to a competitor or company in the same line of business.