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Some common terms in commercial real estate contracts

When dealing with commercial real estate, understanding the language in your contract is only half the battle. But it's a critical part of the battle when it comes to profitability and risk-management, which is one reason why you might consider seeking professional legal assistance for your transactions.

Real estate terms can be confusing, and sometimes, the context of the contract can alter the meaning of a phrase or word enough to change how you should interpret it. One term that doesn't tend to change is "usable square footage." This refers to the square footage that the tenant who will be renting real estate uses and is contrast to rentable square footage, which might include common areas in a building that are used by more than one tenant. When buying property you intend to rent to business or residential users, understanding the type of square footage helps you value your investment.

If renting, you'll also need to understand various types of rental and lease structures. Common types of leases include net leases, gross leases and full service rentals. Each one comes with a slightly different financial agreement regarding how much rent is paid and what that rent covers. Understanding what type of lease you are offering to business or residential tenants helps you plan ahead regarding commercial real estate income and expenses.

When renting commercial property to tenants, you might be asked by a tenant to include a non-compete clause in the lease. This clause bars you from renting property within the same structure or property to a direct competitor of the tenant. Such a clause could limit how you rent additional spaces in the property, so you should consider carefully before proceeding.

These are just some of the things you might have to consider when dealing with commercial property. Turning your investment into profit might not be simple, but with legal assistance, you can often avoid some poor contract decisions that make profit impossible.

Source: U.S. Small Business Administration, "10 Commercial Real Estate Terms You Need to Know," Caron Beesley, accessed Nov. 26, 2015

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