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Glossary of Terms – Heads of Agreement

Glossary of Terms

This list of terms are clauses that might pop up in your leasing agreement.

1. Lessor / Landlord: The owner (landlord) of a commercial property
2. Lessee / Tenant: The tenant (occupier) of a commercial property.
3. Premises: Refers to the specific registerable address of the space.
4. Lease Term: The length of the lease. Simply put, the intended duration to occupy the space. If the landlord offers any further terms, the contract should state these in addition through Option terms.
5. Option: A tenant or landlord’s right to opt to extend the lease for an agreed period of time. Leasing terms can either be continued as previously agreed or renegotiated.
6. Lease Commencement: Refers to the date which the lease will commence.
7. Net Lettable Area (NLA): The total area of space to be leased. Unless specified, this is only referring to the lettable area specified for that lease. Spaces such as balconies, common areas and bathrooms are not typically included for part-floor occupiers, though may be for full floor occupiers.
8. Face Rent: A dollar per square metre ($/sqm) rate which represents the asking rent for the building. This clause should also detail if the rent is a net / semi-gross / gross figure.
9. Annual Gross Rental: Amount of rent payable in the first year of the lease.
= NLA x Face Rent
Used for calculation of Incentive; Bank Guarantee/Security; Deposit.
10. Rent reviews: A rent review is an increase in the Annual Gross Rental each year for the duration of a lease. This is likely a fixed percentage increase.
11. Incentive: Incentives are used to entice prospective tenants to occupy a given space. A lease incentive can be utilized in several ways, primarily for rental abatement or fit out/works contribution. Rent free periods may also be involved.
For more, see here.
12. Early Access: This clause will be present if the Lessee is being offered a period of access prior to the Lease Commencement date. It will outline any expectations around requirements to qualify for access, as well as any associated costs.
13. Fit Out: Fit out refers to the state and contents of the fit out in the Premises.
14. Condition of Premises: This and the Fit Out clause can sometimes be interchangeable. This clause will outline the condition of the premises at the agreed handover/lease commencement date. It will generally detail what is included in the tenancy. Typically a formal condition report will be completed prior to the Lessee taking occupation to ensure there is agreement between the parties on the condition at handover.
15. Permitted Use: There are specific restrictions on how the Premises can be utilized. This is impacted by zoning and approval. This clause will typically read “Commercial Office” and is intended to outline that the Premises is not a retail shop or residential premises.
16. Outgoings: Outgoings refer to the expenses the landlord incurs from operating the building. The heads of agreement will outline what outgoings the incoming tenant is responsible for (if any), above the Gross Rental.

Many CBD leases are semi-gross and will have tenants paying for any increases in outgoings over a base year.

For more, see here.

17. Car Parking: Will outline the number of bays available and the monthly rate, if applicable.
18. Security OR
Bank Guarantee:
Bank Guarantees are used as a form of financial security by the landlord in the instance that the tenant should default on their lease. The amount of a bank guarantee required will vary on landlord’s preferences and the conditions of the tenant.

A Bank Guarantee is typically six (6) months of the Annual Gross Rental, plus GST.

19. Insurance: As a tenant you will be required to take out a variety of insurance policies to protect yourselves and the owner of the property.

Typical policies will include Public Liability; Plate Glass; insurance for the cost of the fit out.

20. Lessor Works: A Lessor Works clause will outline any works that are to be carried out at the Lessor’s expense prior to the Lease Commencement. This can include works to the Premises directly, or the building generally.
21. Lessee Works: If permitted throughout the Lease Term, the Lessee Works clause will outline the expectations around any fit out works that are to be carried out.
22. Make Good: Make Good clauses contain the details of the Lessee’s responsibilities around the condition they are to leave the Premises/Fit Out in when they vacate.
23. Tenancy Cleaning: This will outline the tenant’s options in relation to cleaning the tenancy (i.e. whether they are required to use a designated cleaner or can tender for their own), and potentially the price.
24. Common Area Cleaning: This will outline whether Common Area Cleaning is a cost absorbed through Outgoings, or whether it is an additional cost, as well as the price.
25. Utilities and other costs: This will clarify whether Utilities (water, electricity, et c) are separately metred to the tenancy, as well as any other minor costs.
26. Subletting: A sublease clause will outline whether a tenant is permitted to sublease, and any other particular terms around having to provide sufficient notice; seek landlord approval; and, agree acceptable sublease rates.
27. Holding Deposit: A deposit is payable upon execution of an Offer document and is held by the landlord’s agent or property manager in a trust account.
28. Legal Documentation: It is standard that the building owner will have their solicitor draft the lease documents and that each party will pay for their own legal expenses.
29. Building and Service Hours: This clause will outline the building’s standard hours of operation (typically between 7am and 6pm)
30. After Hours Air Conditioning: Lessors will typically provide air conditioning to the premises through the standard Building and Service Hours at no additional charge to the Lessees. However, outside of the standard hours, running the air conditioning will be charged as an additional cost. This clause will outline the cost to run the air conditioning outside of standard hours.

Not sure how much office space you need? Our calculator could help.