Glossary

GLOSSARY OF COMMERCIAL REAL ESTATE TERMS

Personal Guarantee

A guarantee of a commercial lease is entered into by an individual(s) as a guarantor in the consideration of the lessor entering into a lease with the lessee. The guarantee is usually annexed to the lease document and the guarantor is set out in the schedule to the lease. The guarantor is liable, not only for the payment of rent, but for the performance and observance of all the provisions of the lease which will include any payment of damages and compensation arising from any breach of lease by the lessee.

Bank Guarantee

Most leases require the lessee to provide some form of security. The bank guarantee provides a written assurance from the bank to a maximum amount ($) which is used when the lessee breaches the lease and the lessor needs to be compensated for that breach. The lease often provides for an increase in the amount following a rent review and a replacement guarantee when a drawdown has been required.

Incentive

An inducement offered by the lessor to attract new tenants to the building. Can be offered in a variety of ways (eg. rent free, provision of fitout etc).

Lessee

That party, whose name appears on the formal lease document, binding themselves to the terms and conditions stated therein. Otherwise known as the tenant.

Lessor

That party, governing the formal lease documentation at a particular property, typically the owner or owner's representative.

Net Lettable Area (NLA)

NLA (measured in square metres) is the floor space between the internal finished surfaces of permanent internal walls and the internal finished surfaces of dominant portions of the permanent outer building walls. It generally includes window frames and structural columns and excludes toilets, cupboards, plant/motor rooms and tea rooms where they are provided as standard facilities in the building. It also excludes areas dedicated as public spaces or thoroughfares such as foyers, atrium and building service areas.

Gross Lettable Area (GLA)

GLA is the floor space contained within each tenancy at each floor level by measuring from the dominant portion of the outside faces of walls, to the centre line of internal common area/inter-tenancy walls.

Make Good

The lessee's obligation to reinstate the tenancy prior to expiry of the lease.

Option

The lessee's right to renew a lease for an agreed period of time prior to expiry of the initial lease.

Statutory Outgoings

Includes costs such as municipal rates, water and sewerage rates and usage charges.

Secondary Outgoings

Being all other costs associated with operation, upkeep and/or maintenance of the building eg, air-conditioning, lift maintenance, common area cleaning, security and electricity.

Ratchet Clause

The mechanism whereby the rent upon review cannot decrease.

Gross Effective Rents

The rent payable under the lease net of all incentives and including all building outgoings.

Gross Face Rents

The rent payable under the lease excluding any incentives but including all building outgoings.

Net/Gross Rents

Essentially a net rent is your rental excluding any building outgoings whereas a gross rent is inclusive of outgoings. Most leases are based on net rents plus your proportionate share of the building outgoings.

Rent Review

The method by which your rent can vary during the term of the lease. Can be either a market review, a predetermined figure or fixed to an index such as the CPI. The review structure for the duration of the lease period is agreed prior to lease commencement.

Right of Refusal

A right of refusal is generally where the lessor grants to a lessee a first refusal to lease a particular area of a building at an agreed set of terms and conditions with and alternative tenant or at market rate, subject to the agreement. This right can be linked by title and be subject to monetary consideration.

Sublease/Assignment

The mechanism under the provisions of the lease which allows the lessee to find a suitable replacement tenant. This is subject to lessor approval and unless specifically stated, does not limit your legal responsibilities during the term of the lease.

Occupancy Ratios

The total net lettable area occupied per person (including meeting rooms, reception etc) Occupancy ratios vary between 1:10 - 1:28.

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