Commercial Leasing Glossary

A

Absolute Net Lease

A lease agreement in which the tenant is responsible for all property expenses, including rent, taxes, insurance, maintenance, and major structural repairs. The tenant assumes nearly all financial risk associated with the property.

Anchor Tenant

A major retail tenant, typically a large department store or supermarket, that attracts customers to a shopping center and generates foot traffic for smaller tenants. Anchor tenants often negotiate favorable lease terms due to their drawing power.

B

Base Rent

The minimum fixed amount of rent a tenant pays under a commercial lease, excluding additional charges such as property taxes, insurance, utilities, or common area maintenance fees.

Base Year

The year used as a benchmark for calculating increases in operating expenses passed on to tenants. Expenses above the base year amount are typically the tenant's responsibility.

Build-Out

The construction or renovation work required to prepare a commercial space for a tenant's specific use. Build-out may include installing walls, flooring, electrical systems, plumbing, and fixtures.

C

CAM (Common Area Maintenance)

Fees charged to tenants to cover the costs of maintaining shared spaces in a commercial property, such as lobbies, parking lots, landscaping, elevators, and restrooms. CAM charges are typically calculated based on the tenant's proportionate share of the total leasable space.

Certificate of Occupancy (CO)

A document issued by a local government agency certifying that a building complies with building codes and is safe for occupancy. A CO is typically required before a tenant can legally operate a business in a leased space.

Commencement Date

The official start date of a lease term, when the tenant's rights and obligations under the lease agreement begin. This may differ from the date the tenant takes physical possession of the space.

Common Area

Portions of a building or property shared by all tenants and visitors, including hallways, lobbies, restrooms, parking areas, and landscaped grounds. Maintenance of common areas is typically covered by CAM fees.

D

Double Net Lease (NN)

A lease agreement in which the tenant pays base rent plus two additional expenses, typically property taxes and insurance. The landlord remains responsible for structural repairs and common area maintenance.

E

Escalation Clause

A provision in a lease that allows for periodic rent increases during the lease term. Escalations may be tied to a fixed percentage, the Consumer Price Index (CPI), or changes in operating expenses.

Exclusive Use Clause

A lease provision that prohibits the landlord from leasing space in the same property to competing businesses. This protects the tenant's market share within the building or shopping center.

F

Free Rent

A period at the beginning of a lease during which the tenant is not required to pay rent. Free rent is often offered as a concession to attract tenants or offset the cost of build-out.

Full-Service Lease (Gross Lease)

A lease in which the landlord pays all operating expenses, including property taxes, insurance, utilities, maintenance, and repairs. The tenant pays a single, all-inclusive rent amount.

G

Gross Lease

A lease agreement in which the tenant pays a fixed rent amount, and the landlord is responsible for all property operating expenses. Also known as a full-service lease.

I

Improvements

Any additions or modifications made to a leased space, including construction, renovations, or installation of fixtures. Improvements may be made by either the landlord or tenant, depending on the lease terms.

L

Landlord

The owner of a property who grants the right to use and occupy the space to a tenant in exchange for rent. Also referred to as a lessor.

Lease Term

The length of time a lease agreement is in effect, typically expressed in months or years. Commercial leases commonly range from 3 to 10 years.

Lessee

The party who leases property from the owner; the tenant.

Lessor

The party who owns the property and grants the lease; the landlord.

Letter of Intent (LOI)

A preliminary document outlining the basic terms and conditions of a proposed lease before a formal lease agreement is drafted. An LOI is typically non-binding but demonstrates serious interest from both parties.

Load Factor

A percentage added to a tenant's usable square footage to account for their share of common areas. The load factor converts usable square feet to rentable square feet.

M

Modified Gross Lease

A lease that combines elements of both gross and net leases. The tenant and landlord negotiate which operating expenses each party will be responsible for paying.

N

Net Lease

A lease in which the tenant pays base rent plus some or all property operating expenses, such as taxes, insurance, and maintenance. Net leases shift more financial responsibility to the tenant.

NNN (Triple Net Lease)

A lease agreement in which the tenant pays base rent plus all three major operating expenses: property taxes, insurance, and maintenance (including CAM). The landlord's only responsibility is typically structural repairs.

O

Operating Expenses

The costs associated with running and maintaining a commercial property, including property taxes, insurance, utilities, janitorial services, landscaping, security, and repairs.

Option to Renew

A clause giving the tenant the right, but not the obligation, to extend the lease for an additional term under specified conditions. Renewal options provide tenants with long-term security.

P

Percentage Lease

A lease in which the tenant pays a base rent plus a percentage of gross sales revenue above a specified threshold. This type of lease is common in retail properties.

Pro Rata Share

The proportionate amount of operating expenses a tenant pays based on the size of their leased space relative to the total leasable area of the building.

R

Rentable Square Feet (RSF)

The total square footage a tenant pays rent on, which includes both the usable space and a proportionate share of common areas. RSF is always larger than usable square feet.

Right of First Refusal

A lease provision giving a tenant the first opportunity to lease additional space in the building before the landlord offers it to other prospective tenants.

S

Security Deposit

A sum of money paid by the tenant to the landlord at the start of the lease to cover potential damages or unpaid rent. The deposit is typically returned at the end of the lease, minus any deductions for repairs or outstanding balances.

Single Net Lease (N)

A lease in which the tenant pays base rent plus property taxes. The landlord remains responsible for insurance, maintenance, and repairs.

Sublease

An arrangement in which a tenant rents all or part of their leased space to another party (subtenant) while remaining responsible for the original lease obligations to the landlord.

T

Tenant

The party who leases and occupies a property owned by another party (the landlord). Also referred to as a lessee.

Tenant Improvement Allowance (TIA)

Money provided by the landlord to the tenant to cover the cost of customizing or building out the leased space. The allowance is typically expressed as a dollar amount per square foot.

Triple Net Lease (NNN)

A lease agreement in which the tenant pays base rent plus property taxes, insurance, and maintenance costs. This is one of the most common commercial lease structures.

Turnkey

A space that is fully built out and ready for immediate occupancy. A turnkey space requires no additional construction or renovation by the tenant.

U

Usable Square Feet (USF)

The actual square footage within a tenant's leased space that can be used exclusively by the tenant. USF does not include common areas such as hallways, lobbies, or restrooms.

Z

Zoning

Local government regulations that control how properties in specific areas can be used. Zoning laws determine whether a property can be used for commercial, residential, industrial, or mixed purposes, and may restrict certain types of businesses.