Common Lease Business Terms

Posted by: Alan Bernier

Term sheets are used to establish the basic business terms of a commercial lease. It's common practice to establish the business terms prior to negotiating a commercial lease (which is a legally binding document).

Following are the common business terms addressed in a term sheet:

PREMISES:     This typically defines the location, size and address of the space you are leasing

TERM:     This defines the length of the lease and the approximate date that the lease commences

RENTAL RATE:     Defines the initial lease rate and any increases (typically annual). This is also the place to define the type of rent (fully serviced, industrial gross, triple net).

TENANT
IMPROVEMENTS:     This term establishes how the space will be delivered, who will perform the work (if any) and the amount it will cost.  Several factors influence this term: the condition of the space, the desired improvements, the length of term, the lease rate, the business's credit and the overall market conditions.

RIGHT TO TERMINATE:     Depending on the length of the lease term a landlord may consider an early termination.  
However an early termination usually involves a fee paid by the tenant equal to unamortized costs and some number of months penalty.  For a growing business having this flexibility is often worth the termination fee.
 

OPERATING EXPENSES:     This term addresses operating expenses associated with the building.  Tenants are typically responsible for their percentage share and the annual increases. This term will vary based on the type of lease (i.e. fully serviced, triple net, industrial gross.

SECURITY DEPOSIT:     Security deposit is a function of the market, the transaction costs (i.e. tenant improvements) and   the tenant's financials. 

RENEWAL OPTION:    Sets the terms for a lease renewal at the end of the lease term. 

RIGHT OF 
FIRST OFFER:    This a favorable to a tenant and often wanted by a growing business to ensure expansion options in the future.  This term dictates that a landlord has to approach you first to make an offer on new availabilities (usually adjacent to your premises).
   
SIGNAGE:     Establishes the kind of signage you get (lobby, directory, monument, building, etc) as a tenant and who pays for it.  Larger tenants usually have more signage opportunities.

PARKING:     If any, this term establishes the amount of parking you are entitled to and how much it costs. Parking agreements are usually separate from the lease agreement.

ACCESS:     Determines the amount of access you have to the building and your space. It should always be 24/7.

SECURITY:  Defines any building security (alarms, card key access, security personnel).
 

Last updated: 10.20.2008 02:59 PM