3 Terms You Should Know Before Signing a CRE Lease
How to negotiate the terms of your commercial lease agreement.
2.7 min read
Whether you are a seasoned commercial real estate investor or are just starting out, having a thorough understanding of a commercial lease agreement can be difficult when you are unaware of the terminology being used. Although it is required for your lease to be reviewed by a commercial real estate lawyer, you need to know the common language before you sign the contract.
Here are three terms you should know when negotiating a commercial lease agreement.
Incidental Expenses
An incidental expense is considered to be your costs on top of the base rent. These can include property tax, insurance, utilities, maintenance, standard area costs and repairs.
Common area maintenance can also be considered an incidental expense in some commercial real estate leases. It is common for all tenants to generally share typical area costs, including fees for snow removal, janitorial services, landscaping, grass cutting and property management.
Leasehold or Tenant Improvements
A leasehold improvement, otherwise known as a tenant improvement, considers renovations that need to be done to a leased commercial real estate space to make it suitable for a business. Unless otherwise specified in the lease, any improvement that you make to a leased property usually becomes the landlord's property. This means that you cannot take it with you when you move out, including machinery, flooring and built-in shelving. Keep this in mind when making any significant changes to your leased space. To avoid any discrepancies when you set up shop, it is vital to get advice from a commercial real estate lawyer during the negotiation phase to seek exclusions for assets that you want to take with you when you leave.
Tenant Inducements
Tenant inducements are incentives that a landlord offers to encourage you to rent a space. Examples can include anything from paying the first several months of your rent to helping with paying for any leasehold improvements. This type of incentive is beneficial in a commercial lease agreement because it shows a level of diplomacy from the landlord.
Understanding the above terms will help you negotiate your subsequent commercial lease agreement effectively.
Reference
13 commercial leasing terms you need to know. BDC.ca. (2020, September 12). https://www.bdc.ca/en/articles-tools/money-finance/buy-lease-commercial-real-estate/13-terms-you-need-to-understand-before-signing-your-commercial-real-estate-lease.
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