Certain entrepreneurs are fortunate enough to work from home. However, many businesses need a commercial space to operate out of. This is where commercial leases come into play. A commercial lease is what enables businesses to obtain a commercial space. Unfortunately, commercial leases are one of those documents that are often strewn with legal jargon. This week, we are outlining the terms you need to know in commercial leases.
The types of people involved often have special legal names in the lease. The beginning of the lease defines who is who, then refers to them by the legal term for the duration of the document.
The lessor is the person who is granting the lease, in other words, the landlord. Sometimes, the landlord is the person who actually owns the property that they are leasing. More commonly, the lessor is a property management or commercial leasing company.
We more commonly call the lessee the tenant. The lessee is the business that is occupying the commercial space. The owner or owners of the business are not responsible as individuals for the lease. The LLC or corporation is the entity with the lessee label.
Types Of Leases
While a commercial lease is already a specific category of lease, there are many other sub-categories of commercial leases.
Single Net Lease or Net Lease
In this type of lease, the tenant only pays rent, utilities, and property tax. Meanwhile, the landlord is responsible for and maintenance or repairs, as well insurance.
Net-Net Lease or Double Net Lease
The only difference between a single net and double net lease is the tenant assumes responsibilities for the insurance. The landlord is still responsible for maintenance and repairs to the building.
Triple Net Lease
In triple net leases, the tenant assumes responsibilities for all costs. The landlord might be on the hook for structural repairs to the building
Full Service Gross Lease or Modified Gross Lease or Modified Net Lease
For full service gross leases, the tenant and landlord split the operating costs and structural repairs. Usually these types of leases are more detailed and outline how much each party must contribute to each kind of expense.
In addition to the types of lease and the entities on leases, there are many more miscellaneous terms to know.
Common Area Maintenance (CAM)
CAM charges are a part of a leases that many tenants do not understand. Common Area Maintenance refers to maintenance in areas of the building not underlease to one specific tenant, but which everyone uses. For example, halls, stairways, elevators, and lobbies. Landlords often calculate these charges with a formula using square footage of the lease space.
If a listing describes a space as turn-key, that means that it is effectively ready to move into. The tenant still needs to outfit the space to their specific needs, but otherwise, it is ready to go.
HVAC, which commercial agents pronounce “H-vac”, is an abbreviation for “heating, ventilating, and air conditioning”. Leases sometimes refer to HVAC utilities, maintenance, and repairs. HVAC is especially important in the state of Florida, where no air conditioning means no customers.
Force Majeure Clause
The force majeure clause is something that many tenants and landlords found out about thanks to the current pandemic. A force majeure clause makes neither party responsible for the contractual obligations in the case of extraordinary circumstances. Those circumstances include conditions such as war, riots, or a global pandemic.