Commercial Leasing Terms

Indexation

What is Indexation

In commercial real estate, indexation is a rent‑adjustment mechanism that automatically aligns rent with an economic index such as inflation, keeping rental levels in line with market conditions.

Pre-Lease

What is Pre-Lease

A pre‑lease is a lease agreement signed before a building or space is completed or fully constructed. It allows tenants to secure space in advance and gives developers or landlords financial certainty by securing tenants before or during construction.

Full Service Gross Lease (FSG Lease)

What is a Full Service Gross Lease (FSG Lease)

A Full Service Gross Lease (FSG) is a lease structure where the tenant pays a single all‑inclusive rent while the landlord covers operating expenses such as utilities, maintenance, taxes, and insurance. FSG leases offer predictable occupancy costs and are commonly used in office properties and multi‑tenant commercial buildings.

Modified Gross Lease

What is a Modified Gross Lease

A Modified Gross Lease is a hybrid lease structure where the tenant pays a base rent while operating expenses—such as utilities, maintenance, taxes, or insurance—are shared between landlord and tenant. It offers flexible cost allocation and is commonly used in office, industrial, and mixed‑use properties.

Base Rent (Face Rent)

What is Base Rent (Face Rent)

The fixed monthly rent before any additional charges such as CAM, insurance, or taxes. Base rent forms the foundation of all commercial lease negotiations and determines the property’s revenue potential and valuation.

Effective Rent (Net Effective Rent)

What is Effective Rent (Net Effective Rent)

Effective Rent, or Net Effective Rent, represents the true rental rate after accounting for concessions, incentives, rent‑free periods, and tenant improvement allowances. It reflects the actual economic value of a lease and is used to compare deals and assess the real cost of occupancy.

Rentable Square Meters (RSM / RSF)

What are Rentable Square Meters (RSM / RSF)

Rentable Square Meters (RSM), also known as Rentable Square Feet (RSF), represent the total area a tenant pays rent for, including usable space plus a proportional share of common areas such as lobbies, corridors, and restrooms. This metric is used to calculate lease costs and compare commercial spaces across different buildings.

Usable Square Meters (USM / USF)

What are Usable Square Meters (USM / USF)

Usable Square Meters (USM), also known as Usable Square Feet (USF), represent the area a tenant can exclusively occupy and use within a commercial space, excluding shared common areas. It reflects the functional, tenant‑controlled space used for daily operations and workplace planning.

Common Area Maintenance (CAM) Charges

What are Common Area Maintenance (CAM) Charges

Common Area Maintenance (CAM) Charges are costs shared by tenants to cover the upkeep of common areas such as lobbies, corridors, parking lots, landscaping, and building systems. CAM fees help maintain operational quality and are typically included in net and modified gross lease structures.

Tenant Improvement Allowance

What is a Tenant Improvement Allowance (TI Allowance / FitOut Allowance)

Tenant Improvement Allowance (TI Allowance), also called a Fit‑Out Allowance, is the financial contribution a landlord provides to customize or build out a tenant’s leased space. It supports interior upgrades such as partitions, flooring, lighting, and HVAC modifications, helping tenants tailor the premises to operational needs while influencing effective rent and lease negotiations.

Lease Term (Lease Duration)

What is a Lease Term (Lease Duration)

The lease term, also known as lease duration, refers to the fixed period of time a lease agreement remains legally binding between a landlord and a tenant. It outlines how long a tenant is permitted to occupy a property and typically includes start and end dates, renewal options, and conditions for early termination. A clearly defined lease term helps ensure stability, predictable costs, and compliance for both parties in residential and commercial real estate.

Security Deposit / Bank Guarantee

What is a Security Deposit / Bank Guarantee

A security deposit or bank guarantee is a financial protection provided by a tenant to cover unpaid rent, damages, or lease violations. A security deposit is paid in cash, while a bank guarantee is issued by a bank as a payment assurance to the landlord. Both help minimize risk and ensure lease compliance.

Option to Renew / Extension Option

What is an Option to Renew / Extension Option

An Option to Renew is a lease clause that lets the tenant extend the lease for an additional period under agreed‑upon terms. It provides tenants with flexibility and landlords with reduced vacancy risk.