Glossary of Lease Terms

This is a short explaination of terms
that are used in leasing.

It is not a legal dictionary. It does not replace any wording in a lease and is not legal advice.

Agreeement for Lease: An Agreement for Lease is a binding agreement between a Landlord and prospective Tenant to grant and/or to accept a Lease in the future. It does not grant possession to the proposed Tenant at the time it is entered into, but binds the parties to enter into the Lease at some future date. Often used when the Landlord has not acquired or completed the premises.
“As-ls” Condition: The Tenant accepts the existing condition of the premises when the Lease is agreed to. This includes any physical defects or zoning issues.
Access: Determines the amount of access you have to the property, as a whole as well as the usable space. There may be limitations in larger buildings, but generally access should be unlimited.
Amortization: Costs which Landlord passes on to the Ten- ant as additional Rent during the term of the lease. The landlord may offer to amortize the cost of improving the space by adding the cost to the Tenant’s rental payments, when there are Tenant improvements.
Anchor Tenant: The major or prime Tenant in a shopping center or a large building.
Arbitration: Alternative to the judicial system, the arbitrator will make a decision about the case and it may be binding. This system is not a court proceeding but it may seem like one, and the arbitrator may be a retired judge or lawyer.
Assignment: Assigning your Lease to a third party with the Landlord’s consent. This may prevent you from selling or transferring a business without the Landlord’s consent. Assignment does not eliminate the Tenant’s obligations to the Landlord; this only transfers the rights and benefits to the Assignee, such as use of the space. For release of obliga- tion and new contract creation there must be Novation (see Novation).
Automatic Renewal: The Lease continues based on the current terms until either the Tenant or the Landlord gives notice to the other party, usually in writing, that they will be terminating the lease. See also Early termination clause
Bank guarantee: A bank promises to immediately pay money (to a set upper limit) if the Tenant fails to pay the rent or breaches some other provision of the Lease. The bank charges the Tenant for providing this service.
Base Rent: The minimum periodic rent due under the terms of a lease that also requires the tenant to pay additional rent or expenses. May or may not be inclusive of GST.
Base Year: A Base Year is usually the first year of the lease. The Tenant may be responsible for paying its share of the expense increases for each of the following years. Where rent is adjusted according to movements in CPI, this is often measured against the CPI figure most recently published as at the date the lease starts.
Build-out: The Landlord provides an allowance or a loan to the Tenant for improvements and the Tenant is responsible for the contracts and managing the build-out. The loan is repaid as part of the monthly Rent for the life of the Lease.
Certificate of Occupancy: Certification by a local government agency or building department that a building or the leased premises has been inspected and are suitable for occupancy.
Common Area Maintenance: Amount charged to Tenants for maintenance and upkeep of shared restrooms, parking lots, landscaping, etc.
Common Area: Common areas include parking, entranceways, elevators, shared bathrooms, and mechanical rooms, etc. These are non- exclusive areas, which each tenant shares, but does not directly control. Each tenant is usually responsible for a pro- rata share of the costs.
CPI Rent Reviews: The amount of Rent depends on changes in the Consumer Price Index (CPI). This is considered a neutral percentage rate, because neither the Landlord nor the Tenant is picking the increase rate. This percentage rate reflects the market in your city or state.
Director’s Guarantee: A guarantee given by a company’s directors to the Landlord promising to pay the Landlord if the Tenant company fails to pay the rent or meet its obligations under the Lease.
Disclosure Statement: A statement provided by the Landlord to the Tenant prior to entering into the Lease that summarises key aspects of the Lease and the estimated amounts of everything the Tenant is to pay.
Distraint: Only applies in South Australia. The right of the Landlord of a lease that is on foot to seize and sell the Tenant’s goods to pay for outstanding rent. Strict requirements apply.
Early Termination Clause: A special clause that allows the Landlord and / or the Tenant to terminate the lease prior to the end of the Lease Term. Usually upon giving agreed notice. See also automatic renewal
Encumbrance: Any claim or Lien against the property, held by someone other than the Landlord. Including mortgages, workers’ liens, etc.
Five Year Rule: Slang expression for the default requirement under Section 20B of the RCLA that leases of businesss premises should be for a 5 year minimum (options to renew the lease are included in the calculation).
Full Service Lease: All expenses, including utilities and janitorial service, are included in the Rent. These are most common in Subleases or shared spaces.
Graduated Lease: The amount of Rent for future years can vary depending on specific factors, such as gross income or an annual percentage increase.
Gross Rent Lease: Tenant pays one set Rent amount and the Landlord pays all owning and operating expenses. Expenses such as: basic water, garbage, maintenance costs, etc. These are most common in multi-tenant premises.
Hazardous Waste: This clause usually states that the Tenant is not allowed to have any hazardous waste on the premises. The clause may include a list of materials, which are considered to be hazardous.
Holdover Rent: The amount of additional Rent a Tenant must pay if they remain in their space after the lease term expires.
Landlord: Also known as the Lessor, can be the owner of the property or the property management company.
Lettable area: The total amount of square metres that a Tenant pays for. As this can be measured in different ways the lease should specify the method of calculation.
Letter of Intent (LOI): A written agreement with the proposed terms for the final contract, such as rental amount, rental increases, lease term, etc. It can be binding, but is usually just a detailed outline of the proposed Lease Agreement.
Master Lease: This is a primary Lease that controls the Leases that follow. The Original leaseholder/Tenant will become the Master Tenant when a Sublease is created.
Meditation: Both parties voluntarily agree to work with a mediator, a neutral third party, to craft their own agreement. Mediation agreements are confidential and may be binding. The mediator is not a judge or a fact-finder. They will not make a decision in your case.
Net Lease: The Tenant is responsible for Base Rent plus their share of Rates, Taxes, Insurances and operating expenses.
Novation: This requires all three parties to consent, the Landlord, the Tenant (assignor) and the new Tenant (As- signee). This creates a new contract and transfers all duties and obligations to the new Tenant/Assignee. This usually creates a new contract with the same terms and conditions as the current contract, but the parties are different. The Landlord and the new Tenant are the only parties to this new contract, and the former Tenant is released of all obliga- tions under the old Lease.
Operating Expenses: These are building or property operating expenses, not business expenses. The Lease may dictate that the Tenants are responsible for their percentage share of these costs and any annual increases. Common examples are the costs of cleaning common areas and toilets and maintaining carparks.
Option to purchase: The right of a Tenant to require the Tenant to sell the property to him. This usually states the times when a request can be made and the sale price or method of working out the sale price (often determined by valuation). If the Tenant properly exercises this right then the Landlord cannot refuse to sell the propery.
Option to renew or extend the lease: A Tenant’s right to choose to extend the lease term. This clause will state the term of the new lease and the new rent.
Parking: Description of parking space or location, such as the amount of parking you are entitled to and the costs.
Parking agreements may be separate from the lease agree- ment and should be in writing.
Party: The parties to a lease are the Landlord (Lessor) and the Tenant (Lessee). The Landlord owns the property and allows the Tenant to use the property in exchange for mon- etary payments called Rent.
Percentage Lease: The amount of Rent is a percentage of gross of sales. Your Rent will vary from year to year based on the success of your business.
Premise: The area to be leased. Should be clearly defined or described in the Lease. If it is a lease of part of a property then it often refers to a plan that clearly marks the boundaries of that area.
Pro-Rata Share: This is the percentage of a building that the Tenant occupies. It is usually based on the Rentable Square Metres compared to the total square metres of the building.
RCLA: Retail Commercial Leases Act. The main legislation in South Australia controlling leases of business premises.
Registered Lease: A lease that is registered at the Titles Office and that is noted on the owner’s Certificate of Title.
Relocation Clause: This clause gives the landlord the right to move the Tenant during the Lease period. This term may include a description of an alternative space and have a clear definition of the conditions of the relocation.
Rent Concession or Rent Holiday: This is period of free rent given to Tenant by the landlord. It can be associated with Tenant Improvements, where the Landlord does not charge rent for the time when improvements are being made and the business is not operating. May be used as a negotiating tool.
Rent Reviews: The amount a Tenant’s Rent changes from year to year. The most common escalation is based on the CPI (Consumer Price Index), Market Value at the time of the review or a fixed percentage of the annual rent.
Retail Shop, Retails Shop Lease and Retail Shopping centre: The type of premises that the RCLA applies to – can apply to all types of business premises and not just retail shops. The Lease of those premsises. A group of premises that are treated as a Shopping Centre under the RCLA. See Section 3 of the RLCA.
Right of First Offer: A Tenant’s right to make the first offer on a space to lease or buy. The Landlord must approach the Tenant first with the opportunity. The Tenant then has the right to make an offer for a limited time period. This is only an agreement to negotiate in good faith.
Right of First Refusal: A right, in writing, usually given by the Landlord, which gives the Tenant a first chance to buy or lease a portion of the property if the owner de- cides to sell or lease. The terms of the process are spelled out. This is not just an agreement to negotiate in good faith. The Landlord must have an offer, which the Tenant can match or refuse. If the Tenant refuses, the property can then be sold or leased to the offeror.
Security Deposit: The amount of money the Tenant pays to the Landlord to guarantee that the Tenant will fulfill all obligations under the lease. The deposit is held for the term of the lease and it may be used to settle defaults or damages to the property. If security deposit is used to pay rent owed, the landlord may require that the amount be replaced within a fixed period of time.
Security: Describes building security such as alarms and security personnel, and access such as security password, personal identification number (PIN) or security key card.
Shell: A space without improvements, ceiling, floor coverings, electrical fittings or finishes.
Signage: Specifies the type of signage you are allowed, where it may be displayed, and who pays for maintenance.
Step up Lease: Rent is increased by a pre-set rate or set amount, to be paid on a set schedule.
Straight Lease or Flat lease: The amount of Rent is fixed for the Lease Term.
Sublease: The original Tenant rents some or all of the leased premises to a third party. The original Tenant becomes the Sub-Lessor / Sub-Landlord, and the new Tenant becomes the Subtenant. This arrangement does not replace the original Tenant and the original Tenant is still responsible for the rent and any damages for the Term of the Lease. Leases commonly put restrictions on the right to transfer a lease or to sublet although this is subject to controls in the RCLA.
Tenant Improvement Allowances: This allowance is a fixed amount of money contributed by the Landlord towards Tenant improvements that is built in to the monthly Rent.
Tenant Improvements: These are the improvements built within the rental space. The Tenant is usually responsible for the improvements. This term establishes how the space will be delivered, who will perform the work and the amount it will cost. Furniture, fixtures and equipment are considered separate from Tenant Improvements.
Tenant Paid Improvement: Tenant pays the costs of im-provements on the property.
Tenant: Also known as the Lessee, usually the business owner.
Term: The length of time the Lease is valid, which should include the beginning and ending dates of the Lease. This information is important for future rent calculation and re- newal options, as well as protecting the Tenant’s rights.
Trade Fixtures: Trade fixtures are equipment that a Tenant specifically installs for the operation of their business. These are unique items to the business, however, if the fixture has been affixed or permanently attached to the premises, then it may become the property of the Landlord at the end of the Lease, if there is no specific language stating otherwise. This is important because Trade fixtures such as a bar or a restaurant hood can be very expensive to replace.
Turn Key Build-out: Tenant Improvements to the premises, provided by the Landlord. The Landlord and Tenant establish the cost and the budget. The costs of the improvements are then included in the monthly rent. The Landlord pays for the improvements and handles the contracts for the improvements.
Turn Key: The property is completely ready for a Tenant to move in. No improvements need to be made.
Zoning: The rules and regulations imposed by the City which control the types of uses allowed in a certain area. Zoning may limit the size of a location, the type of business which may operate on the property (such as retail or full- service restaurant), and may limit the hours of operation. It is usually the Tenant’s responsibility to make sure that the zoning will let them conduct their proposed business in that location.