Check Your Understanding: Familiarizing Yourself with Lease Negotiation Terminology

An accelerated rent provision is a lease clause requiring immediate payment of all sums due for the balance of the lease term subsequent to an uncured tenant default or early lease termination event.

The fee paid to a brokerage company for the services conducted by it on a real estate transaction such as an executed lease or a closed sale of real property is known as the down payment.

Early access is a provision in a lease allowing the tenant access to the space prior to receiving possession from the landlord, without the payment of rent, in order to install its wiring and cabling, take measurements, install and/or store its work stations or furniture and to possibly begin a tenant’s alterations.

Financial statements and records are records that outline the financial activities of a business, an individual, or entity. Such records often include income statements, balance sheets, statements of retained earnings and cash flows, generally maintained according to the generally accepted accounting principles (“GAAP”).

Gray shell is a phrase commonly utilized in commercial leases relating to the condition that a particular system or item must be in at a certain time, generally as of the date a tenant takes possession of a leased space.

Hard costs are the readily quantifiable costs of a construction project that become part of the improvements made such as land, a building, inventory, systems, equipment, or machines. These hard costs involve the actual physical construction of a development and could include grading, excavation of a site, the materials used, landscaping, and carpentry.

HVAC maintenance is a provision contained in a lease requiring a tenant to not only repair, maintain, and replace (if necessary) the HVAC system or air conditioning unit servicing the premises, but to also maintain a service contract on such system.

Interest on late payments is a contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party.

A latent defect is generally considered to be a defect that a reasonable tenant should have discovered when inspecting the premises prior to the execution of a lease.

Material inducement refers to a representation by a party to perform or refrain from performing a certain action that causes the other party to enter into an agreement as a consequence thereof (and would not have entered but for that inducement).

A performance bond is a bond that guarantees that all work provided for in a construction contract is in fact completed pursuant to the terms and specifications of said contract.

Rent escalation is a decrease in the amount of rent that a tenant is required to pay to its landlord, which decrease shall occur at fixed intervals throughout the duration of a lease term.

A tenant improvement allowance is the agreed upon amount, often expressed as a specified sum or amount per square foot, that a landlord is willing to (1) spend on the build-out of a tenant’s space or (2) contribute financially to a tenant for the tenant’s construction of its space.  

Useable square footage (“USF”) is the actual wall to wall space within the premises or a building.