10 Commercial Real Estate Terms Every Small Business Should Know

Written on 12 August 2014.

Whether you’re looking to start your business in a commercial location or you’re finally moving a home-based business out of your garage, a commercial real estate agent can be your best friend -- or a source of endless frustration. To start the relationship off on the right foot, it’s a good idea to learn a little of the language commercial real estate agents speak. Here are some of the commercial real estate terms you may come across:

1. Gross lease: A property lease whereby the landlord pays for all property costs usually included in ownership. These include costs such as utilities, taxes, and maintenance.

2. Triple net lease (also known as an NNN lease): A property lease whereby the lessee (you) pays a fixed rental charge and expenses on the property, including maintenance.

3. Tenant improvements: These are improvements done on the interior of a space, which can be paid for by the landlord and/or the tenant, depending on the lease.

4. Usable area: The part of an office or a building floor that can be occupied, permanent wall to permanent wall.

5. Rentable area: The usable area within the office, including shared areas of the floor and building such as lobbies, corridors, closets, and restrooms.

6. Common area maintenance (CAM): This is the additional rent charged to the tenant to maintain the common areas of the property. These are the areas that are available for use by more than one person and are usually owned by all the tenants.

7. Percentage lease: A lease in which the costs are based on the percentage of the sales volume made at the property.

8. Letter of intent: An informal agreement between landlord andlessee indicating their intent to move forward with negotiations.

9. Latent defect: A fault in the property that could not have been revealed through reasonable inspection before the agreement.

10. Work letter: An agreement between a landlord and a tenantregarding all the issues related to the build-out (construction) of the interior of a space.

Want to learn more about commercial real estate and your small business? Check out these articles: Real Estate Considerations When Buying a Business and How to Select a Realtor or Real Estate Broker.