Talking the Talk
Have you ever noticed that different professions have their own languages? I don’t speak medical very well. I speak marginal education, and I don’t speak mechanical at all. A lot of folks around here speak fluent insurance; I’m not one of them.
We have an exchange student living with us right now, and I’ve noticed the glazed look I get when I rattle something off too quickly. I sometimes have to stop and back up when I notice the same glazed look in people when I launch into fluent real estate.
Nothing takes the place of using the right professional help, but sometimes it’s nice to know some basic phrases, sort of like knowing basic Spanish for travelers.
Words like “Landlord” and “Tenant” are somewhat like knowing “hola” or “adios,” but here are a few other phrases you might hear thrown around with regard to leasing commercial space:
Gross or Modified Gross: Defines whether the Landlord or Tenant pays for different operating costs such as property taxes, insurance, maintenance, etc. The language is regional, and varies from market to market.
Full Gross or Full Service: Indicates that all operating costs, including utilities, are included in the rental rate.
Net or NNN or Triple Net: Indicates that the Tenant is responsible for its share of operating costs, including property taxes, property insurance and maintenance. It’s important to identify whether a rental rate is being quoted on a net or gross basis.
Common Area Maintenance (CAM): The amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property. Examples include snow removal, lawn, landscaping, outdoor lighting, maintenance, insurance, property taxes, etc. Administrative fees, management fees and salaries may also be included, but capital improvements typically are not.
Letter of Intent (LOI): A written document that sets forth the terms under which the Landlord and Tenant agree to lease the space.
Turn-Key: A building that is ready to occupy. The Tenant can literally “turn the key,” open the door and start moving in.
Build Out: The construction or improvements of the interior of a space, including floors walls, ceiling, plumbing, electrical, etc.
Tenant Improvements (TI): Changes or alterations made to the property to customize the space to suit a tenant’s needs. May include walls, flooring, ceilings, painting, and more. Tenant improvements should be negotiated before a lease is signed. The Landlord’s contribution to TI is called a Tenant Improvement Allowance (TIA).
Options or Option Renewal Period: Typically the Tenant’s option to stay and continue renting for an additional term once the lease expires, as long as they are not in default of the lease. The terms are often pre-negotiated.
This is not an extensive glossary, but hopefully it helps you understand some of the more common terms. Definitions vary from market to market, so be sure to contact a commercial broker who understands the local market.