Ten Lease Terms Every Tenant Should Understand (In Plain English)

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Lease Terms
Ten Lease Terms Every Tenant Should Understand (In Plain English)
By Brian Schwellinger
Sep 23, 2004, 09:18

1. Useable Square Feet– The actual area a tenant leases and gets to use. Think of it as the area in between the walls of your space (you also pay for a portion of the walls depending upon measurement standards being used).

2. Rentable Square Feet – Useable Square Feet, plus a tenant’s prorated share of the building common areas. Simply put, if a tenant occupies 10% of a building they would also pay for 10% of the hallways, lobby, restroom, etc.

3. Default – Failure to meet the terms of the lease agreement. Both parties can be in default though typically the landlord’s remedies for default are spelled out in detail, while the tenant’s remedies if the landlord doesn’t meet up to its end of the bargain are frequently limited and less clear. If the Tenant is in default it is common for the landlord to regain complete control over the property and the destiny of the tenant’s leasehold (Not a good place for any tenant to be).

4. Notice – Formal written notice from one party to another about a specific lease issue. Have a problem or a right to exercise? Put it in writing and send it to the address shown in the lease for notices.

5. Gross Lease – Landlord pays all operating expenses, taxes and insurance for the property.

6. Triple Net Lease – Tenant pays all operating expenses, taxes and insurance for the property.

7. Modified Gross Lease – Landlord and tenant pay defined portion of the expenses, taxes and insurance for the property.

8. Option – A specific right granted to either party over the term of a lease. Tenants may have the option to renew the lease term, expand, reduce space, terminate a lease, sublease, etc. Options can be tricky because they will have specific conditions that have to be met in order to exercise them.

9. Nondisturbance – A tenant’s right to keep their lease if the landlord should default on their loan and a bank (mortgagee) should take ownership of the property. This is especially important if you have invested a lot of money into your space or if the location is particularly important to your success and if the owner is highly leveraged.

10. Leasehold Improvements - Construction or improvements for the purpose of preparing the premises for a tenant to conduct business. Improvements permanently attached to the premises remain with the premises after the end of term of the lease.