9 Real Estate Terms Tenants Need to Know

Renting an office space?

Having a thorough understanding of your lease terms is extremely helpful, if not crucial. It ensures that you maximize the value of your payment and effectively decide if the rates, terms, and availability of space in your chosen building would match your budget and timeline.

As a real estate specialist, KMC MAG Group's team has experienced dealing with several clients who needed assistance during the negotiation phase as they do not understand several terms and formulas and how to properly compute them.

In this article, we'll clarify some of the frequently misunderstood real estate terms by tenants, and sometimes, owners and landlords:

Net Leasable Area (NLA), Limited Common Area (LCA), and Gross Leasable Area (GLA)

Often, price negotiations take longer between tenants and landlords because of the definition of NLA, LCA, and GLA. Tenants would expect rental prices to be based on the measurements advertised in the brochures, which typically represents only the Net Leasable Area or Usable Area.

Net Leasable Area is the term used to determine which area of a floor or office suite can be occupied by the tenant, but it does not consider the Limited Common Area (LCA), covering the common lift lobbies, toilets, and hallways, etc.

Rental rates are based on the Gross Leasable Area (GLA), which is the sum of both the NLA and LCA for whole floor tenants. For non-whole floor tenants, GLA is computed by adding the unit's NLA to the percentage share on the common areas. This percentage share is based on the NLA per unit, thus for larger units, % share is higher than the other tenants with smaller units, even if they are on the same floor and they share the same common areas.

Example:

Unit 1 has a higher percentage share because its NLA is 160.23 sq m.

Key takeaway:
When leasing an office space, make sure you clarify the size of the office space, including the common areas, so you can properly assess if the chosen location suits your organization's budget.

Topping-Off, Completion Date, Handover Date

These are the dates to remember especially when pre-leasing or pre-purchasing an office space. Topping-off is the ceremony normally celebrated once the last beam is placed on top of the structure during the construction. This is just the first phase; after the topping off, several building areas still need to be completed, which includes interior finishes and set up of mechanical, electrical, and plumbing systems.

Completion date, on the other hand, does not mean that the building is ready for occupancy. It simply means that the construction phase has been finished and now the developer needs to secure a building completion certificate by undergoing a series of inspections from the authorities.

Handover date is the target date of handing over the property to the tenants or transferring the title to the owner (in case the office is bought). Usually, this means that the unit or floor is ready for occupancy.  

Key takeaway:

You need to take note of these dates especially when planning your team's move to a new location or space. It helps to work with a broker as he or she can help find a property that matches your target move-in date. 

Vetting Fee and Construction Bond

Before you can fit out an office or retail space, landlords typically require payment of vetting fees for the review and approval of your plans from the design to electrical and plumbing specifications by the accredited engineers and architects of the buidling. You will also be required to deposit a construction bond, which will be refunded back once the fit out has been completed. This bond is used to insure the common area against any damage during the fit out process.

Common Use Service Area (CUSA) Fee

The CUSA fee is charged monthly and is used to maintain the common areas such as the restroom, lobby, and other shared spaces that can be used by all the tenants of the building and its customers. It is computed based on the tenant's proportionate share on the common areas. For example, malls typically charge tenants around Php 80 to Php 150 per sq m CUSA fee. If the common area is at 100 sq m, you may have to pay an extra Php 800 to Php 1500 every month on top of the basic rent.