By Steven Llorens
If there’s one thing I tell every new commercial real estate (CRE) agent interested in leasing office, industrial, or retail space is this: you must understand the terminology of leases. I know, I know, when you’re starting out, all the excitement is around finding the next big listing, landing the client, or closing the deal.
But trust me: in CRE, there is real action in commercial leasing. They can make you shine or blemish your reputation.
Over my 15+ years of managing CRE deals across different markets from bustling downtowns to suburban business parks, I’ve learned that understanding lease structures inside and out isn’t just “nice to have.” It’s mandatory. So today, I’m walking you through the key lease terms every CRE agent must know, explained in plain English, with real-world tips thrown in.
Let’s dive in.
1. Base Rent
This is where it all starts. The base rent (also called “minimum rent”) is the fixed monthly amount the tenant pays for occupying the space.
Pro Tip: Always confirm how the base rent is structured: Is it per square foot (common in commercial leases) or a flat monthly figure? It matters, especially when comparing deals.
Example: $30 per square foot annually in a 5,000 sq ft space equals $150,000/year or $12,500/month.
2. Rent Escalations
Lease terms are rarely static. Many leases have annual rent increases built in called “escalations.”
Types of escalations you’ll often see:
- Fixed percentage increase (e.g., 3% per year)
- Step-ups (higher rent after a set number of years)
- Tied to CPI (Consumer Price Index adjustments)
Pro Tip: When advising your clients, explain how escalations impact their total cost of occupancy over time. It’s a big deal for budgeting!
3. Lease Term
Seems obvious, right? But agents often trip up here.
The lease term is the length of time the tenant agrees to lease the space. Terms can range from short-term (1–2 years) to long-term (10+ years), especially for anchor tenants or custom-built spaces.
My Advice:
Longer terms = stronger for landlords (predictable cash flow).
Shorter terms = more flexibility for tenants.
Pro Tip: Always match lease term recommendations to your client’s business goals.
4. Renewal Options
Tenants often negotiate options to renew the lease once it expires.
Important: Renewal options must be:
- Clearly written
- Time-sensitive (e.g., tenant must notify landlord 6 months before lease end)
- Pre-negotiated on rent terms or escalation structure
Pro Tip: Teach your tenants that an option is a right, not an obligation. It’s a valuable card for them to hold.
5. Common Area Maintenance (CAM) Charges
In multi-tenant properties like shopping centers or office parks, tenants share costs for maintaining common spaces, like lobbies, parking lots, or landscaping.
These costs are called CAM charges.
My Advice:
Always check how CAM charges are calculated:
- Pro-rata share (tenant pays a portion based on leased square footage)
- Fixed CAM fees (sometimes preferred by tenants for predictability)
Pro Tip: Watch for “CAM reconciliation” language, too. Tenants may get hit with unexpected charges at year-end!
6. Gross vs. Net Leases
This one separates the rookies from the pros.
Gross Lease:
Tenant pays a flat rent; landlord covers expenses like property taxes, insurance, and maintenance.
Net Lease:
Tenant pays base rent + some or all expenses.
There are flavors:
- Single Net (N): Tenant pays property taxes.
- Double Net (NN): Tenant pays taxes + insurance.
- Triple Net (NNN): Tenant pays taxes, insurance, and maintenance. (Very common in CRE.)
Pro Tip: NNN leases shift most risks to tenants, making them very appealing to investors. Always clarify who covers what when explaining these terms to your clients!
7. Tenant Improvements (TIs)
“TI” refers to the modifications made to a space to meet the tenant’s needs like new walls, flooring, or electrical work.
TI Allowance:
Landlords may offer a cash contribution toward these improvements, expressed per square foot (e.g., “$30 PSF TI allowance”).
My Advice:
Negotiate the TI allowance aggressively when representing tenants and always clarify what’s covered and who manages the work.
Pro Tip: Big TI packages are often the dealmakers (or breakers) for office and retail leases.
8. Use Clause
The use clause in a lease defines what the tenant can and cannot do in the space.
Why it matters:
- It protects other tenants (especially in retail centers).
- It preserves property value.
Example: A landlord might prohibit a restaurant tenant from operating a nightclub in a family-friendly mall.
Pro Tip: Be precise. Vague use of clauses causes lawsuits later.
9. Exclusivity Clause
This one’s gold for tenants, especially in retail.
An exclusivity clause prevents the landlord from leasing other spaces in the center to direct competitors.
Pro Tip: Always get exclusivity for clients in niche industries and remember it’s negotiable!
10. Sublease and Assignment Rights
Sometimes tenants need to leave early. Subleasing and assignment rights give them flexibility.
- Sublease: Tenant finds a new sub-tenant.
- Assignment: Tenant transfers the lease entirely to another party.
Pro Tip: Landlords almost always require approval, but savvy agents negotiate that approvals “will not be unreasonably withheld.”
This small phrase can save your clients thousands if they ever need to move out.
11. Operating Expenses
Besides rent and CAM, tenants might pay for:
- Utilities
- Janitorial services
- Security
Pro Tip: Always do a full cost analysis, not just rent. Tenants care about total occupancy costs, not just “headline rent.”
12. Default and Remedies
The lease should spell out:
- What constitutes default (e.g., missing a rent payment)
- Landlord’s remedies (e.g., late fees, eviction rights)
Pro Tip: Teach your clients to understand these upfront, not during a crisis. A strong default clause can protect a landlord’s investment or create huge risks for tenants.
Final Thoughts
Mastering lease terms will give you superpowers as a CRE agent. Seriously. It’s not enough to wing it or rely on the client’s attorney. You need to walk into meetings knowing your stuff.
When you understand lease terms deeply, you:
- Build credibility faster.
- Negotiate better deals.
- Protect your clients (and yourself) from nasty surprises.
And at the end of the day, that’s what separates the top 10% of agents from the rest of the pack.
Keep learning, keep growing, and remember: every lease is a chance to get sharper.
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