FREQUENTLY ASKED QUESTIONS:

 

What is a commercial lease?

Not unlike a residential lease, a commercial lease is a legally binding contract that outlines the rights and obligations between a landlord and tenant during a particular period of time, known as the lease term.  The landlord is paid a certain sum in exchange for the tenant’s right to use the premises for the term.

 

What is the difference between useable and rentable square feet?

Actual square footage of a space is known as Usable Square Feet (USF).  USF in addition to the square footage of the common areas is known at Rentable Square Feet (RSF).  The common areas are those areas used in common by all the tenant’s in a property, such as the elevators, stairs, restrooms, and hallways.

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What is a sublease?

I rent a space from my landlord, and then wish to rent that same space to my friend, while I spend six months overseas.  This is possible with the landlord’s permission, and this is known as a sublease, which is also a legal contract.  I become my friend’s landlord, but I am still obligated to fulfill the terms of the lease that I signed with my landlord. I am therefore referred to as both the sublandlord and sublessee.  

 

What is a triple net lease (NNN)?

A triple net lease obligates the tenant to pay not only rent and utilities, but also all maintenance fees, insurances, and real estate taxes.

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Who pays the real estate fee?

Typically the landlord pays the real estate fee, and the terms are outlined in an agreement between the landlord and broker.  This fee is split if another broker represents the tenant.

 

If a tenant wishes to sublet office space, that tenant becomes the sublandlord and must pay the brokerage fee.

 

What is TI (Tenant Improvement)?

Tenant Improvements are changes that are made to a space by the landlord in order to accommodate the needs and desires of the tenant.  Often these improvements involve renovations or build-outs, which can be as minor as a new coat of paint or more elaborate changes to the floor plan involving the removal or creation of walls or flooring.

 

What is a Good-Guy Guarantee? And will I have to sign one?

Good Goy Guarantees (GGG) are legal documents known as limited personal guarantees, and they may vary slightly with each landlord and tenant.  They stipulate that a tenant will vacate the space if the tenant can no longer pay the rent.  Moreover, an officer of the company leasing the space from the landlord will personally pay any unpaid rent until the space is vacated.  In these instances, security deposits are typically not returned.

 

What is included in the lease price?  

Taxes, maintenance, and janitorial services are typically included in the rent.  Phone service, internet, and other forms of telecommunications are typically paid by the tenant.  Occasionally a tenant will be required to pay a pro-rata portion of the electricity provided to the building.  This is referred to as +Electric.

 

What is a 'Loss Factor'?

Usable Square Feet (USF) is smaller than Rentable Square Feet (RSF), and their difference is the “Loss Factor”.  RSF includes the building’s common areas, like elevators and stairs, while USF is only the square footage between the walls of the tenant’s actual rented space.  Landlords of course measure the space by RSF.  Full floor spaces leased by a single tenant typically have smaller loss factors, but it’s important to know that a loss factor of 25% - 40% is typical in New York City.

 

What is a contiguous space?

Space that is adjacent to another space.

 

What is an escalation?

Although escalations can be negotiated with the landlord, 3% of the base rent is typical, and it refers to the yearly rent increase due to inflation.  This is compounded annually.

 

Who pays the real estate taxes?

Typically the landlord pays the real estate taxes, but the tenant is required to pay the proportional share of the annual tax increase.  This payment can be amortized into the monthly rent or paid as a lump sum.

 

What's the difference between "direct" and "sublet" office space?

A direct lease is between a landlord and tenant.  A sublet is between the tenant and a subtenant.  Direct leases are the most common in NYC.  Sublets must be approved by the landlord, and this is rather common in New York City.  The landlord will probably also want to consent to the new subtenant.  It’s important to know that landlords may also have the right to take back the space to execute a direct lease with another prospective tenant.

 

How is electrical usage calculated?

There are three ways depending on the building:

 

Method One:

The office has its own meter, and the tenant pays the bill.

 

Method Two:

Similarly sized tenants per floor pay their equal share of the floor’s electric bill.  For example, five tenants will each pay 20% of the floor’s electric bill.

 

Method Three:

The typical cost for electric in NYC is $3.00 - $3.50 per square foot.  Multiply your rentable square footage (RSF) by the cost, divide by twelve, and the result will be your monthly electric bill. 

 

What is the termination fee if I break my lease?

Most tenants in New York City are offered the right to sublease, if, for whatever reason, the tenant cannot fulfill the entire term of the lease.

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