Abatement: A reduction or decrease; usually applies to the forgiveness of rent or a decrease of assessed valuation of ad valorem taxes after the assessment and levy.
Above Building Standard: Specialized design and engineering services and all construction necessary to personalize tenant space.
Absorption: The rate at which land or buildings will be sold or leased in the marketplace during a predetermined period of time, usually a month or a year. Also called “Market Absorption”.
Add-On Factor: Considered a loss factor, the percentage of gross rentable square footage which is lost to the tenant’s physical occupancy.
Amenities: Features, both tangible and intangible, that enhance and add to the value or desirability of real estate.
“As-Is” Condition: Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.
Assignment: A transfer between parties of title to any property, real or personal, or of any rights or estates in the property. Common assignments include leases, mortgages and deeds of trust.
Base Rent: A set amount used as a minimum rent in a lease which also employs a percentage or other allocation for additional rent.
Base Year: The year upon which a direct expense escalation of rent is based. See also “Escalation Clause”.
Building Classifications: Class “A” – Building has excellent location and access to attract the highest quality tenants. Building must be of superior construction and finish, relatively new or competitive with new buildings, and providing professional on-site management. Class “B” – Building with good location, management, construction and tenancy. Class “C” – Generally an older
building with growing functions and/or economic obsolescence.
Building Standard: A full list of construction materials and finishes used in building out office space for a tenant that the landlord contributes as part of the tenant improvements. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. May also specify the quantity and quality of the materials to be used and often carries a dollar value. See also “Workletter”.
Buildout: The cost of configuring and finishing new or relet space in accordance with a tenant’s specifications.
Build to Suit: A method of leasing property whereby the landlord builds a new building in accordance with a tenant’s specifications.
Certificate of Occupancy: A certificate issued by a local government building department or agency stating that a building is in a condition suitable for occupancy. Sometimes also called a “C of O” or a Non-Residential Use and Occupancy Permit (NON RUP).
Common Area: The total area within a building that is not designed for rental to tenants but that is available for common use by all tenants or groups of tenants and their invitees. Parking and its appurtenances, malls, sidewalks, landscaped areas, public toilets, truck and service facilities and the like are included in the common area.
Common Area Charges: These include income collected from tenants for operating and maintaining items pertaining to common areas. Building leases usually contain a clause requiring the tenant to pay its share of operation and maintenance on common areas and defining the basis on which charges are made and the type of cost items allocable to maintenance of the common area. Of the ways to prorate the charges among tenants, the most common are (1) a prorated charge based on a tenant’s leased area as a portion of the total leasable area of the building or (2) a fixed charge for a stated period.
Concessions: Cash expended by the landlord in the form of rent abatement, build-out allowance, or other payments to induce the tenant to sign a lease.
Condemnation: The process by which private property is taken by a governmental agency for public use without the consent of the owner, but only upon payment of just compensation. See also “Eminent Domain”.
Contiguous Space: Adjoining office space.
Core Factor: The percentage of common areas in a building (rest rooms, hallways) that, when added to the net usable square footage equals the net rentable square footage. May be computed for a building or floor of a building. A “Loss Factor” or “Load Factor” is calculated by dividing the rentable square footage by the usable square footage.
Default: The general failure to perform a promised task or to pay an obligation when due. Some specific examples are (1) Failure to make a payment of rent or other type of financial obligation when due. (2) The breach or failure to perform any of the terms of a note or the covenants of a mortgage or deed of trust.
Demising Walls: The boundaries that separate a tenant’s space from another tenant’s space and from a public corridor.
Depreciation: (1) Decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence. (2) A loss in value as an accounting procedure to use as a deduction for income tax purposes.
Design/Build: A system in which a single entity is responsible for both the design and construction of a facility, often involving the fast-track method of construction; also referred to as “Design/Construct”.
Earnest Money: The monetary advance by a purchaser of part of the purchase price as evidence of good faith. The earnest money is used to bind the parties to the contract of sale.
Easement: A right to use the property of another created by grant, reservation, agreement, prescription or necessary implication. It is either for the benefit of land “Appurtenant” such as the right to cross A to get to B or “In gross”, such as a public utility easement.
Effective Rent: The rental rate actually achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.
Eminent Domain: A right of the government to acquire private property for public use by condemnation, in return for just compensation. See also “Condemnation”.
Equity: The value of one’s interest in a property, consisting of its fair market value less any outstanding debt or other encumbrances.
Escalation Clause: A clause in a lease providing for increased rent at a future time. May be accomplished by several means such as (1) Fixed increase – A provision that calls for a definite, periodic rental increase; (2) Cost of living – A clause that ties the rent to a government cost of living index, with periodic adjustments as the index changes; or (3) Direct expense – Rent adjustments based on changes in expenses paid by the landlord, such as tax increases, increased maintenance costs, etc.
Escrow Agreement: A written agreement usually made between a buyer, seller and escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the objects deposited in escrow, and instructs the escrow agent concerning the disposition of the objects deposited.
Estoppel Certificate: A statement concerning the status of an agreement and the performance of obligations under the agreement relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).
Exclusive Listing: A written agreement between a real estate broker and a building owner in which the owner promises to pay a fee or commission to the broker if specified real property is sold or leased during a stated period. The broker may or may not be the cause of the sale or lease.
Expense Stop: A provision in a lease that establishes the maximum level of operating expense(s) to be paid by the landlord. Expenses beyond this level are to be reimbursed by the tenant. May be applied to specific expenses only (e.g., property taxes or insurance).
Face Rental Rate: The “Asking” or nominal rental rate published by the landlord.
Fair Market Value: A term usually found in appraisals that attempts to determine the cash price that would likely be negotiated between a willing seller and willing buyer in a reasonable amount of time. For a sale to be considered a reflection of “Fair Market Value”, it must meet all the conditions of a fair sale whereby: (1) both buyer and seller act prudently, knowledgeably and under no necessity to buy or sell, i.e., other than in a forced or liquidation sale; (2) the property must be offered on the open market for a reasonable amount of time, taking into consideration the property type and local market; and (3) payment is made in cash or terms equivalent to cash. When a sale is unlikely, i.e., when it is unlikely to be completed within 12 months, the appraiser must discount all cash flows generated by the property to ascertain the estimate of Fair Value.
Feasibility Study: An analysis of needs, costs of recommended improvements, and anticipated revenue and costs; establishes the basis for the construction of an individual improvement or a complete system.
Fee Simple: An estate of real property that the owner has unrestricted powers to dispose of and which can be left by will or inherited. Commonly used as a synonym for ownership.
First Mortgage:A mortgage creating a lien against a property which has priority over all other voluntary liens which exist against the property. Foreclosure of a first mortgage lien will generally extinguish or cut off any second mortgage lien or other subordinate lien.
First Refusal Right: A clause that occasionally is inserted in a lease that gives a tenant the first opportunity to buy, or lease a property or space if the owner decides to sell or lease. The owner must have a legitimate offer which the tenant can match or refuse.
Fixture:(1) A tangible object which previously was personal property but has been attached or installed on land or in a structure in such a way as to become a part of the real property. The legal interpretation of what constitutes a fixture varies between states. (2) Any non-portable lighting device which is more or less permanently built-in or securely attached to the walls and/or ceiling. (3) The permanent parts of a plumbing system such as toilets, bathtubs, etc.
Flex Space: A one- or two-story building with little or no common areas, high ceilings, load-bearing floors and loading dock facilities. Usually configured to allow a small amount of office space in combination with light assembly or warehouse/distribution uses.
Floor Area Ratio (FAR): The ratio of the bulk area of a building to the land on which it is situated.
Calculated by dividing the total square footage in the building by the square footage of land area.
Floor Load: As most commonly used, the live-weight-supporting capabilities of a floor, measured in pounds per square foot; the weight, stated in pounds per square foot, which may be safely placed on the floor of a building, if uniformly distributed.
Floor Plan: See “Space Plan”.
Force Majeure: A force that cannot be controlled or resisted. In other words, something beyond the control of the parties involved. Includes acts of God (e.g., flood, tornadoes, etc.) and acts of man (e.g., riots, strikes, arson, etc.).
Foreclosure: A proceeding, in or out of court, designed to extinguish all rights, title and interest of the owner(s) of property in order to sell the property to satisfy a lien against it.
General Contractor: The party that contracts for the construction of an entire building or project, rather than a portion of the work. The general contractor hires subcontractors, (e.g., plumbing contractors, electrical contractors, etc.) coordinates all work, and is responsible for payment to the subcontractors.
Graduated Lease: A lease, generally long term in nature, with varied rental payments and usually based on periodic appraisal or simply the passage of time.
Gross Building Area: The total floor area in an office building measured in square feet or square meters that is associated with that building’s use as an office building. The area extends to the outer surface of exterior walls and windows and includes office area, retail area and other rentable areas such as vending machine space and storage area, but excludes parking and roof space.
Gross Lease: A lease that provides that the landlord shall pay all expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.
Gross Rental Rate: Net rental rates plus taxesand operating costs on a per square foot, per year basis.
Guarantor: One who makes a guaranty. See also “Guaranty”.
Guaranty: Agreement whereby the guarantor agrees to pay the debt or perform the obligation of another who fails to do so. Differs from a surety agreement in that there must be a failure to pay or perform before the guaranty can be in effect.
Hold Over Tenant: A tenant who retains possession after the expiration of a lease.
HVAC: The acronym for Heating Ventilation and Air-Conditioning. Refers to the equipment used to heat and cool a building.
Improvements: Generally, the term refers to buildings, but may include any permanent structure or other development, such as a street, utilities, etc.
Lease: An agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Commencement Date: The date on which beneficial occupancy commences and the legal terms of the lease go into effect.
Leasehold Improvements: Improvements made to leased premises by a tenant. See also “Tenant Improvements” and “Workletter”.
Lessee (tenant): One holding right of possession and use of property under terms of a lease.
Lessor (landlord): One who leases property to a lessee.
Letter of Credit: An engagement, pledge or commitment by a bank or person, made at the request of a customer, stating that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit.
Letter of Intent: A formal method through which a prospective developer, buyer or tenant expresses his/her interest in property. Depending on the language, a legal obligation may be created.
Lien: An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.
Lien Waiver (Waiver of Lien): Generally, a waiver of mechanic’s lien rights signed by a general contractor and his subcontractors.
Listing Agreement: An agreement between a real estate broker and the property owner which authorizes the broker to assist in the sale or lease of that property in return for a fee, commission or other form of compensation. See also: “Exclusive Listing”.
Loss Factor: See “Add-on Factor”.
Market Price: The price a property brings in a given market. It is most commonly used interchangeably with market value, although not truly the same. See also “Market Value”.
Market Rent: The rental income that a property would most probably command on the open market; indicated by current rents paid and asked for comparable space as of the date of the appraisal.
Market Study: A forecast of future demand for a type of project along with recommendations as to quantity to be sold or leased and prices to be charged. Also called “Marketability Study”.
Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeable, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and acting in what they consider their own best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financial or sales concessions granted by anyone associated with the sale.
Master Lease: A primary lease that controls subsequent leases and which may cover more property than subsequent leases.
Mechanic’s Lien: A claim created by state statutes for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as to the improvements.
Mortgage: The instrument that evidences an interest in real estate and created to provide a pledge as security for the performance or repayment of a loan. The borrower (i.e., mortgagor) retains possession and use of the property.
Mortgagee: The party that lends the money and receives the mortgage.
Mortgagor: The party that borrows the money and gives the mortgage on the property.
Net Lease: A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, including property taxes, insurance premiums, repairs, utilities and maintenance. There are also “Net-Net” (double net) and “Net-Net-Net” (triple net) leases, depending upon the degree to which the tenant is responsible for operating costs.
Net Rentable Area: Floor area of a building less any vertical penetrations of the floors. No deductions are made for necessary columns and projections of the building. (BOMA Standard)
Operating Expenses: The actual cost of operating income-producing property, including utilities and similar day-to-day expenses, taxes, insurance and reserves for the replacement of items that wear out.
Operating Cost Escalation: Refers to the clause in a lease agreement used to adjust rents over the term of a lease.
Parking Ratio: Figure representing the number of parking spaces available per 1,000 square feet of gross leasable area.
Pass Throughs: Various building and operating expenses that are paid by the tenant under the terms of a lease.
Percentage Lease: A lease, generally on a retail business property, in which the rent is calculated as a percentage of sales. There is usually a minimum or “Base” rent in the event of poor sales.
Punch List: An itemized list noting incomplete or unsatisfactory construction. Usually prepared by the tenant’s architect after the contractor has notified the owner that the tenant space is substantially complete.
Renewal Option: The right of a tenant to renew (i.e., extend the term of) a lease for a stated period of time and rent at an amount that can be determined.
Rent: Consideration paid for the occupancy and use of real property. A general term covering any consideration (not only money).
Rent Commencement Date: The date on which a tenant begins paying rent. Depending upon the nature of the marketplace, it may coincide with the lease commencement date or it may be several months after. It will never begin before the lease commencement date.
Rentable Square Feet: Usable square feet plus a percentage (the core factor) of the common areas on the floor, including hallways, bathrooms and telephone closets, (and sometimes main lobbies). Rentable square footage is the number of square feet on which a tenant’s rent is based.
Rentable/Usable Ratio: The number resulting from dividing the Total Rentable Area in a building by the Usable Area. The inverse of this ratio describes the proportion of space that an occupant can expect to utilize.
Right of First Refusal: See “First Refusal Right”.
Sale-Leaseback: A financing arrangement in which a property owner sells all or part of the property to an investor and then leases it back. Although the lease actually follows the sale, both are agreed to as part of the same transaction.
Second Mortgage: A mortgage that ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal priority determines the designation first, second, third, etc.
Security Deposit: Generally, a deposit of money by a tenant with a landlord to secure the performance of a lease.
Site Plan: A detailed plan, to scale, depicting development of a parcel of land and containing all information required by the zoning ordinance.
Space Plan: Sometimes called the preliminary plan. A graphic representation of a tenant’s office space requirements, showing wall and door locations, room sizes, and some furniture layouts.
Special Assessment: Any special charge levied against real property for public improvements (e.g., sidewalks, sewers, etc.) that benefit the assessed property.
Speculative Space: Any space that has not been leased to a tenant prior to commencing construction on a new building.
Subcontractor: One who works under a general contractor; often a specialist, such as an electrical contractor, cement contractor, etc.
Sublease: A lease executed by a lessee to a third party for a term no longer than the remaining portion of the original lease.
Subordination Agreement: An agreement by which the priority of a mortgage lender is relinquished in favor of that of a lender that would otherwise be junior in status.
Tenant: (1) A holder of property under a lease. (2) Originally, one who had the right to possession, irrespective of the title interest.
Tenant Improvements: Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and may be paid for by the landlord, the tenant or shared.
Title: The means whereby one has just and full possession of real property.
Trade Fixtures: Personal property used in a business and attached to a structure, but removable upon sale because it is deemed to be part of the business, not of the real estate.
Triple Net (NNN) Rent: Rent stipulated in a lease in which the tenant agrees to pay a share of the landlord’s operating expenses or real estate taxes for the building proportionate to the amount of space it occupies.
Turn Key Project: A project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant.
Unencumbered: Describes title to property that is free of liens and any other encumbrances. Free and clear.
Vacancy Rate: A measurement expressed as a percentage of the total amount of available space compared to the total inventory of space.Computed by multiplying vacant space times 100 and divided by total inventory.
Vacant Space: Existing space which is currently being marketed for sale or lease,
excluding sublet space.
Workletter: The standard building items that the landlord contributes as part of the tenant improvements. Examples of standard building items are; doors, partitions, lights, floor covering, telephone outlets, etc. The Workletter may specify the quantity and quality of the materials to be used and often carries a dollar value.
Working Drawings: The set of plans for a project that, in combination with a set of specifications, comprise the contract documents indicating the exact manner in
which a project should be built.
Zoning: A method of regulating use of real estate by dividing a city or other area into zones and designating which uses may be permitted for land in each zone.