Lease Terms You Should Know

Commercial leases can be complicated and full of legalese. A tenant rep broker can offer guidance, but it is always helpful to have a basic understanding of some common lease terms.

Lessor: The person/company granting the lease and assuming legal responsibility for the property. It is usually the building owner or a leasing management company. May also be referred to as the Landlord.

Lessee: The person/company leasing the space. May also be referred to as the Tenant.

Lease Term: The length (in years and months) of your lease.

Lease Commencement Date: This is the date your lease begins and you can occupy the space.

Rent Commencement Date: This is the date your rent starts. This will most likely be the same as your Lease Commencement Date unless you have negotiated free rent.

Base Rent: The agreed upon rental rate for the entire Lease Term. Will also show escalations if applicable. Renewal rental rates may also appear here.

Renewal Option: Rights that the Lessee has that will extend the term of the lease when it expires. In some cases there may be multiple options. Rates may have already been negotiated before the initial Lease Term or they may be determined by current market rates at the time of lease renewal.

Early Termination: The right of Lessee to vacate the premises before the end of their Lease Term. Most often there will be a monetary penalty for this.

Security Deposit: The amount of money the Lessor requires when you sign the lease. Is typically one month’s rent—but is ultimately determined by the Lessor.

Subletting: The right to sublease all or a portion of your space during your Lease Term. The Landlord typically needs to be notified of your intent and will need to approve the them. Also known as the subtenant.

Tenant Improvement Allowance: The amount of money the Lessor agrees to contribute to the construction/improvement of your space. This could be as simple as paint and carpet or as extensive as building out walls or upgrading tech.

Common Area Maintenance: The cost for maintaining building areas that are shared by all tenants. It can include lobbies, elevators, restrooms, landscaping, etc. It is a cost per square foot expense so Lessee’s pay a proportionate share.

Holding Over: If you don’t leave at the end of your Lease Term, the Lessor will begin charging inflated lease rates. It is typical for it to be 1.5 times your old lease rate.

Substitute Premises: This means the Lessor has the right to move you to a similar space within the building if they have another use for your current space. This could happen if they have a tenant that wants to expand into your space. The landlord would typically absorb the costs to do this.

Brian Smith, CCIM, owns Regent Commercial Real Estate and represents tenants in the Charlotte area.