Commercial leases are written by attorneys for attorneys. The terms they use have specific legal meanings that differ from common usage — and misunderstanding them costs tenants money. This glossary covers the 50 terms that appear most often in commercial lease disputes.
Lease Structure Terms: What They Mean in Practice
Base Rent: the fixed monthly payment under the lease, before any additional charges. Gross Lease: a lease where the landlord pays all operating expenses from the base rent. Net Lease: a lease where the tenant pays some operating expenses in addition to base rent. Single Net (N): tenant pays property taxes in addition to base rent. Double Net (NN): tenant pays property taxes and insurance. Triple Net (NNN): tenant pays property taxes, insurance, and maintenance. Modified Gross: a hybrid where some expenses are included in base rent and others are passed through. Full-Service Gross: all operating expenses (including utilities and janitorial) are included in the base rent — most favorable to tenants. The lease type determines your total occupancy cost beyond the stated base rent.
Financial Terms: Where the Money Actually Goes
CAM Charges (Common Area Maintenance): operating expenses for shared building areas, passed through to tenants proportionally. CAM Reconciliation: the annual true-up between estimated and actual CAM charges. Pro-Rata Share: your percentage of building expenses, calculated as your sq ft divided by total leasable sq ft. Expense Stop: the expense level included in gross rent; increases above the stop are passed through. Base Year: the year from which expense increases are measured for pass-through. Gross-Up: adjusting fixed expenses to what they would be at a specified occupancy level. OPEX: operating expenses; interchangeable with CAM in some lease contexts. Abatement: the waiving or reduction of rent, typically for a specified period. Free Rent: a period at lease commencement during which no rent is owed.
Tenant Rights and Obligations Terms
Holdover: continuing to occupy the premises after lease expiration without a new lease or landlord consent. Default: failure to meet a lease obligation, triggering cure rights and potentially eviction. Notice to Cure: a written demand that a defaulting party fix the identified default within a specified period. Force Majeure: extraordinary events beyond a party's control that may excuse performance. Estoppel Certificate: a signed statement confirming the current facts and status of a lease for a third party (buyer, lender). Subordination: making your lease interest junior to the landlord's mortgage. Non-Disturbance: the lender's agreement to honor your lease even if the landlord defaults on the mortgage. Attornment: your agreement to recognize a new property owner as your landlord. SNDA: Subordination, Non-Disturbance, and Attornment agreement.
Lease Flexibility Terms: Your Options During the Lease Term
Assignment: transferring your entire lease to a new tenant. Sublease: renting your space to a subtenant while remaining the primary tenant. Exclusivity Clause: the landlord's prohibition on leasing to competing businesses. Co-Tenancy Clause: your right to reduced rent or termination if anchor tenants leave. Kick-Out Clause: an early termination right tied to performance or other conditions. Early Termination Option: a contractual right to exit the lease before expiration on specified terms. Right of First Refusal (ROFR): the right to match any third-party offer for space in the building. Right of First Offer (ROFO): the right to receive the landlord's first offer before they market the space. Expansion Option: the right to lease additional space when it becomes available.
Commercial Build-Out and Improvement Terms
Tenant Improvement Allowance (TIA): money from the landlord to fund construction or renovation of your space. Build-Out Allowance: similar to TIA; the funds available for tenant improvements. Turnkey Build-Out: landlord builds the space to agreed specifications and delivers it completed. As-Is: space leased in its current condition with no landlord improvement commitment. Landlord's Work: construction or improvements the landlord is obligated to complete before or during tenant occupancy. Tenant's Work: construction or improvements the tenant is responsible for completing. Substantial Completion: the point at which construction is functionally complete, even if minor punch-list items remain. Punch List: the list of minor remaining items after substantial completion. Lien Waiver: a contractor's release of their right to file a mechanic's lien on the property.
Key Takeaways
- Gross lease includes most operating costs; NNN lease adds property taxes, insurance, and maintenance on top of base rent
- CAM reconciliation overcharges are common — your pro-rata share calculation and included/excluded expenses determine your exposure
- SNDA agreements protect your lease if the landlord defaults on their mortgage — get one before signing any commercial lease
- Assignment transfers the lease out; subleasing keeps you on it as primary tenant with a subtenant underneath
- TIA is a landlord loan recovered through elevated rent — understand your unamortized balance before considering early exit
Frequently Asked Questions
- What does 'net' mean in commercial real estate?
- Net refers to expense pass-throughs beyond base rent. Single net (N) = tenant pays taxes. Double net (NN) = tenant pays taxes and insurance. Triple net (NNN) = tenant pays taxes, insurance, and CAM. Absolute net = tenant pays everything including structural maintenance.
- What is the difference between rentable and usable square footage?
- Usable square footage is what you can actually use — your office or store floor area. Rentable square footage adds your allocated share of hallways, lobbies, restrooms, and other common areas. You pay rent on rentable square footage, which is always larger than usable.
- What is an SNDA agreement?
- Subordination, Non-Disturbance, and Attornment agreement. Subordination means your lease rights are junior to the lender's mortgage. Non-disturbance means if the lender forecloses, your lease survives as long as you're not in default. Attornment means you agree to recognize the new owner. Most institutional lenders require SNDAs.
- What is a base year in an office lease?
- A base year is the year used to calculate operating expense pass-throughs. The landlord pays all operating expenses up to the base year's level; increases above that level are passed to tenants proportionally. A higher base year is better for tenants.
- What does 'at landlord's sole discretion' mean?
- It means the landlord can make the relevant decision (consent to subletting, approval of improvements, etc.) for any reason or no reason, without any obligation to act reasonably or consistently. This language appears often in landlord-form leases and should always be negotiated to a 'reasonableness' standard.