A

Absolute Triple Net Lease

Lease requiring the tenant to pay a base rent plus all costs associated with the operation, repair and maintenance of the building, all real estate taxes and utilities. Not all landlords and lessees define triple net in the same way.

ADA

Americans with Disabilities Act passed by Congress in 1994. Its intent was to provide persons with disabilities accommodations and access equal to or similar to that of the general public.

Additional Rent

Any rent due under a lease that is in addition to the base rent. The most common form of additional rent is operating expense increases.

Agency

Any relationship in which one party (agent) acts for or represents another (principal). Agency agreements involving real property should always be in writing.

Allowance

Set dollar amount provided by the landlord under a lease to be used by the tenant for a specific purpose. Examples include allowances for tenant improvements, moving expenses, and design fees. If the expense exceeds the allowance amount, the excess will be the tenant's responsibility. If the expense is less than the allowance, the savings are usually retained by the landlord unless the lease specifies otherwise.

Amortization

Payment of debt in periodic installments of principal and interest, as opposed to interest only payments. Commonly used in a lease where the landlord incurs costs for additional tenant improvements which are treated as a debt and repaid by the tenant over the term of the lease.

Assignment

A transfer to another of real or personal property or any rights in property. Common assignments are of leases, mortgages, and deeds of trust. However, the term encompasses all transfers of title.

 

B

Base Building

The existing shell of a building prior to the completion of tenant improvements. This condition varies from building to building, and landlord to landlord.

Base Rent

The minimum rent in a lease to which additional rent is added. The additional rent may be based on a percentage of sales or otherwise.

Base Year

The twelve month period of time upon which a direct expense escalation of rent is based. Generally, it is the calendar year in which the lease commences.

Bay Size

The distance between the structural columns that support the building.

BOMA

Building Owners and Managers Association. BOMA publishes the definition of rentable and useable area, which is used to determine the square footage leased in most commercial office buildings.

Building Class

Building Class is usually used to describe an office property and refers to the quality of the property. Class definitions fall with the following guidelines. Class A+: Landmark quality, high-rise building with prime central business district location (the best of the Class A buildings). Class A: Generally 100,000 sf or larger (five or more floors), concrete and steel construction, built since 1980, business/support amenities, strong identifiable location/access. Class B: Renovated and in good location, newer building that are wood frame construction, and/or in non-prime locations. Class C: Older, unrenovated of any size in average to fair condition.

Building Standards

A list of interior improvements made to a commercial space specifying the quantity and the type of materials and finishes generally contributed by the landlord, such as partitions, doors, lights, outlets, floor coverings, etc.

Buildout

Refers to the construction work and costs of building the interior improvements made in a defined space pursuant to the specifications and requirements of the tenant.

Bulk Warehouse

Those industrial properties with clear ceiling heights of 24 feet or higher, dock-high doors, and less than 10% office build-out.

 

C

CAM Charges

Common Area Maintenance charges. Those charges levied on or the expenses incurred in maintaining the common areas of a commercial building.

Commencement Date

The date on which a lease begins. This is usually, but not always, the day on which the tenant takes possession of the leased premises, which usually occurs upon substantial completion of the tenant improvements.

Certificate of Occupancy (COO)

A certification issued in writing by a local government agency verifying that a newly constructed building is in compliance with all building codes and may be occupied.

 

D

Demised Area

The walled off area of a leased space, separated from spaces leased to others (by a "demising" wall) or common area. Also measured as useable area.

 

E

Escalation Clause

A clause in a lease requiring an increase in the rent at a future date. It may be accomplished by several types of clauses, such as: (1) fixed increases - a clause which calls for a definite, periodic rental increase; (2) cost of living - a clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes; (3) direct expenses - the rent is adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased utility costs, maintenance costs, etc.

Estoppel Certificate

Document that prevents parties from later asserting facts different from those contained in a document. They are often required by the buyer of an income property. The tenant and landlord both sign the estoppel certificate, confirming the lease and other material facts. Thereafter, neither party is able to make claims to the contrary.

Expansion Option

A right granted by the landlord to a tenant whereby the tenant has the option to add more space to its premises pursuant to the terms of the option.

Expense Stop

A fixed amount in a lease where the tenant is responsible for all building operating expenses and taxes in excess of a defined amount.

Extension Option

An agreed continuation of occupancy under the same conditions, as opposed to a renewal, which involves new terms and/or conditions. In a lease, it is a right granted by the landlord to the tenant whereby the tenant has the option to extend the lease.

 

F

Fair Market Rent

Generally, the rent which would be negotiated by a willing landlord and tenant in an "arm's length transaction" for a specific property at a given time, even though the actual rent may differ. In a lease, the term "fair market rent" may be defined in a number of different ways.

Free Rent

A concession granted by a landlord to a tenant whereby the tenant is excused from paying rent for a stated period during the lease term.

Fully Serviced Lease: a lease in which the stated rent includes the operating expenses and taxes for the building. Same as a gross lease. Opposite of an absolute triple net lease.

 

G

Gross Lease

A lease in which the stated rent includes the operating expenses of the building. Same as a fully serviced lease.

Gross Up

An adjustment made to operating expenses to adjust for the occupancy level of a building. When operating expenses are "grossed up", it means that the building's variable expenses have been adjusted upwards to the level those expenses would have been if the building was fully occupied (usually 95%).

Ground Lease

A lease of land only. Usually an absolute triple net lease on a long term basis (30 years or more). Ground rent is not considered an operating expense.

 

H

Hold Over

The act of a tenant who retains possession of the premises after the expiration of a lease.

HVAC

Heating, Ventilation, Air Conditioning. A general term encompassing a system designed to heat and cool a building.

 

L

Landlord (Lessor)

The party (usually the owner) who gives the lease (right to possession) in return for consideration (rent).

Lease Proposal

A non-binding document whereby a landlord or tenant specifies the terms, that would induce a formal lease agreement for a particular space.

Lease Term

The period of time in which the landlord grants to the tenant the right to possession of real property.

Leased Occupied Space

Total square feet of tenant-occupied space as of certain date.

Leased Vacant Space

Total square feet leased but not physically occupied. Includes situations in which a tenant has moved out but is still responsible for the lease or where a lease has been signed but the tenant has not yet moved in.

Leasehold Agreement

A legal document whereby a landlord conveys a right of possession and use for a particular space to a tenant for a specified period of time and for a specified financial consideration. Another term for a lease.

Leasing Agent

The real estate brokerage company or individual agent that has been retained by the landlord to be responsible for the inquiries of space availabilities, lease terms, and ultimately the consummation of lease transactions in the subject property.

Lessee (Tenant)

The party to whom a lease is given in return for rent.

Lessor (Landlord)

The party (usually the owner) who gives the lease in return for rent.

Letter of Credit

A pledge by a bank, or other financial institution, made on behalf of a tenant for funds to be demanded by a landlord in the event of a default pursuant to the specific terms of a lease. Often used as security for the performance of a lease.

Letter of Intent

Generally a written statement that two parties to a prospective transaction (buyer/seller or lessor/lessee) intend to proceed to a binding agreement in good faith on stated principal business terms to be entered into. This definition applies when signed by both parties. Alternatively, such a statement may be signed only by one party and is then an indication of a willingness to enter into agreement on the stated terms and conditions. To avoid legal issues regarding offer and acceptance and thus the formation of a binding contract, care must be taken to include a clause stating that there is not an offer being made and no intent to create a legally binding obligation.

Load Factor

In a lease, the load factor is the multiplier to a tenant's useable space that determines the tenant's proportionate share of the common area (restrooms, lobby, mechanical rooms, etc.). The load factor is usually expressed as a percentage and ranges from a low of 5% for a full floor tenant to as high as 20% for a multi-tenant floor.

Loss Factor

A number that reflects the portion of rentable space that is attributed to the common areas of a commercial building, such as lobbies, corridors, restrooms, closets, etc. Often also referred to as "common area factor". Usually expressed as a percentage.

 

M

Managing Agent

The company or individual that has been retained by the landlord responsible for the day to day operations of the subject property. This firm or individual may also be the leasing agent.

 

N

Net Absorption

Net change in total occupied space (leased occupied plus owner occupied) at defined period of time.

Net Lease

A lease in which the contract rent excludes the tenant's pro rata share of all combined expenses.

Net Rentable Area

This is the area (square footage) for which rent can be charged. Generally, it is the gross area of a full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts, etc.) Net rentable area can be measured in many ways, but the most common measurement for office buildings is the BOMA standard which includes the tenant's premises plus an allocation of the common area directly benefiting the tenant, such as restrooms, common corridors, mechanical and storage rooms, and the elevator lobby on the tenant's floor.

Non-disturbance

The right to occupy and use a property or space under lease by a tenant, its successors or assignees, so long as the tenant is not in default of the lease agreement.

 

O

Occupancy Cost

Any cost or charge incurred by a tenant as set forth in the lease, such as rent, operating expense increases, parking charges, moving expenses, and renovation costs.

Occupancy Date

Unless specifically stated otherwise in the lease, it is the date on which the tenant takes possession of its leased premises.

Occupancy Rate

Total physical occupied space (lease occupied plus owner occupied) as of defined date divided by total inventory. Expressed as a percentage.

One Hundred Percent Location

The one-hundred percent location refers to the absolutely best location for a retailer. These locations justify the highest rents and have the highest sales volumes

Operating Expenses

The cost of operating an office building, such as janitorial, management fees, utilities, and other day to day expenses, including taxes, insurance, and a reserve for replacement of items which periodically wear out. Operating expenses should not include capital expenses such as roof replacement nor those associated with the production of income such as leasing commissions and legal fees.

Other Leasing Costs

Includes moving allowances, legal fees, lease assumption, and other reported quantifiable leasing costs pertaining to a lease transaction.

Owner Occupied

At least 50% of the building space is occupied by the owner.

Owner's Representative

An agent who is an advocate for the owner and/or landlord.

 

P

Pass Throughs

The real estate taxes and operating expenses of a property that are passed on to and paid by a tenant pursuant to the terms of a lease. In a net rent lease, the tenant usually pays for its entire pro rata share of taxes and expenses. In a gross rent lease, the tenant usually only pays for the pro rata share of future increases in the taxes and expenses subsequent to the year of the tenant's lease commencement.

Percentage Lease, Percentage Rents

A percentage lease is a commercial lease for retail space in which the tenant pays a reduced base rent, plus additional rent equal to a percentage of gross sales. Lessees obtain the benefit of a lower guaranteed rent, but the possibility of paying a higher than market rent if sales increase materially. Landlords find that offering percentage leases help attract commercial tenants when the leasing market is weak.

Premises

Generally, the entire rentable area leased by the tenant. Sometimes used to designate solely the useable area leased, i.e. that which the lessee has exclusive occupancy as opposed to the common areas.

Punch List

A detailed list, prepared by a tenant or tenant's architect, that itemizes the remaining construction to be completed by the contractor after substantial completion of the subject work or tenant's initial occupancy.

 

R

Rail Access

Those industrial properties that are serviced by a railroad spur.

Raw Space

Unfinished space that will require complete interior tenant improvements such as drop ceilings, light fixtures, partitions, doors, floor coverings, outlets, etc.

Reasonable Consent

A standard applied in a lease (most often in a sublease provision) which limits the landlord's ability to withhold its consent in its sole discretion. If a reasonable person would give consent to an action, given the circumstances, so must the landlord.

Recapture

The right of a landlord to retake or recover possession of a property or demised premises triggered by an event that cancels the lease, or rights to a space, under certain conditions.

Renewal Lease

A lease that extends the rights of possession and occupancy of an existing tenant.

Renewal/Expansion Lease

A lease that both renews a lease and expands the space occupied by an existing tenant.

Renewal Option

A right conveyed by a landlord to a tenant for the opportunity to extend the rights of possession and use of a property or space pursuant to the specific terms of the agreement.

Rent

The consideration paid for the right to occupy and use real property.

Rent Abatement

A concession granted by a landlord whereby a tenant may occupy a property or space for free, or at a reduced rent, for a specified period of the lease term. Rent abatement periods, when granted, are usually structured at the beginning of the lease term.

Rent Adjustment

Any and all provisions in a lease agreement that provides for the increase in future rental obligations, including the pass through of future increases in real estate taxes and operating expenses, fixed rental increases, and rental increases attributed to specific cost of living indexes.

Rentable Square Feet

The number of square feet that a tenant actually is charged rent on for a particular demised premises as determined by the landlord. This number is typically the usable square feet of the demised premises plus a pro rata share of the common areas of the building, such as lobbies, corridors, restrooms, etc.

Rental Rate

The amount of rent paid for the occupancy and use of real property. Generally stated on a per square foot per month or per year basis.

Right of First Offer or First Opportunity

A right, usually given by an owner to a tenant, which gives the tenant a first opportunity to lease a portion of the property if the owner decides to lease. Unlike a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be leased to a third party.

Right of First Refusal

A right, usually given by an owner to a tenant, which gives the tenant a first right to lease a portion of the property if the owner decides to lease. The owner must have a legitimate offer which the tenant can match or refuse. If the tenant refuses, the property can then be leased to the offeror.

Right of Offset

A specific clause in a lease where the tenant has the right to deduct from the rent certain costs which are due to the tenant from the landlord. Included may be the costs incurred by the tenant to cure defaults of the landlord, after notice and failure by the landlord to cure the defaults.

Rules and Regulations

Standards of conduct that are binding on the part of the tenants in a building pertaining to their use and occupancy of the property.

 

S

Sandwich Lease

A sandwich lease is a commercial lease, generally of office space, where the intention of the lessee is to enter into multiple leases on a sublease basis for portions of the space, earning a spread between the rent he or she pays and what can be earned on the smaller sublease. The most common example is when a lessee creates an executive suite offering small spaces along with related services.

Security Deposit

A deposit of money by a tenant with a landlord as security for the performance of a lease.

Space Plan

A graphic depiction of a tenant's interior space requirements or representation of the configuration of a specific demised space. Typically includes the location of walls and doors, the size of rooms, and proposed furniture layouts. Landlords often provide space plans to tenants free of charge as inducements to leasing space in their property.

Space Planner

An architect or interior designer that prepares the layout of interior spaces for an occupant of space. They will often also provide the interior design features and the preparation of the construction drawings.

Space Pocket

A portion of leased premises that is set aside to accommodate future growth on the part of the tenant. The space pocket is often fully improved at the commencement of the lease, but no rent is due on the pocketed area until the earlier of "actual use" or a specified future date.

Sublease

A lease, under which the lessor is the lessee of a prior lease of the same property. The sublease may be different in terms from the original lease, but cannot provide for a greater property interest.

Subordination

To make subject or junior to.

Substantial Completion

Generally used in reference to the construction of tenant improvements. The tenant's premises is typically deemed to be substantially completed when all of the tenant improvements for the premises have been completed in accordance with plans and specifications previously approved by the tenant. Sometimes it is used to define the commencement date of a lease.

 

T

Tenant (Lessee)

The holder of an interest in property for a specific term under a lease.

Tenant Improvements

Improvements to buildings made to meet the needs of tenants. They may be paid for by the landlord, tenant or both.

Total Inventory

Total active office space in a region or submarket as of survey date, measured in rentable square feet. Includes government, owner-occupied, and mixed-use buildings. Excludes medical and academic buildings and those under construction.

Tenant Rep

A real estate broker or agent that is representing a tenant to identify, negotiate and secure commercial space for lease.

Tenant Representative

An agent who exclusively represents the tenant.

Turnkey

Refers to an owner making a property completely ready for a tenant to occupy. Turnkey tenant improvements are provided at the landlord's expense according to plans and specifications agreed upon by the parties. Unlike an allowance where the tenant pays for costs in excess of the allowance amount, the landlord bears the risk of construction in a turnkey situation.

 

U

Useable Area

The area (square footage) that can be occupied by a tenant within a tenant's leased space. Useable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.

 

V

Vacancy Rate

Total amount of space vacant and available for lease as of defined date, divided by the total inventory. Expressed as a percentage. Sometimes includes sublease space also available.

Value Engineering

Process by which costs can be decreased or benefits can be added to an undertaking or project through redesign, prioritization or other actions.

 

W

Working Drawings

A set of architectural drawings detailing the exact specifications of construction work to be completed by a contractor. Also referred to as construction drawings.

Workletter

An legal document usually attached to a commercial lease that specifies the details of any construction work that will be done to a tenant's demised premises. It will generally outline the timing of the work to be completed, the timetable for approvals and decisions regarding design and layouts, who is responsible for the completion of the construction, and how the costs of construction are allocated between tenant and landlord.