Common Leasing Terms

Basic Rent: In a net lease, basic rent represents the tenant’s set rental rate for their leased premises, excluding additional rent amounts. Sometimes referred to as net rent, basic rent rates are typically shown as a per-square-foot dollar amount charged annually. Basic rent may account for inducements (e.g., the costs to build out the premises) and is typically subject to annual adjustments over the course of the lease term.

Additional Rent: In a net lease, additional rent accounts for the tenant’s proportionate share of the operating expenses (common area maintenance and costs related to the running of the building) and realty taxes. Sometimes referred to as Common Area Maintenance (CAM) or Taxes, Maintenance, Insurance (TMI), additional rent amounts are typically shown as a per-square-foot dollar amount charged annually and are calculated based on an estimated budget of the landlord’s annual operating expenses and realty taxes. Additional rent charges are reconciled annually to account for variances between the estimated amounts charged and the actual costs incurred by the landlord, with tenants receiving a reconciliation statement and corresponding credit or invoice.

Tenant Inducements: A tenant inducement is a financial incentive offered by the landlord to attract new tenants to lease space, encourage existing tenants to renew their lease, or incentivize a tenant to sign a longer lease term. Tenant inducements may be offered in a variety of forms, including free basic rent periods, leasehold improvement allowances, or the renovation or build-out of the premises.

Lessee: Frequently referred to as the tenant, the lessee is the legal entity, company, or individual that is named as the tenant on the lease agreement and is usually the occupant or user of the premises. By entering into a lease agreement with the landlord, the lessee is responsible for upholding their obligations according to the terms and conditions of the lease, including, but not limited to, the payment of rent, tenant insurance requirements, the specified use of the premises, rules about renewing or terminating the lease, and any other conditions negotiated as part of the lease.

Lessor: Frequently referred to as the landlord, the lessor is the legal entity, company, or person that is named on the lease as the landlord, usually the owner of the building, and holds the authority to enter into legal agreements with tenants to lease space in the building. By entering into a lease agreement with the tenant, the lessor is responsible for upholding their obligations according to the terms and conditions of the lease, including, but not limited to, maintenance and upkeep requirements in the building, ensuring tenants’ quiet enjoyment of their premises, compliance with laws, and any other obligations noted under the lease.

Useable Area: Also referred to as useable square footage, useable area represents the total useable floor area (measured in square feet) of a space or building considered the leased premises; think of it as the space that is designated for the tenant’s sole use. Useable area generally includes all of the office space in the premises, as well as any washrooms, kitchens, lunchrooms, or storage space within the premises, but does not include areas of the building shared by all tenants (common areas).

Rentable Area: Also referred to as leasable square footage, rentable area represents the square footage of the tenant’s leased premises as well as a pro-rata share of the building’s common areas; think of it as the space that is designated for the tenant’s sole yes, as well as the proportionate share of the common areas that all tenants use, e.g., corridors, lobbies, and common area washrooms.

Special Provisions: In a commercial lease, special provisions typically refer to clauses that fall outside the standard terms and conditions of the lease document and are usually negotiated to address the unique concerns or conditions required by the tenant. Examples of typical special provisions include clauses related to the tenant’s options to renew, landlord’s work or leasehold improvement allowances provided under the lease, and parking provisions.

Sublease/Assignment/Transfer: Some commercial leases may include provisions permitting the tenant to transfer or assign their lease to another entity or to sublease their leased premises to a suitable replacement tenant. Requests to assign or transfer a lease or enter into a sublease agreement are subject to landlord approval as well as any and all applicable terms and conditions outlined in the lease.

Proportionate Share: In a net lease, tenants pay additional rent amounts calculated based on their proportionate share of the expenses. Each tenant’s proportionate share, or the percentage of the building area they occupy, is typically calculated by dividing the rentable area of the tenant’s leased premises by the total rentable area of the building.