Commercial real estate terms, in plain English.

An anchor tenant is a large, well-known tenant, such as a grocery store or big-box retailer, that draws steady traffic to a shopping center and supports the smaller tenants around it.

Landlords often give anchors lower rent and stronger lease rights because their presence helps lease the rest of the center. Smaller tenants sometimes tie their own lease to the anchor staying open through a co-tenancy clause.

Co-tenancy clauseEndcapPad siteRetail space in Austin

An assignment is the transfer of a tenant's entire remaining interest in a lease to a new tenant, who then deals directly with the landlord.

Most commercial leases require the landlord's consent to assign, and the original tenant often stays liable for the lease unless the landlord agrees in writing to release them. Assignments commonly come up when a business is sold.

SubleasePersonal guarantee

Base rent is the fixed rent a tenant pays a landlord under a lease, before any operating expenses, taxes, insurance, or other additional charges.

Base rent is usually quoted as an annual dollar amount per square foot. For example, on a hypothetical 2,000 SF space at $30/SF, annual base rent would be $60,000, or $5,000 per month, with NNN charges billed on top in a net lease.

Rent escalationTriple net lease (NNN)Net effective rent

A build-to-suit is a project where a developer or landlord constructs a building designed for a specific tenant or buyer, usually in exchange for a long-term lease or a purchase commitment.

Because the building is designed around one user, build-to-suit leases are typically longer than standard leases and require more financial strength from the tenant. They are common for restaurants with drive-thrus, medical users, and some industrial users.

First-generation (shell) spaceLease termPad site

CAM, or common area maintenance, is the share of costs a tenant pays for maintaining a property's shared areas, such as parking lots, landscaping, lighting, and common hallways.

CAM is usually billed monthly as an estimate along with taxes and insurance, then reconciled against actual costs once a year. What counts as CAM, and whether there are caps on increases, depends on the lease.

CAM reconciliationOperating expenses (OpEx)Triple net lease (NNN)

CAM reconciliation is the annual process where a landlord compares the estimated operating expenses tenants paid during the year to the actual costs, then bills or credits the difference.

For example, if a tenant paid hypothetical estimates of $8/SF during the year and actual costs came to $9/SF, the tenant would owe the $1/SF difference. Many leases give tenants a limited window to review or audit the landlord's records.

CAM (common area maintenance)Operating expenses (OpEx)Triple net lease (NNN)

A cap rate is a property's net operating income divided by its price or value, expressed as a percentage, and is a common way to compare income-producing properties.

For example, a hypothetical property with $100,000 of NOI that sells for $1,600,000 has a 6.25% cap rate. A lower cap rate generally means a higher price relative to income, and cap rates vary by property type, location, tenant quality, and lease terms.

Net operating income (NOI)Owner-user

A certificate of occupancy is a document issued by the local building authority confirming that a space meets code and may legally be occupied for a specific use.

A new CO is often required when a space is built out or its use changes, for example converting retail space to a restaurant or medical office. In Austin, this runs through the City of Austin's permitting and inspection process, and timing should be planned into the lease's rent commencement date.

Zoning (permitted use)Rent commencement dateTenant improvement (TI) allowance

Clear height is the usable vertical distance in a warehouse or industrial building, measured from the floor to the lowest overhead obstruction such as beams, joists, or sprinklers.

Clear height determines how high a user can stack racking and inventory. It is lower than the building's roof height, so users should confirm the clear height rather than rely on exterior measurements.

Dock-high vs grade-level doorsFlex spaceIndustrial and warehouse space in Austin

A co-tenancy clause is a retail lease provision letting a tenant pay reduced rent or terminate if a named anchor or set share of the center is not open.

An opening co-tenancy clause applies when the tenant first opens, and an operating co-tenancy clause applies during the lease. Landlords usually limit these clauses, and they are more often granted to larger or national tenants.

Anchor tenantExclusive use clauseLeasing retail space: a tenant's roadmap

A commission is the fee paid to real estate brokerages for completing a lease or sale, usually calculated as a percentage of the total lease value or the sale price.

In most Austin commercial leases, the landlord pays the commission under its listing agreement and shares it with the tenant's brokerage, so tenant representation usually costs the tenant nothing. The exact amount and who pays it are negotiated and should be spelled out in writing.

Cooperating brokerTenant representationLandlord representationWho pays the commercial real estate broker fee in Austin

A cooperating broker is the brokerage representing the other side of a deal, typically the tenant or buyer, that shares in the commission paid by the landlord or seller.

The listing agreement usually states how much of the commission goes to a cooperating broker. Having a cooperating broker lets each party have its own representative instead of relying on the other side's agent.

CommissionTenant representationIntermediary (dual agency)

Dock-high doors sit at roughly truck-bed height so freight can be rolled straight onto trailers, while grade-level doors sit at ground level so vans and vehicles can drive in.

Distribution users that load semi-trailers usually need dock-high doors, while contractors, service businesses, and users with box trucks or vans often prefer grade-level (drive-in) doors. Many flex and small-bay buildings have one or the other, so it is worth confirming early in a search.

Clear heightFlex spaceIndustrial and warehouse space in Austin

An endcap is the space at the end of a retail strip or shopping center building, usually offering more visibility, extra signage, and sometimes a drive-thru or patio.

Endcaps are popular with restaurants, coffee users, and medical or service tenants that want visibility from the road, and they often lease at a premium compared with inline space in the same center.

Anchor tenantPad siteRetail space in Austin

An estoppel certificate is a signed statement from a tenant confirming key lease facts, such as rent, term, deposit, and whether any defaults exist, for a buyer or lender relying on them.

Leases commonly require tenants to sign one within a set number of days when the landlord sells or refinances. Because the tenant may be bound by what it confirms, it should be reviewed carefully, ideally with an attorney.

SNDA (subordination, non-disturbance and attornment agreement)

An exclusive use clause is a lease provision that stops the landlord from leasing other space in the same property to a business that competes with the tenant's primary use.

For example, a coffee shop might negotiate that no other tenant in the center may primarily sell coffee. The wording matters, and exclusives usually do not bind existing tenants or anchors with their own lease rights.

Co-tenancy clauseZoning (permitted use)Leasing retail space: a tenant's roadmap

First-generation space, often called shell space, is new space that has never been built out or occupied, so the tenant's improvements are designed and built from scratch.

What the landlord delivers varies by deal, from a cold dark shell with no utilities run to a warm shell with HVAC, a restroom, and basic finishes. Shell space offers full design control but usually takes longer and costs more to open than second-generation space.

Second-generation spaceTenant improvement (TI) allowanceTurnkey buildout

Flex space is a building type that combines office and warehouse or light industrial area in one unit, letting a business use the mix of finished and open space it needs.

Flex buildings usually have grade-level doors and lower clear heights than bulk warehouses. They suit contractors, light assembly, showrooms, and service businesses that need both a front office and storage or work space.

Clear heightDock-high vs grade-level doorsIndustrial and warehouse space in Austin

Free rent, or rent abatement, is a period at the start of a lease, or sometimes spread through it, when the landlord waives some or all of the tenant's rent.

Abatement often covers base rent only, so the tenant may still owe NNN charges during that period; the lease should say which. Free rent is a common concession and lowers the lease's net effective rent.

Net effective rentBase rentRent commencement date

A full service gross lease is a lease where the rent includes the tenant's share of operating expenses such as taxes, insurance, maintenance, and usually utilities and janitorial.

Full service gross is common in multi-tenant office buildings. Many include a base year, so the tenant pays its share only of expense increases above that year's level.

Gross leaseModified gross leaseOperating expenses (OpEx)Office space in Austin

A gross lease is a lease where the tenant pays one rent amount and the landlord pays the property's operating expenses, such as taxes, insurance, and maintenance, out of that rent.

Gross is a broad label, and the details vary by deal; many gross leases still pass through increases above a base year or exclude certain costs like utilities. Read the expense section of the lease rather than relying on the label.

Full service gross leaseModified gross leaseTriple net lease (NNN)

Holdover is when a tenant stays in the space after its lease expires without a new agreement, usually triggering a higher holdover rent set by the lease.

Holdover rent is typically a multiple of the last rent paid, and the lease may also make the tenant liable for the landlord's damages, such as a lost incoming tenant. Starting renewal or relocation talks well before expiration avoids it.

Lease termRenewal option

In Texas, an intermediary is a brokerage that, with both parties' written consent, facilitates a deal between a landlord or seller and a tenant or buyer it represents at the same time.

Texas uses the intermediary relationship in place of traditional dual agency. The intermediary must treat both parties fairly and may not share certain confidential information, such as how far one side will negotiate on price, and the broker may appoint different agents to advise each party. Texas license holders provide the Information About Brokerage Services (IABS) notice explaining these relationships; anyone with specific questions should consult a real estate attorney.

Tenant representationLandlord representationCooperating broker

Landlord representation is when a brokerage works for a property owner to market and lease its space, negotiating lease terms on the owner's behalf.

Typical work includes pricing the space, marketing it, touring prospects, screening tenants, and negotiating the LOI and lease. The landlord usually pays the leasing commission under a written listing agreement.

Tenant representationCommissionIntermediary (dual agency)Landlord representation in Austin

The lease term is the length of time a lease runs, from the commencement date to the expiration date, not counting any renewal options.

Shorter terms offer flexibility, while longer terms usually earn more tenant improvement allowance and free rent because the landlord has more time to recover its costs. Terms vary by property type and deal size.

Renewal optionRent commencement dateTenant improvement (TI) allowance

A letter of intent is a short document that outlines the main business terms of a proposed lease or sale, such as rent, term, and concessions, before a full contract is drafted.

LOIs are usually non-binding as to the deal itself, though some provisions, like confidentiality or exclusivity, may be written to bind. Most of the negotiating leverage is used at the LOI stage, so it pays to get the key terms right there.

Tenant representationBase rentTenant improvement (TI) allowanceTenant and buyer representation

A load factor is the percentage added to a tenant's usable square footage to cover its share of a building's common areas, such as lobbies, hallways, and shared restrooms.

For example, a hypothetical suite with 2,000 usable SF and a 15% load factor would be billed as 2,300 rentable SF. Load factors vary by building, so comparing spaces by usable area and total cost gives a truer picture than rate alone.

Rentable vs usable square feetOffice space in Austin

A modified gross lease is a lease where the tenant and landlord split operating expenses, with the tenant typically paying some costs, like utilities or janitorial, and the landlord covering the rest.

There is no standard definition, so the split varies by deal and must be read in the lease. It sits between a full service gross lease and a triple net lease.

Gross leaseFull service gross leaseTriple net lease (NNN)

Net effective rent is the average rent a tenant actually pays over the lease term after accounting for concessions such as free rent, giving a truer comparison between offers.

For example, a hypothetical 5-year lease on 2,000 SF at $30/SF with 5 months of free base rent totals $275,000 instead of $300,000, for a net effective rent of $27.50/SF per year. More detailed calculations also factor in escalations, tenant improvement allowances, and the time value of money.

Base rentFree rent (rent abatement)Tenant improvement (TI) allowance

Net operating income is a property's annual income from rent and other sources minus its operating expenses, before debt payments, income taxes, and capital expenditures.

NOI is the figure used to calculate a cap rate and is a core measure of what an income property is worth. For example, a hypothetical building collecting $150,000 a year with $50,000 of unreimbursed operating expenses has $100,000 of NOI.

Cap rate (capitalization rate)Operating expenses (OpEx)

Operating expenses are the ongoing costs of running a property, including property taxes, insurance, maintenance, repairs, utilities for common areas, and management fees.

In a net lease, tenants reimburse their share of these costs on top of base rent; in a gross lease, the landlord pays them out of the rent. In Texas, property taxes set by the county appraisal district are often one of the largest components, so a reassessment can move a tenant's NNN charges.

CAM (common area maintenance)Triple net lease (NNN)CAM reconciliationNet operating income (NOI)

An owner-user is a business that buys a commercial property and occupies all or most of it for its own operations, rather than buying it purely as an investment.

Owning can give a business control over its space and build equity instead of paying rent, but it ties up capital and adds ownership responsibilities. Owner-users can often access financing such as SBA 504 loans that investors cannot.

SBA 504 loanCap rate (capitalization rate)Tenant and buyer representation

A pad site is a freestanding parcel, usually at the front of a shopping center near the road, sold or ground leased for a single building such as a restaurant, bank, or coffee shop.

Pad sites offer strong visibility and often allow a drive-thru, and they usually share access and parking with the larger center under recorded agreements. Deals are often structured as a ground lease or a build-to-suit.

Build-to-suitEndcapAnchor tenantRestaurant space in Austin

A parking ratio is the number of parking spaces available per 1,000 square feet of leased space, used to judge whether a property can handle a tenant's staff and customers.

For example, a hypothetical 2,000 SF suite in a building with a 4 per 1,000 ratio has roughly 8 spaces attributable to it. Medical, restaurant, and fitness uses usually need more parking than general office. In 2023 the City of Austin removed most minimum parking requirements from its code, so available parking now depends largely on what the property actually provides.

Zoning (permitted use)Medical office space in Austin

A personal guarantee is a promise by a business owner to be personally responsible for a lease if the tenant company fails to pay or perform.

Landlords often ask for one from newer or smaller businesses. Tenants can sometimes negotiate it down, for example by capping the amount, having it burn off after a period of on-time payments, or offering a larger deposit or letter of credit instead; terms vary by deal.

Security depositAssignment

A renewal option is a lease right that lets the tenant extend the lease for an additional period, on terms set in the lease, by giving notice before the current term ends.

Renewal rent may be a fixed amount, a set increase, or fair market value at the time of renewal. Notice deadlines are strict, so tenants should track the exercise window carefully.

Lease termHoldoverRight of first refusal (ROFR)

The rent commencement date is the day a tenant starts paying rent, which can be later than the date it gets possession of the space or the lease commencement date.

The gap usually gives the tenant time to build out and get permits before rent starts. Leases may tie rent commencement to a fixed date, to opening for business, or to the earlier of the two.

Free rent (rent abatement)Certificate of occupancy (CO)Lease term

A rent escalation is a scheduled increase in base rent during a lease term, usually applied annually as a fixed percentage, a fixed dollar amount, or a change tied to an index.

For example, a hypothetical lease starting at $30/SF with 3% annual escalations would be $30.90/SF in year two. Escalation terms are negotiable and affect total lease cost as much as the starting rate does.

Base rentNet effective rent

Usable square feet is the area a tenant actually occupies, while rentable square feet adds the tenant's share of common areas, and rent is usually charged on rentable square feet.

The difference between the two is expressed as the load factor. Buildings often measure under BOMA standards, but methods vary, so two spaces with the same rentable size can have different usable areas.

Load factor

A right of first refusal gives a tenant the right to match a third party's offer to lease adjacent space or buy the property before the landlord can accept that offer.

It differs from a right of first offer (ROFO), where the landlord must offer the space or property to the tenant first, before marketing it. Landlords often limit these rights because they can slow down deals with others.

Renewal optionOwner-user

An SBA 504 loan is a U.S. Small Business Administration program that helps owner-occupying businesses buy or build commercial real estate with a lower down payment than many conventional loans.

A common structure combines a bank loan, a loan from an SBA-backed Certified Development Company, and a down payment from the business, and the business generally must occupy a majority of the property. Eligibility, down payment, and rates depend on the borrower and the program rules in effect, so confirm details with an SBA lender.

Owner-userTenant and buyer representation

Second-generation space is space previously built out and occupied by another tenant, so improvements like walls, plumbing, and HVAC are already in place for the next user.

Reusing an existing buildout can save time and money, such as a former medical suite with exam-room plumbing or a former restaurant with a hood and grease trap. The savings depend on how closely the existing layout and equipment fit the new tenant's needs and current code.

First-generation (shell) spaceTurnkey buildoutTenant improvement (TI) allowanceSecond-generation medical space in Austin

A security deposit is money a tenant gives the landlord at lease signing to secure performance of the lease, which the landlord may apply to unpaid rent or damage.

The amount is negotiated and often depends on the tenant's financial strength, from one month's rent to several months or a letter of credit. Chapter 93 of the Texas Property Code includes rules on how commercial landlords return deposits, but the lease and legal advice govern any specific situation.

Personal guarantee

An SNDA is an agreement among a tenant, landlord, and lender that makes the lease subordinate to the loan while protecting the tenant's right to stay if the lender forecloses.

Subordination puts the loan ahead of the lease, non-disturbance protects the tenant's occupancy as long as it is not in default, and attornment means the tenant agrees to recognize the new owner as landlord. Tenants making a large investment in their space often ask for one.

Estoppel certificate

A sublease is an arrangement where an existing tenant rents all or part of its space to another business while remaining responsible to the landlord under the original lease.

Subleases usually need landlord consent and can offer below-market rent, existing furniture, or shorter terms. The subtenant's rights depend on the original lease, so they end if that lease ends.

Assignment

A tenant improvement allowance is money a landlord contributes toward building out or renovating a tenant's space, usually quoted in dollars per square foot.

For example, a hypothetical $40/SF allowance on 2,000 SF would provide $80,000 toward construction. The amount depends on lease term, space condition, and tenant credit, and costs above the allowance are typically paid by the tenant.

Turnkey buildoutSecond-generation spaceFirst-generation (shell) spaceNet effective rent

Tenant representation is when a brokerage works only for a business looking to lease space, helping it find options, compare costs, and negotiate the lease in its favor.

In Austin, the tenant's brokerage is typically paid by the landlord, so representation usually costs the tenant nothing. A short written representation agreement spells out who pays the fee.

Landlord representationCommissionLetter of intent (LOI)Intermediary (dual agency)Tenant and buyer representation

A triple net lease is a lease where the tenant pays base rent plus its share of the property's taxes, insurance, and common area maintenance, often called NNN charges.

For example, on a hypothetical 2,000 SF space at $30/SF base rent with $10/SF NNN, the total would be $40/SF, or $80,000 per year. NNN leases are common for retail, medical, and industrial space, and the NNN amount changes year to year with actual costs.

CAM (common area maintenance)Operating expenses (OpEx)Gross leaseModified gross leaseCAM reconciliationRetail space in Austin

A turnkey buildout is a deal where the landlord designs and builds the tenant's space to an agreed plan and delivers it ready to occupy, rather than giving a fixed allowance.

Turnkey shifts construction cost risk to the landlord, but the cost is often reflected in a higher rent or longer term. The approved plans and specifications should be attached to the lease so both sides agree on what is being delivered.

Tenant improvement (TI) allowanceFirst-generation (shell) spaceSecond-generation space

Zoning is the local government's rules for how a property may be used, and a permitted use is a use the zoning allows on that property without special approval.

Before leasing or buying, confirm that the zoning and any deed restrictions or center rules allow your use, such as medical, restaurant, or light industrial. In Austin, base districts such as LO, GR, CS, and LI each allow different uses, and properties in surrounding cities follow those cities' own codes.

Certificate of occupancy (CO)Exclusive use clauseParking ratioSpecialty properties