Ten Commercial Real Estate Terms to Know
Top Commercial Real Estate Terms That You Need to Know
Every industry has its own lexicon of terms and acronyms that can seem confusing to the uninitiated. Commercial real estate is no different. We have plenty of terms that are second nature to a broker that may not make sense to a business owner looking for office or warehouse space.
To help you feel more in-the-know when it comes to real estate terms, we’ve compiled the list below to give you a basic understanding of the common terms you’ll encounter when completing a real estate transaction.
Keep in mind, entering into a lease agreement is a legal contract, so make sure to ask about any terms you don’t understand and consult a legal professional to review your lease before signing.
Premises – This outlines the specific space you will be occupying, identified by both the unit number and square footage of your space.
Term – Refers to the duration of your lease and the time period you are obligated to pay rent and additional expenses on your space.
RFP – RFP stands for Request for Proposal. You send an RFP to begin the negotiation process for specific buildings or spaces you wish to pursue for your business. You will often go through several rounds of negotiation in an RFP format before deciding on which building will be best suited for your business.
LOI – Stands for Letter of Intent. A Letter of Intent is issued once you’ve gone through the general proposal process and want to finalize the agreed terms before going to a lease draft. An LOI is not a legally binding document, but represents the intent to move into lease negotiations.
OpEx – Short for Operating Expenses, OpEx refers to the costs a landlord or building owner incurs to run the building on a daily basis. This can include common area maintenance (CAM), taxes, insurance, management fees, and utilities. These expenses are estimated for a year and passed through to the tenants as a per square foot charge.
CAM – Stands for Common Area Maintenance. CAM is a charge you may see on your rental invoice every month. These are the charges to common areas within the building such as hallways, bathrooms, and amenity space.
Abatement – this defines if and when there may be a reduction in rent payments or taxes and operating expenses during your lease term. If the landlord is offering free rent as part of the lease agreement, the number of months will be specified in the Abatement section.
Core Factor / RU Factor – The Core Factor of a building represents the square footage of a building taken up by common areas like a lobby, bathrooms, common hallways and amenity space. This square footage amount is calculated by dividing the total rentable square footage by the actual usable square footage.
Holdover – Holdover refers to the rental penalty you will have to pay if you stay in your space past the expiration date of your lease. Typically this can be anywhere from 125-150% of your gross monthly rental costs.
Leasehold Improvements / Tenant Improvements – These are the upgrades or improvements made to a space before you move in. Your landlord will usually give you a small allowance to help offset these costs as part of your lease deal, but the amount depends on the size of your space and the length of your lease term.
Have questions about other lease terms not covered above? Contact us for a free consultation or lease review.
Rokos Advisors is a commercial real estate firm in Minneapolis - St. Paul that specializes exclusively in Tenant Representation. Our goal is to help businesses find the ideal office space or warehouse space to support their business goals and growth plans.