Understanding the language can be very useful when it comes to leasing industrial real estate. If you’re in need of commercial or industrial space, use this cheat sheet to common terminology.
Lease Rate This is the annual cost per square foot of an industrial or commercial location. Let’s say the lease rate is quoted as $4 per square foot. If the warehouse size if 12,000 square feet, then the rate is $48,000 per year. Divide that by 12 for a monthly rate of $4,000.
Triple Net Lease We cover this one in detail here, but to summarize, it’s the lease rate quoted net of taxes, insurance and operating costs. It can also be described as additional rent. Working from our $4,000 example above, you’d be paying additional costs in addition to the lease rate to cover net charges. A tenant can actually benefit from a triple net lease if the landlord is able to reduce operating costs during the year. Savings should be passed along in that scenario.
Base Rent This is the minimum rent of the lease rate and net of tenant improvements.
Gross Lease A gross lease has net charges built into the monthly lease rate for a flat sum of agreed-upon charges.
Utility Costs This is a lease standard mandating that a tenant must pay utility costs directly to the provider. It’s a separate cost from operating expenses and triple net fees.
Lease Term This is the length of time in which a tenant is legally bound to pay rent to the landlord. Many landlords prefer longer lease terms, which gives tenants more negotiating power.
Lease Agreement This is the legally-binding contract between a landlord and tenant.
Operating Costs These are the costs associated with running commercial or industrial property. Expanses can include:
Real property taxes
Property insurance
Landscaping
Snowplowing
Mechanical & electrical system maintenance
Building maintenance
Tenant Improvements These are enhancements made to a space that are specific to a tenant’s use. These improvements may or may not be included in the agreement. In most instances, costs for these improvements are incorporated into the monthly lease reate.
Pro-Rata Share This refers to the proportionate share of the facility that a tenant occupies and the subsequent share of operating expenses.
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