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Office Leasing Guide

OfficeLeasingGuide

Glossary of Terms

Building Consent

Approval from the relevant authorities for carrying out building work on the premises, usually for tenant improvements.

Cap and Collar

A term and method used in some market review clauses. It is a mechanism that puts a “cap” or maximum amount by which the rent can be increased, or a “collar,” the maximum the rent can decrease, on the rental rate review date. As the office leasing markets strengthen, these review methods are more difficult to negotiate.

Gross Effective Rent

The rent payable under the lease accounting for all incentives and including all building expenses.

Gross Face Rent

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

Incentive

An inducement offered by the landlord to attract tenants to the building. This can be offered in a variety of ways, such as through a period of free rent, provision of a tenant improvement allowance or moving assistance.

Lessee

That legal entity, company or person whose name appears as the occupier or user of space on the formal lease document, binding the lessee to the terms and conditions stated therein. Also known as the tenant.

Lessor

The party whose name appears as lessor on the formal lease document. The lessor is the landlord or owner of the property.

Leasable Area

Net Leasable Area (NLA) 

NLA (measured in square feet) is the floor space contained within each tenancy 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, toilets, kitchens, cupboards and excludes plant/motor rooms. It excludes areas dedicated as public spaces or thoroughfares such as building service areas.

Gross Leasable Area (GLA)

GLA (measured in square feet) 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 center line of the internal common area or inter-tenancy walls.

Make Good

The lessee’s obligation to return the premises to their original condition prior to expiration of the lease.

Net, Gross Rent

Net rent is also referred to as “Triple Net” or “NNN.” It is the rental rate excluding net taxes, insurance and maintenance. Gross rent includes these expenses. Most leases are based on net rents plus each tenant’s proportionate share of building expenses.

Occupancy Ratios

A common ratio used to measure the tenant efficiency of individual building’s floor plates. This ratio is calculated by dividing the total net leasable area by the number of people who occupy a floor. Average occupancy ratios vary between 1:12 and 1:18 square feet per person.

Ratchet Clause

A ratchet clause is the mechanism by which the rent cannot decrease on review. There are variations of ratchet clause (“full” or “hard” ratchet and “soft” ratchet). Under a soft ratchet, the rent cannot fall below the commencement rental. Under a full ratchet, it cannot fall below the current rental.

Rent Review

The method by which your rent can vary during the term of the lease. This can be a market rate review, a predetermined figure (such as 3 percent) or a rate fixed to an index such as the CPI. The review structure is agreed prior to lease commencement.

Resource Consent

Approval from the local governing authority with regard to zoning or changes in the permitted use of the premises.

Right of Renewal

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

Secondary Expenses

All other costs beside rent associated with insurance, operation, upkeep and/or maintenance of the building, including air
conditioning, elevator maintenance, common area cleaning, security and electricity.

Statutory Expenses

Statutory expenses include costs such as municipal rates, water and sewer rates and usage charges.

Sublease/Assignment

The mechanism under the provisions of the lease allowing 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.

Office Leasing Guide

Office Leasing

Top Ten

  1. Beginning the negotiation of a renewal or new lease too late
  2. Lacking clearly defined business or real estate objectives
  3. Focusing exclusively on financial costs
  4. Failing to appoint a project leader as the internal single point of contact
  5. Making inaccurate estimations of the company’s space requirements
  6. Failing to leave enough time at the end of the lease to fulfill “make good” obligations
  7. Acting too slowly once a decision is made and consequently missing out on opportunities
  8. Agreeing to terms prior to obtaining a space planning perspective
  9. Failing to allow for expansion space
  10. Lacking the knowledge of future opportunities; often, the best deals are secured well in advance of space becoming available

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