In the past, we have shared with you some of the most important and frequently used terminology to be aware of when leasing your first commercial space. Today, we want to expand that knowledge and give you a new list of must-know terms that will help you plan, negotiate, and execute your commercial real estate deal with success.
Here are some of the most common terms and classifications used in commercial real estate leasing:
1. (FF&E) Furniture, Fixtures, and Equipment
FF&E is the Furniture, Fixtures, and Equipment necessary for a tenant to operate their business inside a landlord’s premises. For office properties, this generally consists of desks, computers, copiers, etc. In restaurant spaces, it typically includes tables and chairs, coolers, vent hoods, kitchen equipment, and the like.
Tenants are usually allowed to remove their furniture and equipment upon vacating the space as long as they vacate in good standing with the landlord—which means having met all of their lease obligations. However, fixtures that are permanently attached to the premises are a different matter, as they are now considered part of the property.
For example, the vent hood and cooler are generally considered to be permanently attached fixtures in a restaurant space because removing them can cause damage to the property; therefore, these need to be left inside the premises when the tenant vacates.
A broker can help you determine which items will fall into the FF&E category.
2. Building Classification
Searching for the perfect space can be a daunting task. But letting your broker know what you are looking for ahead of time will help speed up the process. Building class is a great way to get the conversation going. But how do you determine which one is right for you?
Class A – If you’re looking for the highest-quality building with well-designed, above-average materials and many amenities, then Class A is for you. Many prestigious tenants seek out this class of property because they are typically in the best location and well maintained.
Class B – Though they aren’t outfitted with as many amenities as Class A spaces, Class B property offers very useful space and a functional layout. Class B buildings are, more often than not, older than Class A, but they are still very well maintained.
Class C – Class C is usually the oldest space in the classification system and has fewer amenities available to tenants than Class A or B. Lessees can expect average to below-average maintenance and management, and average mechanical, electrical and ventilation systems. Cost for these spaces are usually on the lower end.
3. Maximum and Minimum Contiguous
Maximum Contiguous space is the largest divisible area allowed in a property. For example, multiple spaces or suites on the same floor or connecting floors in the same building may be combined to meet the tenant’s needs. The amount of space that can be combined is the maximum contiguous square footage.
Minimum Contiguous is, as it sounds, the smallest divisible area allowed in a property.
4. First-generation vs. Second-generation Space
This is a fairly easy one to define. Second-generation space, also known as “relet” space, is existing space that was previously occupied by a tenant.
First-generation space means that the space has never been occupied.
Knowing the generation status of your space can help you determine whether or not you need to consider build-out and create a more accurate timeline for when you can occupy the space.
Be sure to ask your broker if a first or second-generation space will be the best fit for your future plans.
5. Work Letter
An important part of commercial real estate leases, a work letter outlines the responsibilities of the landlord and tenant when it comes to improvements that are necessary to prepare the leased space for occupancy.
The letter may include items like a list of space improvements, timelines for the projects, and contractor-related information. The work letter is often part of the final lease document.