What Are Lease Terms and Common Things That Commercial Real Estate Tenants Should Understand

“Once the tenant receives the landlord’s version of the lease, it’s important to review it and understand it. The property agreement creates the relationship and delineates the responsibilities of each party for the entire term of the lease.

There is no better time to negotiate a commercial real estate lease then before signing it and becoming obligated under the contract. A sophisticated landlord will understand and expect a serious commercial tenant to have its own legal counsel, and to have that attorney review and negotiate the lease to get the best possible agreement for the tenant.

The landlord may not know and understand every single word in the property lease agreement, but rest assured that a lease lawyer read that document and made sure the landlord understood the rights and obligations under that particular lease contract. The tenant needs to take the lease investment as seriously as the landlord and take the time to understand the rights and obligations under the lease.

The glossary should help in a general education sense, and a commercial real estate attorney can review and help with understanding the lease as it relates to the specific lease transaction.

Even at the end of the lease term, the lease may state the responsibilities of each party.  There’s a LOT of common commercial real estate terms that have specific legal meanings and consequences, which is why I created this glossary as a place to start learning about commercial real estate leases.

Like most internet content, it provides information, but it does not create strategy or provide advice for a specific lease negotiation. There is no such thing as a “standard” commercial lease agreement.

Here’s an example of why it’s so important to understand exactly what every word in a commercial lease agreement means.  If a tenant signs a commercial lease with Base Rent and Additional Rent, what is the actual amount tenant pays every month? Base Rent is the actual amount a tenant pays to occupy the space. It may change based on certain circumstances (the length of the lease agreement, the sales from the location, the size of the space, etc.) and there may be landlord-specific rules about how Base Rent is paid.

So what’s Additional Rent for?  Well, if it’s a triple net lease, the tenant is paying its proportionate share of real estate taxes, insurance and operating expenses for the property. (Check the glossary for more information about “nets”). There could be other non-net and non-rent items that are included as Additional Rent, such as utilities or parking fees. And that’s just one example for two different commercial real estate lease terms! 

It’s not enough to do a quick online search for a specific commercial lease term, and it’s a bad idea to sign a form without being completely certain about what every word means and the effect it will have on the business. Understanding the lease terms is not enough; the consequences of the commercial real estate lease must be understood in context!

I hope this information has been helpful.  I’m Jenna Zebrowski, and I’m a real estate lease lawyer, but I’m not your lawyer yet.  This information is provided not as specific counsel, but as general information to help you make an informed decision about your commercial lease.  Remember, hiring a lease lawyer in often much cheaper than getting in a bad business situation.  Give me a call if I can help (817) 841-5762.

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