Understanding commercial real estate leases is complicated and confusing, yet crucial in order to get the best deal in a lease situation. Helping companies understand office lease contracts is an important part of what tenant representatives do for their clients. Without the ability to fully comprehend the way a commercial lease works, a business can make costly mistakes, or be taken advantage of, particularly without the help of experienced tenant reps. Tenant representation can help a company in need of commercial space to understand the various factors that can affect their contract, so they know exactly what it is they are bargaining about.
Usable vs. Rentable Space
Two of the most important terms a company needs to understand are: usable space and rentable space, which are not the same thing. Usable space is the specific space that a company has access to, strictly for their own use. This includes anything within their suite, on their floor, etc., if this space is solely dedicated for the company’s use. Rentable space is all space within a building, including common areas like stairways, hallways, and lobbies, for which all tenants pay a portion of shared area use.
The Actual Cost of Leased Space
Commercial space is leased out in a variety of ways, which can affect the per-square-foot price of that space. Gross, or full-service leases, are usually rated higher per square foot, yet they are all-inclusive. This means operating costs, insurance, taxes, and other expenses paid by the square foot are included. Triple-net leases are lower in cost per square foot; however, all costs must be paid in addition to the other expenses. Tenants determine which of these arrangements can be less expensive for them, since the triple-net lease is not always cheaper.
Landlords prefer to build rent increases into their contracts, so they are guaranteed to bring in more money every year that a tenant’s contract is active. Tenant representation is particularly important, as these professionals attempt to tie rent amounts for their client, to help them avoid these increases, which can leave them paying more money by the end of the lease than a brand new tenant might pay.
A flexible lease is one that gives a tenant the ability to start out shorter and extend their lease, or renegotiate it as time goes on. Flexible, shorter leases that are extended may gain some benefits for a tenant, since landlords prefer tenants who stay for a longer period of time. The longer a tenant is willing to commit to a lease, the more negotiating power they have, as well.
Lease concessions are free things that landlords sometimes add in as an incentive to get a tenant to sign a lease, to get them to sign a longer lease, etc. Concessions may be anything from improvement allowances, to a few months of free rent, or other inclusions that can be beneficial to the tenant. In order to obtain the best deal, a business must understand what concessions are customary in certain lease markets and how to best negotiate them, something at which tenant reps.
With experienced tenant representation, a company looking for a commercial lease can more easily understand the meaning of the various terms of their lease, and how these definitions affect them. Tenant reps play a vital role in a business obtaining the most for their office space leasing dollar - especially when creative lease options, concessions, and other important negotiations come into play!