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Home Resources Commercial Lease Application: Glossary of Key Terms

Commercial Lease Application: Glossary of Key Terms

Refer to this commercial lease application glossary of key terms to better understand these applications and the critical questions to ask.

Jana Freer

Updated July 29, 2022 | Written by Jana Freer
Reviewed by Susan Chai, Esq.

A commercial lease application is a document that a landlord asks a tenant to fill out as part of the screening process to rent commercial real estate.

An office, retail store, warehouse, factory, or restaurant are examples of commercial property.

Creating a written commercial lease application helps landlords determine which potential tenants will pay rent on time. It also provides insight into other factors that make an applicant a good candidate for renting or not.

Below is a glossary of key terms found in most commercial lease applications. This glossary, as well as our commercial lease application guide, shed light on items a landlord should include in a lease application and give insight into questions to ask potential tenants.

After you familiarize yourself with the key terms in a commercial lease application, use our builder to create a commercial lease application form for your property.

Terms Starting with ‘A’

Applicant

The applicant on a commercial lease application is the business or individual that will enter into a lease agreement to rent commercial space.

Terms Starting with ‘B’

Background Check

Typically, a background check on a commercial lease application uncovers information, using public data sources and reports, that a landlord may find helpful when choosing a tenant.

Background checks generally produce a report that includes the full name, aliases, date of birth, marriage and divorce records, arrests, crimes committed, bankruptcies, judgments, lawsuits, traffic tickets, and available social media information for a potential tenant.

Bank References

A bank reference is a bank manager’s written opinion of a customer’s creditworthiness and financial stability.

Bankruptcy

Bankruptcy occurs when an individual or business entity can no longer repay debts to creditors. Applicants with bankruptcies on their record pose a greater risk than those with a good credit background.

Business Assets

Business assets reference items of value the business owns. A business’ assets may consist of cash on hand and in savings, money in checking accounts, and IRA balances. Assets can also include property and business equipment. 

Business Capital

Business capital is money on hand and in reserves. In its broadest term, business capital includes assets that the tenant can convert to cash to pay off debts.

Capital may be accounts receivable, insurance cash surrender, real estate, stocks and bonds, and even company vehicles.

Business Financials

Landlords use business financials – bank statements and a company’s financial reports – gathered for a commercial lease application to verify assets and liabilities, including money coming in and going out.

Business Income

Business income is income that a business generates.

Business Lease Agreement

A business lease agreement is another name for a commercial lease agreement.

Business Profit

Business profit is the money left after you subtract all expenses from gross revenue.

Business Revenue

Business revenue is the money a business generates from its normal business operations, usually calculated as the average sales price times the number of units sold.

Terms Starting with ‘C’

Commercial Credit Report

A commercial credit report is similar to a personal credit report. It is a tool a landlord uses to find a business’s creditworthiness. 

Landlords often use a signed commercial lease application to run a business credit check on a potential tenant for their property. 

Commercial Lease

A commercial lease details the terms and conditions of renting a commercial real estate space. Commercial leases can extend for many years.

IMPORTANT

Landlords often calculate rent in a commercial lease using a percentage of monthly sales or based on the space’s square footage instead of a fixed amount.

Commercial Lease Agreement

A commercial lease agreement is a legal contract between landlord and tenant outlining the terms and conditions of renting space to operate a business on the landlord’s property.

Commercial Lease Application

A commercial lease application is a document a landlord uses to evaluate applicants who want to rent a commercial space, for example, a restaurant, office, retail space, or warehouse.

Commercial Lease Application Fee

As a landlord, you may collect a commercial lease application fee when evaluating potential tenants.

TIP

Be careful to point out in writing that the commercial lease application fee is not a security deposit for the leased space.

The charge for a commercial lease application fee typically ranges from $50 to $200, which the landlord will likely use to conduct the commercial credit check. 

Commercial Lease Application Form

A commercial lease application form is a document that is part of the tenant screening process.

Commercial Lease Assignment

If permitted in the commercial lease agreement, a tenant or landlord may assign all interests and obligations under the original contract to another party who will continue the lease terms.

Commercial Property

The definition of commercial property is real estate intended to generate a profit including simple office space, a storefront, a building, an entire mall, and an industrial warehouse. 

Commercial Lease Application Form

A commercial lease application form is a document a landlord asks a potential tenant to fill out to apply for the lease of a commercial real estate space.

Commercial Lease History

A commercial lease history is a listing of other properties that an applicant has rented.

Commercial Space

Commercial space is a type of real estate that houses a business, such as a cafe, law office, home goods store, pharmacy, or bank.

Commercial Tenant Rejection Letter

If landlords decline an applicant for commercial space, they should send the applicant a tenant rejection letter describing the reasons for denial.

This letter helps protect the landlord against alleged discrimination in the tenant selection process.

Commercial Tenant Screening

Commercial tenant screening begins once a landlord receives a fully completed lease application. 

TIP

The landlord should start the screening process by calling references, verifying the business with the Secretary of State, and obtaining a business credit report followed by an optional personal credit report applicant’s officers or guarantors.

Commercial Tenant Screening Fee

A landlord can choose to charge the applicant a commercial tenant screening fee, which may cover the cost of processing the application and any credit or background checks needed.

Common Areas

Common areas in real estate are areas that multiple tenants use, such as lobbies, parking lots, bathrooms, and garbage disposal areas. 

Company

The company listed on a commercial lease application is the name of the business entity seeking to rent the commercial space. 

Cost Per Square Foot

In commercial leasing, a landlord determines the cost per square foot by factoring in the location, type of business, and other variables like the current real estate market. 

Also called price per square foot (PPSF), cost per square foot is the cost of the building divided by the building’s square feet.

Credit Check

A credit check is a process a landlord may take to uncover an applicant’s credit history and credit usage. 

To perform a credit check, ensure your applicant signs the consent clause on your commercial lease application, which means they agree to a credit check and, if applicable, a criminal background investigation. 

Credit Reference

A credit reference is a business or individual who can vouch for the applicant’s ability to make timely payments. 

Credit Score for Commercial Lease

As a landlord, you can use and consider a credit score in evaluating commercial lease applicants. Business credit scores range from 0 to 100, and Dun & Bradstreet and Experian are the larger business credit reporting agencies .

Creditworthiness

Creditworthiness indicates how worthy someone is of receiving credit and helps establish how likely the applicant will pay rent.

Criminal Investigation

Landlords may obtain information on arrests, pending charges, and crimes committed by ordering a criminal investigation.

IMPORTANT

Remember, a potential tenant must agree to a criminal investigation and consent to the background check by signing an authorization form.

Terms Starting with ‘D’

Discrimination

Landlords are not allowed to discriminate against applicants based on their race, color, national origin, marital status, religion, ancestry, sexual orientation, gender, age, disability, military or veteran status.

A landlord cannot discriminate based on whether or not an application receives housing subsidies or public assistance.

Dun & Bradstreet

Dun & Bradstreet is an American corporation that provides analytics, commercial data, and business insights such as commercial credit ratings.

Terms Starting with ‘E’

Entity

An entity in a commercial lease application is typically a commercial business looking for retail space. 

Entities may be a partnership, an LLC, or a corporation. 

Eviction

A landlord may proceed with the eviction of a commercial tenant who does not pay rent or adhere to the contractual clauses in a commercial lease agreement. 

Execute

The term execute refers to the proper signing of a commercial lease application or lease agreement between the tenant and the landlord.

Experian

Experian is one of three major credit reporting bureaus, along with Equifax and TransUnion, that keeps track of consumer credit payment history. Experian also generates business credit reports.

Terms Starting with ‘F’

Federal Tax ID Number (FEIN)

A federal Tax ID number is also known as an employer identification number (EIN). The government uses this number to identify a business entity for tax reporting purposes.

Full-Service Lease

Generally, the tenant pays the rent and the landlord pays the property’s operating expenses including property taxes, maintenance fees, upkeep, repair costs, and utilities for a full-service (or gross) lease.

Terms Starting with ‘G’

Good Standing

A business entity in good standing generally refers to an entity that has complied with the state’s regulatory obligations, such as filing reports and fees. 

Guarantor

A guarantor is someone who agrees to pay a primary debtholder’s contractual financial obligations should that person fail to do so.

Terms Starting with ‘L’

Landlord

A landlord is the owner of the property the tenant rents.

Lease Breach

Beyond the failure to pay rent, a tenant’s adverse actions may constitute a lease breach when they purposely or inadvertently break a clause in the commercial lease and do not rectify it according to the lease terms.

Lease Commencement Date

The commencement date is the start date of the lease.

Lease Negotiation

Lease negotiation is a process that involves a tenant and landlord seeking out favorable terms beneficial to each of them. Many landlords and tenants like to negotiate the lease term, the ability to sublet, and rent.

Lease Term

The lease term is the length of time a tenant will rent a property and it is one of the most critical components of a commercial lease agreement. 

Businesses often have lease terms that last from three to ten years.

Lessee

The lessee is the entity seeking to lease commercial space, the applicant, and the potential tenant.

Lessor

The lessor is the person who owns the commercial property and wants to rent it out, the landlord.

Liabilities

Liabilities consist of business losses, ongoing debts, and obligations, and continued operating costs. 

Terms Starting with ‘M’

Modified-Gross Lease

A modified-gross lease states that a landlord and tenant share payment responsibilities for the property’s operating expenses.

An example of this kind of lease is when the commercial tenant pays for maintenance and utilities, and the landlord pays for property taxes and insurance.

Terms Starting with ‘N’

Net Lease

The tenant is responsible for some or all of the property’s operating expenses in addition to rent, for a full-service (or gross) lease.

There are different types of net leases, such as the single net lease where the tenant pays rent and property taxes. The triple net lease is where the tenant pays rent, property taxes, insurance, and maintenance.

Terms Starting with ‘O’

Office Space

Office space can be a room, an entire floor, or even a whole building that a company uses to conduct administrative duties for the business.

Owner/Principal

The owner on a commercial lease application is the person who owns the business applying for tenancy. 

A principal may refer to the business owner or the person authorized to enter into a lease agreement for the company.

Terms Starting with ‘P’

PAYDEX Score

A PAYDEX score is a business credit score Dun & Bradstreet generates and is the most widely used score. If applicants have an 80 or above PAYDEX score, the landlord typically considers them low risk.

Personal Credit Check

A personal credit check is a credit investigation that a landlord conducts on the business owner applying for tenancy.

IMPORTANT

Applicants for commercial real estate must authorize a check into their credit and they typically do this by signing a commercial lease application with a credit check clause.

Personal Credit Score

A personal credit score indicates how an individual has paid debts and creditors over time.

Personal Guarantee

A tenant may personally guarantee continued payment of the lease if, for some reason, the business fails and cannot pay. 

For new companies, landlords often require a personal guarantee of a commercial lease.

Terms Starting with ‘R’

Rent

Rent refers to the money the tenant owes and pays to the landlord each month or at regular intervals. 

Rent may include taxes, maintenance, operating costs, upkeep of common areas, garbage disposal access, and parking in addition to the amount the landlord requires to occupy the commercial space.

Retail Space

Retail space refers to real estate intended to sell goods instead of residential living.

Terms Starting with ‘S’

Security Deposit

Tenants usually provide a security deposit at the start of a lease in addition to paying the first month’s rent. 

The landlord holds the deposit in trust to cover any future costs the tenant might owe upon move-out.

Short-Term Lease

Short-term commercial leases are typically one to two years. They are less common than long-term commercial leases because many landlords want to build ongoing relationships with their tenants.

Typical and preferable commercial leases last at least three years. 

Square Footage

You can calculate the square footage of commercial space by measuring the length and width of an area and then multiplying the two figures together.

Terms Starting with ‘T’

Tenant   

In a commercial lease application, the tenant is the business planning to lease the commercial space.

Third-Party Tenant Screening

There are third-party services where you can pay a fee to obtain tenant screening data, including business credit reports and commercial background checks.

Terms Starting with ‘U’

Usable Space

Usable space refers to the total area of real estate allotted solely to the tenant to conduct business.

Terms Starting with ‘V’

Vacant Space

Vacant space is tenant-free commercial real estate currently marketed for lease.

Summary 

This glossary of key terms in a commercial lease application should help you create a lease application and lease agreement that meets your real estate needs.

To create a commercial lease application, use our step-by-step builder as a guide.

Jana Freer

Jana Freer

Real Estate Editor

Jana Freer has held a California real estate license since 2006 and has written extensively about the U.S. real estate market since 2011.

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  • A Guide to Using Commercial Lease Applications
  • Landlords: How to Run a Credit Check on a Tenant

In This Article

  • Terms Starting with 'A'
  • Terms Starting with 'B'
  • Terms Starting with 'C'
  • Terms Starting with 'D'
  • Terms Starting with 'E'
  • Terms Starting with 'F'
  • Terms Starting with 'G'
  • Terms Starting with 'L'
  • Terms Starting with 'M'
  • Terms Starting with 'N'
  • Terms Starting with 'O'
  • Terms Starting with 'P'
  • Terms Starting with 'R'
  • Terms Starting with 'S'
  • Terms Starting with 'T'
  • Terms Starting with 'U'
  • Terms Starting with 'V'
  • Summary 

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