Commercial Real Estate

Learning Basic Commercial Real Estate Lease Terms

Learning basic commercial real estate lease terms will help you build your knowledge in the commercial real estate investing arena. The following terms should be understood before signing a commercial lease:

Common Area Maintenance (CAM)

This is a very important commercial real estate lease term to know. Most of the time when you have a multi-tenant building, you factor in charges for CAM. Usually tenants pay $12 a square foot for annual rent, plus a certain percentage for CAM. So CAM for a building is passed on to tenants.

Many of the issues considered in the commercial arena are not even available in residential leasing. For instance, if your commercial real estate investment target is small office warehouses, strip malls, or strip retail centers, CAM is one of the items you need to research.

Before you start renting or buying those types of facilities, you should know what the standard CAM is for your type of property. Sometimes in some smaller properties, there is no CAM, since the landlord pays it.

That’s all part of your costs as a landlord in this type of property. It’s not a pass-through, because you can’t legitimately pass through CAM expenses to your tenants, if no one in the area who owns a similar property is having their tenants pay it.

Percentage Leases

When you pay a fixed rent plus a percentage of sales over and above the fixed rental, you have a percentage lease arrangement. You will probably not run into percentage rent situations very often as a landlord. Most of the time, percentage rents are used in retail businesses located in large shopping centers and other similar areas.

You might charge percentage rent, if you had a $2,000,000 shopping center with a JC Penny’s, Sears, or Dillard’s, and the attraction of those mega stores brought traffic to your store. Therefore, they want to become your partner, in effect, by charging you a percentage. This is not common in small to moderate businesses.

Ground/Land Leases

This type of arrangement is where the tenant rents the land and builds on the property. Any way in which you improve the grounds, including any buildings, usually belong to the landlord when the lease ends. This is actually a form of financing.

You’ll find many ground tenants in high-cost land areas, like New York City. People don’t want to tie up personal capital in owning a piece of land when they could be putting that money into business operations. The standard land lease is a very long-term lease.

Sublease

A sublease is when you lease the whole property and then sublease a portion of it to someone else. For example, you might rent 10,000 square feet from a landlord. If you don’t need all that room, you have the right to put your own tenant onto the property using a sublease.

Assignment

An assignment is very similar to a sublease, in that you initiate the rental lease. However, you become a landlord by assigning the entire property to one or more tenants whom you manage.

There was a time when real estate investors would lease property and negotiate a very low rental rate. Then they would assign that same property to tenants at a much higher rate. Their real estate business consisted entirely of collecting money from their assignment.

Assignment Not Allowed

In some commercial leases, there’s a sublease clause stating that you are allowed to sublease the entire property, subject to the landlord’s approval. This clause, in effect, means that you cannot assign the lease. Particularly when you get into larger properties, you’ll want to be sure to personally check personally the credit of everybody who expresses interest in leasing your property.

Tip: Assignments can get you into trouble. If you don’t know whether the assignee is credit worthy, don’t assign under any conditions.

Understanding commercial real estate lease terms will benefit you in the long run, and remember always have your commercial real estate leases reviewed by a real estate attorney.

One Deal to Financial Freedom? Gary Tharp invites you to get access to ask the real estate experts who are mentors to millionaires today! Attend the next free commercial real estate webinar with some of the nation’s leading real estate experts:commercial real estate investing 

About the Author

Gary began his real estate career in Honolulu in 1966, selling land and Homes as head of one of Hawaii’s largest brokerages, and has now sold and leased real estate in Idaho, Virginia, Puerto Rico and Florida. For the last 30+ years Mr. Tharp has been one of the leading commercial investment real estate brokers in Orlando, Florida and a nationally known mentor. Gary is widely regarded in commercial real estate, having developed tools and systems of commercial property evaluation that have become industry standards used by professionals nationwide. He is in demand by lawyers seeking expert witnesses in real estate cases. With development experience ranging from office buildings to industrial parks, Gary is Florida Partner for the Lynxs Group, national developer of air cargo facilities, Fellow of the faculty of the CCIM Institute, and Board of Advisor with HIS Real Estate Network, commercial real estate buying group.

Andy Miller: Everybody in Commercial Real Estate is Lying

Vinyl PVC Real Estate Sign Post – White $74.95 The 4″ Vinyl/PVC Real Estate Post comes in an easy to assemble kit. It includes all the components needed to assemble the post pictured, plus all the hardware necessary to display your sign. Installation is especially easy due to our drive-in stake. Just drive the stake in the ground, slide the post over the stake, and then hang your sign. This product is designed for the real estate agent to in…

Vinyl PVC Real Estate Sign Post – Khaki $97.95 The 4″ Vinyl/PVC Real Estate Post comes in an easy to assemble kit. It includes all the components needed to assemble the post pictured, plus all the hardware necessary to display your sign. Installation is especially easy due to our drive-in stake. Just drive the stake in the ground, slide the post over the stake, and then hang your sign. This product is designed for the real estate agent to in…

Wallmonkeys Peel and Stick Wall Decals – Angular Glass Office Building Exterior – Removable Graphic WallMonkeys wall graphics are printed on the highest quality re-positionable, self-adhesive fabric paper. Each order is printed in-house and on-demand. WallMonkeys uses premium materials & state-of-the-art production technologies. Our white fabric material is superior to vinyl decals. You can literally see and feel the difference. Our wall graphics apply in minutes and won’t damage your paint or l…

Commercial Real Estate Course $206.10 Commercial Real Estate Course 12CD set, workbook Dolf presents his acclaimed commercial real estate seminar designed to show you the ins and outs of investing in commercial real estate. If you are investing in residential property, or have started to invest in commercial property and want to take your investing to the next level, this course is for you. Discover the differences between comm…

Agelations Home Study Course – Real Estate Investing $49.95 In your hand you hold the key that opens the door to a brighter financial future that is completely independent of the current state of the economy. Do you have the courage to unlock the door and step inside?If your answer is YES, then mark this date on your calendar for you will always want to remember when you first held the AGELATIONS HOME STUDY COURSE – REAL ESTATE INVESTING.The AGELATIONS HO…

Master Lock 5400D Select Access Key Storage Box with Set-Your-Own Combination Lock, 1-Pack $16.00 If you’re still hiding your spare keys under the doormat, it’s time for a better, more secure solution. The Master Lock 5400D Key Safe is a hanging unit that securely holds up to five keys. Compact and durable, this key safe will open only when you enter your personalized combination.The Master Lock 5400D Key Safe At a Glance:Reinforced metal molded body Holds up to five keys Up to 10,000 combin…

Calculated Industries 3430 Qualifier Plus IIIFX Real Estate Finance Calculator $49.95 Advanced Residential AND Commercial Real Estate Finance Calculator! The Qualifier Plus IIIFX is the ideal tool for real estate investors and agents. In addition to both common and advanced real estate finance problems, it calculates multiple cash flows and internal rate of return (IRR), as well as net present and net future values (NPV/NFV). Provide fast and accurate investment solutions, witho…

Calculated Industries 3430-KITMG Qualifier Plus IIIFX Mortgage Success Kit $59.99 The Success Kit – Commercial Investment – is a convenient, carefully assembled package that combines the Qualifier Plus IIIfx mortgage calculator with a Quick-Start Tutorial CD and a comprehensive workbook. In addition to common and advanced real estate finance problems, the workbook covers calculation of multiple cash flows, IRR, NPV and NFV and more…

Lone Star $1.99 …

History of Oakland California in Vintage Real Estate Movie DVD (1928) $4.99 This vintage silent film from the 1920′s was a promotional video designed to entice businesses to move to Oakland California. It showcases the new local airport of Oakland, as well as downtown businesses, railways, manufacturing plants, estuary, and more. Animation of maps and transportation routes to and from Oakland highlight what domestic and international commerce meant in the 20s. While the f…