Looking for office space but not sure about all of the commercial real estate jargon? We've compiled a list of commonly used terms to help you understand the office lease lingo.
Amenities: Features of a building that are intended to increase its attractiveness and the building experience for tenants. This can be things like on site or underground parking, fitness facilities, on site fitness trainers and locker facilities, conference facilities, pedway/+15 connectivity, golf simulators, dog friendly spaces, well-appointed lobbies, WI-FI, concierge service, bike storage and support facilities, and much more. Amenities can also mean other tenants that provide service to the building (i.e.: coffee shop, restaurant, massage/chiropractic clinic, etc.), or services in the surrounding area directly adjacent to the building (i.e.: hotels, entertainment venues, shopping, bike lanes, transit services, etc.).
Asking Rent: The amount listed by landlords for available space, expressed in dollars per square foot per annum. The asking rent is in addition to operating costs and taxes. Higher class, highly amenitized spaces will typically quote a higher asking rent than lower class, lower amenitized spaces. Also known as Net Rent, or Face Rates.
Broker: A person or persons who represents a prospective tenant during the leasing, buying, or selling process of a real estate transaction. Brokers must have a license to trade in real estate and have a legal (also known as “fiduciary”) responsibility to always protect the best interests of their clients. Brokers also exist in many other industries (i.e., insurance, mortgages, securities/stocks, etc.)
Build Outs: Construction/improvements completed to the premises to make it functional for tenant’s use of the space. This may include the following: adding a few offices to suit the tenants requirements, upgrading old improvements (meeting rooms, kitchens, etc.), or building out a space from a shell condition. Also called ‘fit up’, fixturing, or any variation of construction.
Fixturing Period: A fixturing period is a period of designated time prior to the rent commencement date of the lease during which the tenant may have use of the premises for the purpose of improving the premises so that it is ready for the tenant's use.
Gross Rent: Net Rent + Operating Costs. Monthly rent is calculated using the following formula: Gross Rent x Rentable Square Feet / 12 (as rental figures are expressed on a per annum basis).
For illustrative purposes, if you are leasing a 2,500 RSF space at a Net Rate of $20.00 per RSF with Operating Costs of $19.42 RSF, your monthly rent would be as follows:
$20.00 (Net Rate) + $19.42 (Operating Costs) = $39.42 (Gross Rent).
$39.42 x 2,500 (Rentable Square Feet) = $98,550 (annual rent)
$98,550 / 12 months = $8,212.50 per month + applicable taxes
Gross Free Rent: A period of time where the tenant has access to the premises but is not obligated to pay for Basic Rent and Operating Costs. By way of example, a Gross Free Rent period can be provided before the start of the term where the tenant has access to the premises, rent free, before they start paying rent. This is dependent on term and size of the tenant and can vary. Gross Free Rent may also be provided throughout the Term, where the tenant would get a break in rent. By way of example, the tenant can be provided with the first month of every year of term free of basic rent and occupancy costs.
HVAC: Heating, Ventilation and Air Conditioning
Leasehold Improvement Allowance (LIA): A cash amount offered by a landlord to help cover costs incurred by the tenant for improvements to a leased space. It is usually represented by a dollar amount per square foot of rentable area. Also known as a tenant inducement or tenant improvement allowance.
Letter of Intent (LOI): This is a non-binding, written agreement that expresses the tenant’s commitment to rent the space. Within the LOI, the landlord and the tenant will determine the specific terms/rates/and other material items to note, which will then be incorporated into a binding lease signed by both parties.
Net Free Rent: A period of time where the tenant has access to the premises but is not obligated to pay for Basic Rent but is obligated to pay Operating Costs.
Offer to Lease: Written document that solidifies the tenant’s commitment to rent the space, and at what rates (and specific terms/other material items relevant to the transaction), prior to the actual signing of the lease. The Offer to Lease is a binding agreement upon the landlord and tenant to enter into a lease reflective of the terms and conditions in the Offer to Lease. Both the landlord and tenant will sign the Offer to Lease.
Operating Costs: Costs of maintaining and managing a property. Examples include property taxes, maintenance, utilities, landscaping, waste removal, janitorial (sometimes referred to as CAM “common area maintenance” costs). This is also expressed in dollars per square foot per year and applies to all tenants in the building.
Property Manager: An individual who oversees all operational aspects of a building. Once a tenant signs a lease, it is the property management team who will assist the tenant with any questions, the build-out of the space, and any further assistance needed once they have moved in.
Rentable Square Feet (RSF): The Useable Square Feet of the space the tenant is leasing plus a portion of the buildings common area. Common areas are those areas used by all tenants and include, but are not limited to, hallways, lobbies, and amenities. The tenant pays rent on the rentable area and not the useable area.
Request for Proposal: Is an open request for a landlord to provide deal terms to the tenant along with any other information that is important to the tenant. This is a non-binding document. Typically, brokers will send this to a list of landlords to gather information on what option will best suit their tenant; after the tenant determines what option they want to proceed with, either a LOI or Offer to Lease will be prepared.
Space Plan: A preliminary layout done by a certified designer to determine whether or not a specific premises can accommodate the tenant’s requirements. The designer will take into account the number of staff, the preferred ratio of offices to open area, if a reception area for visitors is required, the number of meeting rooms, they may include furniture the tenant may already own, and take into account any future growth plans. These are typically completed either before or during the offer process. Note these are not the final construction plans or drawings. Also known as a test fit, or preliminary design.
Show Suite: A fully constructed, move in ready space that the landlord designs and completes with the intention of leasing to a tenant. These are ideal for tenants that require immediate possession and do not have time to build on their own, those who require flexibility on term, or for tenant’s that simply do not want to manage a construction project. Some show suites allow tenants to make slight changes, whether that’s to paint colors or adding/removing offices, but the idea is generally that a tenant leases it “as is”.
Tenant Representation: When a broker represents a tenant in a lease transaction between a tenant and landlord.
Term: The length of time that a tenant agrees to lease space from a landlord. A term can range from 1 to 15 years, with the average term falling within 5 years.
Turnkey: The landlord delivers the keys for a completed premises to the tenant when the construction of both the base building and the tenant specific improvements are complete. This process is beneficial to a tenant that does not want to oversee or manage their Build Out, but still have say over the design and finishes used. The landlord manages the construction on the tenant’s behalf and provides a fully constructed and “move in ready” space for the tenant. Also known as Landlord Construction.
Useable Square Feet: The actual area of your space as measured within the demising walls of your suite.
Vacancy Rate: A vacancy rate represents how much of the building is currently vacant in the form of a percentage. This is calculated by dividing the actual amount of vacant space in square footage by the total net rentable area of the building.
By way of example, if a 450,000 square foot building has 65,000 square feet of vacancy, the Vacancy Rate is 65,000/450,000 = 14%.
White-boxed Space: a space with a minimally finished interior. Usually it contains ceilings, lighting, plumbing, heating and cooling (HVAC), electrical outlets along the exterior, elevators, rest rooms, and a concrete floor. A whitebox is considered ready to lease for the tenant to install their own improvements including walls, carpets, tiling, cabling etc.