By Matthew DeRose – CEO, Nomad Group

A quick-reference guide to commercial lease terms every growing company should know.

Commercial leases are filled with industry jargon that can make even the sharpest operator feel like they’re reading a foreign language. This glossary breaks down the key terms you’ll encounter so you can negotiate with confidence and avoid costly surprises.

Base Rent: The starting rental rate per square foot, usually quoted annually (e.g., $60/SF/year). This is the rent before operating expenses or additional charges are added.

Net Effective Rent (NER): The average rent over the lease term after factoring in concessions like free rent or tenant improvement allowances. NER shows the true cost of the lease.

Full-Service Gross (FSG): A lease where the rent includes all operating expenses (taxes, maintenance, insurance, etc.). Simple, predictable, and common in many office buildings.

Modified Gross Lease: A lease structure where base rent includes some operating expenses, but tenants may pay separately for others (like electricity or janitorial).

Triple Net Lease (NNN): A lease where the tenant pays base rent plus their share of taxes, insurance, and operating expenses. Common in retail and some office spaces.

Tenant Improvement Allowance (TI or TIA): A dollar amount the landlord provides for building out or customizing the space (e.g., walls, flooring, lighting). Negotiable based on lease length and credit.

Free Rent: Rent abatement offered at the beginning of the lease (or occasionally mid-term) as a concession. This doesn’t mean you skip utilities or other costs, just base rent.

Commencement Date: The date the lease officially begins. This may differ from the move-in date (especially if there’s a buildout or early access period). The date the tenant is granted access to the space, typically to begin construction or install furniture/IT ahead of move-in.

Good Guy Guarantee (GGG): A common NYC clause that allows a personal guarantor (often the founder) to exit the lease without long-term liability, provided they vacate properly and give notice.

Security Deposit: Upfront funds (typically 2–6 months of rent) held by the landlord to protect against default or damage. Often reduced in future years with strong financials.

Sublease: Leasing a portion (or all) of your space to another tenant. Usually requires landlord consent. Helpful if you’re growing fast or need flexibility.

Option to Renew: A clause giving the tenant priority to extend the lease before the space hits the open market. Often negotiated upfront but not always guaranteed.

Right of First Offer (ROFO) / Right of First Refusal (ROFR): Gives the tenant priority to lease adjacent or comparable space before the landlord markets it to others.

Work Letter: An addendum to the lease that outlines the scope of work the landlord will complete (paint, flooring, build-out, etc.) before tenant occupancy.

Use Clause: Specifies how the space can be used (e.g., office, showroom, medical). It can affect approvals, permits, and even neighboring tenants’ rights.

Delivery Condition: Describes the state of the space when handed over to the tenant (e.g., raw, white-boxed, pre-built). Critical for budget and timeline planning.

Escalations: Annual rent increases, usually expressed as a percentage (e.g., 3% annually) or tied to operating costs/taxes.