Top 10 commercial real estate terms you must know


Knowing the jargon of any segment is essential to smooth sailing in that business. Commercial real estate is no different. Here are the ten terms you are most likely to hear and use while doing business in the commercial real estate space.

There are a lot of terms and jargons that are specific to any industry or sector and so is the case with real estate. There are a number of jargons in the commercial real estate segment as well that you must know, especially if you are planning to take up a commercial space on rent for yourself. We take a look at the most common commercial real estate jargons.

 

1. Incidental expenses

When you take a commercial space on rent, there are a lot of expenses that are over and above the base rent of the space like insurance, property tax, utilities, maintenance, common area costs and sometimes even repairs. These are called incidental expenses.

 

2. Gross rent lease

Gross rent lease is the simplest form of commercial real estate lease in which you pay only one amount towards rent and all incidental expenses of the property. It is usually paid every month. However, it can also be paid on a bi-monthly basis if the landlord so agrees.

 

3. Modified gross lease

A modified gross lease is one when you and your landlord agree to share some of the incidental expenses. The landlord can pay part of the property tax or insurance or even maintenance. It has to be decided by you and the landlord beforehand as to which charges will be shared.

 

4. Double net lease

A double net lease is one where you pay the base rent and any two incidental expenses. It can be property tax and insurance or it can be utilities or insurance or any such combination. The landlord will pay all other incidental expenses.

See also: Top 5 mistakes to avoid when investing in commercial real estate

 

5. Triple net lease

A triple net lease is one where you pay the base rent and any of the base rent and almost all the incidental expenses like maintenance, property tax, insurance, etc. The landlord pays nothing except for the time-to-time repairs.

 

6. Percentage rent lease

A percentage rent lease is a type of lease agreement in which you will have to pay the base rent and a percentage of the gross sales over a certain minimum. The percentage and the minimum sales are decided before taking the premises on rent. This type of lease agreement is there in the retail industry where you occupy mall space.

 

7. Tenant inducement

There can be a number of sops or inducements that can be offered by the landlord to you for taking up his/her space on rent. These sops can be a few months of a rent-free period in the lease agreement or paying for renovation or maintenance by the landlord. These sops are called tenant inducements.

 

8. Trade fixtures

Trade fixtures are the items in the leased space that you can take with you when you vacate the rented space. These can be computers or furniture or any other equipment that can be removed, without damaging the property. It is in your best interest to clearly define the trade fixtures before signing the lease agreement, even if you have to hire a lawyer for the purpose.

 

9. Turnkey improvements

Turnkey improvements are the changes that the landlord makes to the premises including the renovations before you rent the space. This is usually done to attract tenants.

 

10. Leasehold improvement

These are the changes or renovations that are made to the rented premises in order to make the premises suitable for your operations. These are usually made by the landlord and become part of the property and cannot be taken by you when you vacate the space. However, there are times when you are allowed to take it with you when you move. There should be absolute clarity on the subject between you and the landlord before the lease deed is signed.

 

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