You can't be certain that you're getting a fair deal on a lease for new commercial office space if you don't fully understand the terminology used in the document. Familiarizing yourself with the following often-confusing terms can help you interpret what you're reading and feel confident when you add your signature to the contract.
1. Holdover Rent
Some leases feature a holdover clause, which is designed to protect landlords from tenants failing to provide notice that they intend to move at the ends of their leases. With a holdover clause, if you fail to provide notice and your lease expires, your landlord can assess you 125 to 200 percent of your monthly rent. The amount due is known as holdover rent. If your lease does have a holdover clause, you can easily avoid the costly fee by making your intentions to move at the end of your lease known in advance.
2. Rentable Square Feet
Rentable square feet is different from the usable square feet, which tells you how much space you will actually occupy in a building. The rentable square footage includes a portion of all of the shared space in the building, which you are required to maintain. When comparing rent costs, be sure to take how much usable square footage you're receiving versus the rentable square footage.
3. Base Year Escalations
Base year escalations refer to increases in operating costs. As an example, let's say your gross rent is $25 per square foot plus $15 per square foot for base rent and $10 per square foot for operating expenses. You sign the lease in 2017, making this year your base year. If the operating expenses increase in 2018 or 2019, you will need to pay the difference between your base year and the increased costs. Unfortunately, you cannot predict how much base year escalations will be.
Most industry experts recommend estimating 2 to 3 percent. Requesting a history of the building expenses before you sign the lease can give you an idea of what base year escalations you might expect.
4. Tenant Electric
Unlike utilities in residential settings, the term utilities in commercial real estate include heating, air and general electricity. Lighting and the plugs in your office space are considered tenant electric. Keep in mind that you'll be responsible for paying both fees on a monthly basis, not just the tenant electric.
Janitorial services are cleaning services that are provided by the landlord and included in your monthly rent. If your lease includes janitorial services, it's important to find out what cost is being added to your rent to cover it, what is included with the janitorial services and how often you will receive service. You don't want to end up paying for a second service to come in and clean or to assign your work team to do housekeeping tasks that you are paying for under your lease.
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