Sep 08, 2015

Five (More) Must Know Commercial Real Estate Terms

By Don Catalano



Not too long ago, we shared 10 Must-Know Commercial Real Estate Terms with you. For better or for worse, our industry has its own unique language, so we are sharing five more important pieces of CRE jargon with you. Here they are.


The Building Owners and Managers' Association is a trade group made up of commercial real estate owners, professionals and service providers. As a tenant or user, though, when you see the acronym BOMA, what it is usually referring to is a set of rules (written by BOMA) that define how spaces are measured. BOMA specifications are lengthy and complicated, but the specific version of their rules that your landlord changes could easily impact your spaces' sizes -- and your occupancy costs -- by a few percentage points.


2. Effective Date

In a way, your lease doesn't start when you sign it. It also doesn't start when you move in. Instead, your lease's "official" start date is the effective date. The effective date is usually the basis from which every other milestone -- like rent increases, CAM adjustments, and option and termination dates -- gets calculated. While it's important to know every date in every one of your commercial real estate leases, the effective date is usually the most important one.


3. Expense Stop

While you pay all of your own expenses in a triple net lease and your landlord pays all of the min a full service gross lease, some leases exist in an in-between place. Sometimes, you will be offered a full service or gross lease with an expense stop. The expense stop represents how much your landlord will pay in expenses for you. So, for instance, if your rent is $45.00 per square foot with a $12 expense stop, and the building's actual expenses are $11.50 per square foot, you would just pay the $45. If, however, the expenses are $13.25, you would have to pay $46.25. That amount represents the $45 in rent and the additional $1.25 in expenses over the expense stop.


Some leases don't specify a specific amount as an expense stop. Instead, they say that whatever the owner spends in specific year, called a base year, is what the owner will pay for you moving forward. Base year expense stops are common in some parts of the country.


4. Lease Buyout

While most commercial real estate leases are written to be long-term commitments, you might have a way to get out of the lease early. Read your documents carefully looking for a "lease buyout" clause. This language will specify how to calculate what you have to pay your landlord to get the right to move out early. Of course, even if you don't have the language in your lease, you still might be able to negotiate a lease buyout if your landlord is willing.


5. Request for Proposal

One of the first steps in finding new space to lease is to sit down with your commercial real estate broker and figure out both what you need and what you want in a space. As you find spaces that you think might suit your needs, you can submit those wants and needs in a request for proposal (frequently referred to by its initials -- RFP) document. That RFP lets the landlord know what your general needs are so that they can then begin negotiating with you.


Other great Commercial Real Estate articles:

The Future of Office Space

A Tenant's Guide to Office Lease Terms

9 Must-Haves for Commercial Real Estate Office Space


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Don Catalano

Don Catalano