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Commercial real estate terms that are important to know

On Behalf of | Aug 8, 2018 | Real Estate Law |

Commercial real estate transactions are complex due to long legal contracts and high price tags. They also involve obscure terms rarely seen in other places. Before entering into any type of Ohio commercial real estate deal, each party should have knowledge of the most important industry terms. These include:

Capitalization Rate (CAP Rate) – This is a calculation used to predict the potential earnings of a commercial property over a specific period. Many investors won’t bother with a property until they know the CAP rate.

Usable Square Footage – This is the amount of space in the building actually available for commercial activity such as offices, manufacturing floors, and inventory space. It excludes hallways, exits, stairways, and bathrooms.

Common Area Maintenance – In a commercial lease, this is the amount of maintenance the tenant will be responsible for paying. Landlords can use a variety of calculations to reach this figure.

Right to First Refusal – This gives the tenant the right to accept or refuse any additional space that the landlord has available for rent. This clause is usually included in a commercial lease.

Escalation Clause – A clause in a commercial lease that describes how much rent will increase on a regular basis. Increases can be calculated based on property taxes, operating expenses, or several other factors.

Commercial real estate transactions have the potential to be complex, yet when structured properly, they can produce benefits for all of the parties involved. Whether it is a lease or a purchase agreement, it might be advisable to have the assistance of an attorney before the document is signed.