Like most industries, there is specific commercial real estate lingo that we use every day that may not be immediately evident to clients. Here’s a few I use nearly every day that I’ve had clients look for clarification on.
This is an abbreviation of operating costs which are also referred to as occupancy costs. In a net lease, which is what the majority of landlords use these days, operating or occupancy costs are the hard expenses associated with the property.
A Tenant pays their proportionate share of the property taxes and building insurance, for example, through op costs. They are calculated based on real bills collected over a one year period, with an estimation factored in for maintenance based on the previous calendar year.
A breakdown of these costs are generally made available to the tenant should there be any dispute as to the calculation.
The term shell space could be used on new construction or existing space. It describes the space in regards to build out; which is minimal or nothing at all.
The condition of shell space can be interpreted many different ways but in most cases they include a smooth trowelled concrete floor ready for flooring; drywalled, taped, mudded and sanded interior walls; HVAC ready for distribution; and an electrical panel, again ready to distribute based on the improvements planned by the tenant.
Shell space can often include lighting but it is typically minimal. In new construction it is installed simply for the ease of the contractors finishing work inside but may be inadequate for a tenant’s needs.
Conditionally tied up
This term comes up often. Conditionally tied up means an offer or counter has been accepted under conditional terms.
These terms can include a period of time to assemble financing, complete due diligence, and/or allow for inspections. The deal is acceptable only under these timelines; should they lapse, there is a potential for the property to come back to the market.
This term applies in both commercial leases and sales.
Fixturing is a period of time that usually occurs at the beginning of a term. It is a time span of days, weeks or months in which the landlord is willing to grant the tenant access free of net rent and occupancy costs.
A tenant will be responsible for the cost of utilities during fixturing and must have insurance in place to take possession. Fixturing is typically granted in a scenario where the tenant will be completing a major renovation prior to opening the doors for business.
There are probably lots of terms agents take for granted outside of the few I’ve identified. I have often had to slow myself down to help clients keep up. There is no harm in asking questions as a new tenant or buyer, though. One of our jobs as agents is to educate you regarding the terms you’re agreeing to in a commercial real estate transaction.
Are there any terms that are still eluding you that I could shed light on?