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during your search for commercial space i'm sure that you've come across a lot of commercial real estate jargon but you don't need to worry you actually don't have to know everything this video will cover the basics of commercial leases including common lease structures important lease causes and the most common delivery conditions of commercial leases by the end of it you won't know everything about commercial leases but you should know enough to be dangerous a first lease structures commercial leases can be structured in a variety of ways depending on the type of property type of business and number of tenants here are a few of the most common lease structures triple net or net net net a triple net lease is one of the most common lease structures you'll find it requires the tenant to pay base rent along with the three nets which are property taxes building insurance and common area maintenance with triple net leases the tenant incurs all expenses related to the property but the landlord's not quite off the hook they are still responsible for maintaining the structural components such as the structural walls foundation and roof of the building the only time the landlord is completely free of responsibilities is when the tenant has an absolute net lease where the tenant is responsible for the structural components of the building too to calculate rent for a triple net lease you take the estimated annual expenses and add that number to the price per square foot multiplied by the rentable square footage of the space full service gross lease or fsg a full-service gross lease requires the tenant to pay a base rent while the landlord incurs all the expenses related to the property sounds pretty great right it can be great considering that the tenant knows exactly what they're paying every month but it can also be a double-edged sword the property owner will probably significantly increase the base rent of the space with a full-service gross lease as a means of risk mitigation on their part they want to be as monetarily insulated as possible from any unexpected expenses to calculate the rent for a full service gross lease you simply multiply the price per square foot by the square footage of the space modified gross or mg a modified gross lease requires the tenant to pay a base rep along with only some of the operating expenses for example a group wants to open an art gallery in a space that you have for lease you know that the electric bill will be significantly higher than normal so you create a modified gross lease where the group pays monthly rent along with their electric bill calculating the rent for a modified gross lease is almost the same calculation for finding full service rents you multiply the price per square foot by the square footage of the space and then add this number to the amount of the expenses that you will incur in addition to rent now for some lease causes there are many different types of causes within a commercial lease while it is important that you have your lawyer review the lease you should not be totally green to these commercial documents here are a few important causes to keep in mind the sublease clause subleasing is where a tenant leases unused space and their release agreement to another tenant the tenant's lease agreement with the sub-tenant is independent of the lease agreement between the tenant and the landlord often referred to as the right to sublet clause the clause states that the tenant does not have permission to lease a portion of the space in their lease agreement to another tenant unless consent is given by the landlord have your attorney review your lease some landlords will charge a sublease fee this clause is important because any additional space that you do not use but is included in your lease could provide you with additional income or the ability to get out of the space if you need to the exclusive right clause the exclusive right or exclusivity clause is often found in many retail leases but can also be seen in any industry it gives the tenant the right to be the only business that sells a certain product or provides a specific service for example if you decide to open a nail salon in a prominent strip mall you wouldn't want there to be another nail salon because they're a competing business and have the potential to take some of your customers so go for that exclusive rent escalation when leasing a space your rent can increase on a yearly basis or during any renewal options this is what the rent escalation clause covers the rent escalation clause explains how much of an increase in rent a tenant will be subject to for example a landlord may state that there will be a two percent annual increase in rent or it may be that the rent increases by five percent every two years every lease can and likely will be different the roon escalation clause is one of the most important causes because in the long run those annual two percent increases can greatly affect your overall costs of tenancy now for delivery conditions commercial spaces can be delivered in a variety of conditions sometimes you may lease a space that is basically turnkey and move-in ready whereas you can also have a space that is nothing more than the skeleton of the building let's dive into a few of the most common delivery conditions for commercial leases vanilla shell or white box a vanilla shell lease or white box condition can be one of the sweetest deals you get build out costs for vanilla shell leases are what makes them so desirable you spend the least amount if any during the build out of a vanilla shell lease compared to any other condition your costs for build out mostly reflect the cost of your tenant specific amenities here are the finishes that you can expect in a vanilla shell lease finished or drop ceiling finished restrooms hvac and ductwork lighting elevators etc but this does come with a cost you should expect a higher base rent since the property is being delivered in an almost move-in ready condition cold dark shell cold dark shells are exactly what they sound like you can expect these spaces to be down to the studs of the building it's essentially the skeleton of the building so a cold dark shell does not contain any of the following hvac electrical plumbing or elevators think about this cold dark shell cold because there's no heat dark because there's no lighting shell because it's in shell condition but why would you want a cold dark shell lease aren't the build-out costs going to be high well yes cold dark shell build out costs are higher than any other delivery conditions but there is an incentive the landlord generally offers a lower rent and a higher tenant improvement allowance since the build out costs will be high for the tenant second generation second generation spaces are the hand-me-downs of commercial real estate what makes second-generation leases so attractive is that it could require little to no build-out costs depending on your business and the previous tenant for example if you're looking to open a restaurant a second generation space where the previous tenant was also a restaurant may be perfect for you why because the space is likely to be outfitted with the proper ventilation system for your kitchen all of the plumbing and everything else that you would need for a restaurant you may find that the lease includes commercial stoves and refrigerators as well it's not uncommon for a new tenant of a second generation space to slap paint on the walls lay down new flooring and open up for business a downside however of a second generation lease is that it's going to reflect the previous tenant also if the space was previously leased to a long-term tenant you may need to make sure the space is up to code by now you know the important parts of commercial leases but there is still a ton to learn especially if you're an entrepreneur looking for commercial space for your business did i further into commercial leases check out our tips for releasing commercial real estate playlists here