Commercial lease glossary
The 30 clauses that decide what a commercial lease actually costs, defined in plain English, with the specific language worth checking in every redline round.
Rent & Operating Costs
Base year
A base year is the calendar year whose operating expenses are built into a tenant's base rent, so the tenant pays only its share of increases above that year's costs.
CAM charges
CAM charges are the tenant's proportionate share of the cost of operating and maintaining a property's shared areas, billed monthly as an estimate and trued up against actual spend after the year closes.
CAM reconciliation
A CAM reconciliation is the annual statement in which a landlord compares the estimated common area maintenance payments a tenant made during the year against the property's actual operating costs, then bills or credits the difference.
Gross-up provision
A gross-up provision adjusts a building's variable operating expenses to what they would have been at a stated occupancy level, commonly 95 percent, before the tenant's share is calculated.
Percentage rent
Percentage rent is additional rent a retail tenant pays based on gross sales above a stated breakpoint, letting the landlord participate in the location's performance.
Rent abatement
Rent abatement is a period during which a tenant pays reduced or no rent, granted either as a concession at signing or as a remedy when the premises become unusable.
Triple net lease (NNN)
A triple net lease is a commercial lease in which the tenant pays base rent plus its proportionate share of three operating costs: property taxes, building insurance, and common area maintenance.
Deal Documents
Estoppel certificate
An estoppel certificate is a signed statement in which a tenant confirms the basic facts of its lease — rent, term, security deposit, and whether either party is in default — for the benefit of a buyer or lender.
Lease abstract
A lease abstract is a structured summary of a lease's key business and legal terms — parties, dates, rent schedule, options, and obligations — reduced to a page or two so the deal can be administered without rereading the document.
Letter of intent (LOI)
A letter of intent is a short document setting out the principal business terms of a proposed lease — space, term, rent, allowance, and options — before either side spends money on a full lease draft.
Redline
A redline is a version of a document that shows every insertion and deletion relative to a prior draft, produced either from Word tracked changes or from a document comparison.
Tenant improvement allowance
A tenant improvement allowance is a sum the landlord contributes toward building out a leased space, usually quoted in dollars per rentable square foot and paid on completion against submitted invoices.
Tenant Protections
Co-tenancy clause
A co-tenancy clause lets a retail tenant reduce rent or terminate its lease if named anchor tenants close or if overall occupancy at the center falls below a stated threshold.
Exclusive use clause
An exclusive use clause bars a landlord from leasing other space in the same property to a tenant whose primary business competes with the protected tenant's stated use.
Go dark clause
A go dark clause governs whether a retail tenant may close its store while continuing to pay rent through the end of the term.
Kick-out clause
A kick-out clause gives a retail tenant the right to terminate its lease early if sales fail to reach a stated threshold by a measurement date, usually after the third or fourth year.
Operating expense cap
An operating expense cap limits how much a tenant's share of operating costs can rise year over year, typically stated as a percentage such as 5 percent.
Option to renew
An option to renew gives a tenant the unilateral right to extend the lease for a stated additional term, exercisable by notice within a defined window.
Right of first refusal (ROFR)
A right of first refusal requires a landlord to offer a tenant the chance to lease adjacent space on the same terms a third party has agreed to, before signing that third party.
Security deposit burndown
A burndown is a schedule under which a tenant's security deposit or letter of credit is reduced over time as the tenant demonstrates payment performance.
SNDA (subordination, non-disturbance and attornment)
An SNDA is a three party agreement among a tenant, its landlord, and the landlord's lender that subordinates the lease to the mortgage, promises the tenant will not be disturbed if the lender forecloses, and commits the tenant to recognize the lender or a buyer as its new landlord.
Landlord Protections
Continuous operation clause
A continuous operation clause requires a tenant to remain open for business during stated hours throughout the term, rather than merely paying rent.
Force majeure
A force majeure clause excuses a party's performance when it is prevented by events outside its reasonable control, such as natural disasters, labor disputes, government action, or supply shortages.
Holdover rent
Holdover rent is the elevated rent a tenant owes for remaining in possession after the lease expires, commonly 150 to 200 percent of the last month's rent.
Recapture clause
A recapture clause lets a landlord take back leased space and terminate the lease as to that space when a tenant requests consent to assign or sublet, or when the tenant goes dark.
Exit & Transfer
Assignment and subletting
Assignment and subletting provisions govern whether and how a tenant may transfer its lease or hand possession to someone else, and on what conditions the landlord may withhold consent.
Good guy guaranty
A good guy guaranty is a limited personal guaranty under which the guarantor is liable for rent only until the tenant vacates the premises, surrenders them in the required condition, and pays everything owed through that date.
Personal guaranty
A personal guaranty makes an individual or a parent company liable for a tenant entity's lease obligations, so the landlord can pursue the guarantor directly if the tenant defaults.
Surrender clause
A surrender clause states the condition in which a tenant must return the premises at the end of the term, including what improvements must be removed and what may remain.
Knowing the clause is half of it.
The other half is catching it when it changes in round three. CRE Redline reads every tracked change out of the file and tells you which ones move money.