Commercial Lease Terminology Glossary

Commercial leases are filled with industry jargon that can be confusing if you're not familiar with the terminology. This glossary provides straightforward definitions of the terms you're most likely to encounter when reviewing a lease.

Lease Types

• Gross Lease Full Service

  A lease structure where the tenant pays a single, flat rental amount and the landlord covers most or all operating expenses, including property taxes, insurance, and maintenance.

  Common in office buildings where simplicity and predictable costs benefit tenants.

• Modified Gross Lease

  A hybrid structure where base rent includes some operating expenses, but certain costs (often utilities or janitorial) are paid separately by the tenant. The specific allocation is negotiable.

• Triple Net Lease NNN

  A lease structure where the tenant pays base rent plus three categories of expenses: property taxes, property insurance, and common area maintenance (CAM). The tenant bears most operating cost variability.

  Common in retail and industrial properties. A space quoted at "$24 NNN" means $24 per square foot base rent, plus your share of taxes, insurance, and CAM on top.

• Absolute Net Lease Bondable Lease

  The most landlord-favorable structure, where the tenant is responsible for all costs associated with the property, including structural repairs and roof replacement. Rare except for single-tenant buildings with creditworthy tenants.

Costs & Fees

• Base Rent

  The fixed portion of rent, typically quoted per square foot per year. This is the starting point before any additional charges like CAM, taxes, or insurance.

  A 2,000 SF space at $30/SF base rent = $60,000 per year, or $5,000 per month, before additional charges.

• Common Area Maintenance CAM

  Charges passed through to tenants for maintaining shared spaces—lobbies, parking lots, landscaping, elevators, and similar areas. Typically calculated as the tenant's proportionate share of total building CAM costs.

• CAM Cap

  A ceiling on how much CAM charges can increase year over year, protecting tenants from unpredictable cost spikes. Often negotiated as a percentage (e.g., 5% annual cap).

• Operating Expenses OpEx

  The broader category of costs to run a building, which may include CAM, property management fees, security, and other services. How these are allocated depends on the lease type.

• Expense Stop

  A threshold amount for operating expenses that the landlord covers. The tenant pays their share of any expenses exceeding this stop. Common in gross lease structures.

  With a $12/SF expense stop, if actual expenses are $14/SF, the tenant pays the $2/SF difference.

• Escalation Clause

  A provision specifying how rent increases over the lease term. May be a fixed percentage, tied to CPI (Consumer Price Index), or based on fair market value at set intervals.

• Rent Abatement

  A period of free or reduced rent, often granted at the start of a lease to offset moving costs or buildout time. The value is typically "paid back" through higher rent or a longer term.

Space & Measurement

• Usable Square Footage USF

  The actual space you occupy and can use exclusively—your office, private rooms, and dedicated areas. This is the "real" space behind your walls.

• Rentable Square Footage RSF

  Usable square footage plus your proportionate share of common areas (lobbies, hallways, restrooms, mechanical rooms). This is typically the number used to calculate rent.

  If your usable space is 1,800 SF and the load factor is 15%, your rentable SF is approximately 2,070 SF—and that's what you pay for.

• Load Factor Common Area Factor

  The percentage added to usable square footage to account for common areas. Expressed as a multiplier (e.g., 1.15) or percentage (e.g., 15%). Higher load factors mean you're paying for more shared space.

• Proportionate Share Pro Rata Share

  Your percentage of the building, used to calculate your share of operating expenses, taxes, and CAM. Usually based on your rentable square footage divided by total building rentable square footage.

Timing & Terms

• Letter of Intent LOI

  A preliminary, typically non-binding document outlining the key business terms of a proposed lease before the full lease is drafted. Used to confirm basic agreement before investing in legal drafting.

• Lease Commencement Date

  The date the lease officially begins and you take possession of the space. This may or may not be the same as when rent payments start.

• Rent Commencement Date

  The date rent payments actually begin. Often delayed from lease commencement to allow time for buildout, or as part of a rent abatement period.

• Holdover

  When a tenant remains in the space after the lease expires without a new agreement. Holdover rent is typically 125-200% of the prior rent, and the arrangement may convert to month-to-month tenancy.

• Cure Period

  The window of time a tenant has to fix a lease violation after receiving notice from the landlord, before the landlord can pursue remedies like termination.

Rights & Clauses

• Assignment

  Transferring your entire lease to another party, who takes over all rights and obligations. Most leases require landlord consent and may include conditions or fees.

• Sublease

  Renting out part or all of your space to a third party while remaining responsible under the original lease. You become the sublandlord, but your obligations to the building landlord continue.

• Right of First Refusal ROFR

  A right to match any offer the landlord receives from a third party for adjacent space or lease renewal, giving you the opportunity to expand or stay before others.

• Right of First Offer ROFO

  A right to receive the first opportunity to lease adjacent space before the landlord markets it to others. Less powerful than ROFR, as you don't get to match competing offers.

• Exclusivity Clause

  A provision preventing the landlord from leasing to competing businesses in the same property. Important for retail tenants who don't want direct competitors next door.

• Co-Tenancy Clause

  A provision (common in retail) that ties your obligations to the presence of other tenants—typically anchor tenants. May allow rent reduction or termination if key tenants leave.

• Use Clause

  The provision defining what business activities are permitted in the space. Can be narrow ("operation of a dental office") or broad ("general office use"). Affects your flexibility to evolve or sublease.

• Personal Guarantee

  A commitment by an individual (often a business owner) to personally cover lease obligations if the business entity cannot. Puts personal assets at risk and may be negotiable based on creditworthiness.

Buildout & Delivery

• Tenant Improvement Allowance TI or TIA

  Money provided by the landlord to help pay for customizing the space to your needs. May be paid upfront, as reimbursement, or amortized into rent. Often quoted per square foot.

  A $45/SF TI allowance on a 2,000 SF space = $90,000 toward your buildout.

• Shell Space Cold Shell / Warm Shell

  Space delivered in an unfinished state. A "cold shell" has only basic structure (walls, roof, concrete floor). A "warm shell" typically includes HVAC, electrical, and restrooms but no interior finish.

• Turn-Key

  Space delivered fully finished and ready to occupy, with all improvements completed by the landlord according to agreed specifications. You "turn the key" and move in.

• Build-to-Suit BTS

  A property constructed or substantially renovated specifically for a particular tenant's requirements, typically involving a longer lease term to justify the landlord's investment.

• Restoration Clause

  A requirement to return the space to its original condition at lease end, removing any improvements you made. Can be expensive—negotiate carefully or seek to limit scope.

Understanding these terms won't make you a commercial real estate expert, but it will help you read a lease more critically and ask better questions. When negotiating your lease, clarity on terminology ensures you and your landlord are speaking the same language.