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Nov 06

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Austin Commercial Real Estate lease terms

The following are common lease terms and their meanings as used by Austin Landlords and Tenants when negotiating Commercial Real Estate leases.

Square feet (SF) – Area calculation established by multiplying length times width.

Useable SF, Useable area, Net leasable, Net rentable – Total SF of area within the walls of the lease space, the occupied area.

Rentable area, Rentable square feet, Gross leasable, Total rentable area – Total SF of area within the walls of the lease space plus an apportionment for the common areas of the building.

Rent – The dollar amount paid by the Tenant to the Landlord for the use of defined building space.

Utilities – Water, sewer and electricity.  In Full Service leases all utilities are paid by the Landlord.  Tenant may pay their electrical, water and sewer directly if the property has separate meters.  Telephone and internet services are typically paid by the tenant.

Common area – Area of property that is available for use by all tenants such as corridors, lobbies, stairways, restrooms, and elevators.

Common Area Maintenance (CAM) charges, expenses – A proportionate cost charged by Landlord to Tenant for maintaining  Common areas and the Utility costs for these areas.  These expenses are typically paid by the Tenant based upon the Tenant’s proportional Rentable SF as calculated as a percentage of the total building area.

Operating expenses – Includes Taxes, Insurance, CAM expenses and CAM utility expenses.  In Full Service leases operating expenses are paid by the Landlord, in Net leases some or all Operating expenses are paid by Tenant.

Property tax, Real estate tax, Ad valorem tax, tax – A government levy based upon the market value of privately owned property.  Typically when referred to in a lease this does not include the tax for tenant’s personal property or contents of the lease space.  A Net lease expense.

Property insurance, Insurance – Insurance carried by the Landlord for the commercial property being leased.  Typically when referred to in a lease this does not include tenant’s personal property or contents of the lease space.  A Net lease expense.

Janitorial service – Cleaning services typically paid by Tenant for cleaning their lease space.

Landlord, Lessor, Owner – A property owner who surrenders the right to use property to a Tenant for a specific time in exchange for the receipt of Rent.

Tenant, Lessee – An entity that is given possession of real estate for a fixed period of time in exchange for the payment of Rent.

Lease rate noted as $/SF – Cost of rent calculated by multiplying a lease rate times the Rentable SF to total an annual amount of Rent to be paid.  For example:  1,000 Rentable SF leased for $10/SF = $10,000 per year.  Divide this annual amount by 12 months to calculate the monthly rent amount.  In this instance $10,000 /12 months = $833.33 in rent per month.  Industrial lease space is sometimes quoted as $/SF/month.

Full service lease, Absolute gross lease, Gross lease – Landlord pays and is responsible for all Operating expenses, Utilities, Taxes and Insurance.  Tenant is responsible for and pays only a monthly rental amount to the Landlord.  Landlord is at risk for cost increases to these items.

Net lease – Tenant pays a rental amount that is net of (does not include) some or all of the Operating expenses.  These Operating expenses are reimbursed by the Tenant to the Landlord as an amount separate and in addition to the Rent.  Net leases include Triple Net, Double Net, and Single Net leases.  Tenant may be subject to cost increases for these expenses over the life of the lease.

Triple Net (NNN) lease – Tenant pays for their Rent plus a proportionate share of Taxes, Insurance, and CAM expenses.

Double Net (NN) lease – Tenant pays for their Rent plus a proportionate share of Taxes and Insurance.

Single Net (N), Net lease – Tenant pays for their Rent plus a proportionate share of CAM expenses.

Proportionate share – Tenant’s Rentable area divided by the building’s total SF.  Used when paying for Net leases.

Tenant Improvements (TI) – Revisions to the Tenant’s Rentable area in order to prepare it for occupation by the Tenant.  Sometimes paid by Landlord and financed via the lease amount OR can be paid directly by Tenant OR a combination of both.

Build-out allowance, Construction allowance – Refers to the dollar amount that a Landlord agrees to pay for improvements to the Tenant’s Rentable area.

Leasing agent– Real estate agent that represents the Landlord in a commercial real estate lease transaction.

Tenant representative “rep” – Real estate agent that represents the Tenant in a commercial real estate lease transaction.

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