Glossary of Commercial Lease Terms

Load Factor: in a lease, the load factor is the multiplier to a tenant's useable space that determines the tenant's proportionate share of the common area (restrooms, lobby, mechanical rooms, etc.). The load factor is usually expressed as a percentage and ranges from a low of 5% for a full floor tenant to as high as 20% for a multi-tenant floor.

Net Rentable Area: this is the area (square footage) for which rent can be charged. Generally, it is the gross area of a full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts, etc.) Net rentable area can be measured in many ways, but the most common measurement for office buildings is the BOMA standard which includes the tenant's premises plus an allocation of the common area directly benefiting the tenant, such as restrooms, common corridors, mechanical and storage rooms, and the elevator lobby on the tenant's floor.

Occupancy Cost: any cost or charge incurred by a tenant as set forth in the lease, such as rent, operating expense increases, parking charges, moving expenses, and renovation costs.

Occupancy Date: unless specifically stated otherwise in the lease, it is the date on which the tenant takes possession of its leased premises.

Operating Expenses: the cost of operating an office building, such as janitorial, management fees, utilities, and other day to day expenses, including taxes, insurance, and a reserve for replacement of items which periodically wear out. Operating expenses should not include capital expenses such as roof replacement nor those associated with the production of income such as leasing commissions and legal fees.

Owner's Representative: an agent who is an advocate for the owner and/or landlord.

Pass Throughs: an increase in operating expenses over the base year that is billed to a tenant as additional rent.

Premises: generally, the entire rentable area leased by the tenant. Sometimes used to designate solely the useable area leased, i.e. that which the lessee has exclusive occupancy as opposed to the common areas.

Reasonable Consent: a standard applied in a lease (most often in a sublease provision) which limits the landlord's ability to withhold its consent in its sole discretion. If a reasonable person would give consent to an action, given the circumstances, so must the landlord.

Renewal Option: the right of a tenant to renew (extend the term of) a lease for a stated period of time at a rent to be determined (e.g. 95% of "fair market rent").

Rent: the consideration paid for the right to occupy and use real property.

Rental Rate: the amount of rent paid for the occupancy and use of real property. Generally stated on a per square foot per month or per year basis.

Right of First Offer or First Opportunity: a right, usually given by an owner to a tenant, which gives the tenant a first opportunity to lease a portion of the property if the owner decides to lease. Unlike a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be leased to a third party.

Right of First Refusal: a right, usually given by an owner to a tenant, which gives the tenant a first right to lease a portion of the property if the owner decides to lease. The owner must have a legitimate offer which the tenant can match or refuse. If the tenant refuses, the property can then be leased to the offeror.

Right of Offset: a specific clause in a lease where the tenant has the right to deduct from the rent certain costs which are due to the tenant from the landlord. Included may be the costs incurred by the tenant to cure defaults of the landlord, after notice and failure by the landlord to cure the defaults.

PacificBusinessAdvisors.net
Office: 818-991-5200
Direct: 818-991-9019