Lease Definitions & Terms
The following section lists various terms regarding commercial real estate, with which a client should become familiar. These provide a general basis for the locating/lease process and should serve as an educating tool to help clients understanding the bidding a leasing process.
Adjoining: Property including any street, footway, apartment, office or right of way situated in relation to the site of another owner’s property. Landowners are expected to use their property reasonably without unduly interfering with the rights of the owners of adjoining space. Anything that a person does that appropriates adjoining land or substantially deprives an adjoining owner of the reasonable enjoyment of his or her property is an unlawful use of one’s property.
Agent (Real Estate): A person who serves as a negotiator between sellers and buyers of real estate. An agent mostly assists sellers in marketing their property and selling it for the highest possible price under the best contractual terms. When a real estate agent is a buyer’s agent – usually under a signed agreement – he or she assists buyers by helping them purchase property for the lowest possible price under the best contractual terms.
Air-handling light fixture: An air diffuser that provides the coordination of air distribution and lighting into a single, aesthetically pleasing appliance – one of the most inconspicuous air distribution systems available.
Amortization: The paying off of debt with a fixed repayment schedule in regular installments over a period of time – at the beginning of the loan term, most of the monthly payment goes toward interest With each subsequent payment, a greater percentage of the payment goes toward principal.
Amortized mortgage: In commercial real estate, amortization allocates a lump sum amount applied to different time periods, particularly for loans and related interest or other finance charges; banks also apply to capital expenditures of certain assets particularly intangible assets in a manner corresponding to depreciation.
Annual loan constant: An interest factor used to calculate the debt service of a loan. The loan constant, when multiplied by the original loan principal, gives the dollar amount of the periodic payment, which is used to compare the true cost of borrowing, i.e. a loan constant of 8 percent on a loan of $150,000 would imply a debt service requirement of $12,000 annually.
Appraisal: A valuation of property by the estimate of an authorized person. Banks and mortgage companies will grant a loan based on the appraisal value of the property they want to buy. In order to be a valid appraisal, the authorized person will have a designation from a regulatory body governing the jurisdiction the appraiser operates within. Appraisals are typically used either for taxation purposes or to determine a possible selling price for the property in question.
Approaches to value: Three main ways used by an appraiser to estimate the value of real estate. These are: a) cost approach, b) income approach and c) market data approach.
The cost approach assumes that the price someone should pay for a piece of property should not exceed what someone would have to pay to build an equivalent building. In cost approach pricing, the market price for the property is equivalent to the cost of land plus cost of construction, less depreciation.
The income approach allows investors to estimate the value of the property based on the income produced; it is computed by taking the net operating income of the rent collected and dividing it by the capitalization rate (the investor’s rate of return).
The market data approach takes into consideration 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, knowledgeably and assuming the price is not affected by undue stimulus.
Architect: A trained professional who normally functions as a creator of blueprints and specifications of a building, coordinates the design with all interest parties and then serves as the general administrator of construction of the structure.
Architectural drawing: A technical drawing of a building project that is used by an architects, construction personnel and designers to a) develop a design idea into a proposal, to communicate ideas and concepts and make a record of the building. Architectural drawings are made according to a set of conventions, which include particular views, sheet sizes and units of measurement and scales.
Assessed value: The dollar value assigned to a property by a municipality for purposes of measuring applicable taxes by taking comparable home sales and inspections into consideration. In general, this value tends to be lower than the appraisal fair market value of a property.
Assignment: The transfer of a contract when one party to an existing contract (the “assignor”) hands off the contract’s obligations and benefits to another party (the “assignee”). Ideally, the assignor wants the assignee to assume all of his contractual obligations and rights. In order to do that, the other party to the contract must be properly notified.
Base lease: A certain lease types used for certain property types. Triple Net leases are commonly used for retail, or single-tenant facilities, whereas Industrial Gross and Modified leasesc are commonly used in multi-tenant industrial applications. Full-Service Gross leases are used almost exclusively for multi-tenant office leases. Notwithstanding these conventions, there is nothing that requires a landlord to use one lease type or another. In fact, there are many examples of landlords quoting Modified Gross or Triple Net rent for multi-tenant office buildings; this practice further highlights the need for proper due diligence during lease negotiation.
Base year: Pertaining to tenant property expenses in commercial buildings for lease. A base year agreement is the combination of a Triple Net Lease, in which the tenants are responsible to property taxes, insurance, maintenance and repairs, and a Gross Lease, in which the landlord covers those expenses. Operating costs are judged higher or lower during the next year when compared to the base year. In general, a base year is calculated on a calendar year basis or the first 12 months of a tenant’s occupancy.
Bay: In architecture, any division of a building between vertical lines or planes, especially the entire space between two adjacent supports; the space between two columns, or pilasters, including that part of the vaulting or ceiling between them; b) A bay window; c) An opening or recess in a wall.
Bids: A construction bid is a formal procedure in which an owner lists a project that needs to be completes and various construction companies submit bids to construct the building at a certain cost. The owner typically chooses the lowest bid, although the quality of the bidder is also an important consideration. The construction companies are bound by a legal document known as a bid bond. The list of bidders, known as a bid list, is controlled by the client and architect.
Binder: An agreement, accompanied by a deposit, for the purchase of real estate, to demonstrate good faith on the part of the purchaser. In some states a binder is customarily prepared to precede and therefore, guide, an agreement. Within a few days (5–10, depending on the state) of the binder, attorneys will draft a contract of sale.
Building core: The Building Core includes portions of the building that are not rented but serve all tenants indirectly, including public restrooms, ventilation shafts, electrical distribution, elevator shafts and stairwells. In most buildings, these are close together, typically near the center of the building.
Building Permit: An authorization that must be granted by a government or other regulatory body before the construction, enlargement or alteration of a new or existing building can legally occur. Drawings specifications must be filed with the government agency to ensure they meet local codes.
Building Shell: A commercial lease in which a tenant rents a property with an unfinished interior to which he or she will finish construction and make improvements. The rented property is an unfinished “shell” of a building, to which the tenant must complete construction and add any necessary furniture, fixtures and equipment.
Building Standard: A particular style and quality of building materials, finishes and accessories used in a specific commercial building, designated by the owner and the architect. Office leases will generally include a construction allowance or build-out allowance to complete space according to a tenant’s space design and using building standard materials. If the tenant desires a better quality, the tenant may usually pay for the difference in cost and obtain it after gaining the approval of the building owner or the managing representative.
Build Out: The execution of a building that include improvements of the interior of a space, including flooring, walls, finished plumbing, electrical work and other amenities under a plan and/or regulations that dictate the the state of maximum development.
Build-to-Suit: A way of leasing commercial properties property in which the developer or landlord builds to a tenant’s specifications. The landowner builds to a tenant’s specifications and pays for the construction to the specifications of the tenant, who will then lease the space. Build to suit is frequently used by tenants who wish to occupy a building of a certain type but do not wish to own the building.
Capitalization: A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate, also known as “cap rate” estimates the investor’s potential return on his or her investment. It is calculated by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. Capitalization Rate = Yearly Income/Total Value.
Cash Flow: Cash flow, also known as cash yield, is the flow of money through a property, both in and out. It is all the money, without regard to deductibility for tax purposes. Thus, a tax return may show losses, while actual cash flow might show profits, or vice versa. A Percentage figure arrived at by dividing the cash flow from a property by the total investment in the property and multiplying by 100.
Certificate of Insurance: Certificate of insurance is a document issued by the insurance company or insured as an evidence of the insurance. The certificate is not a substitute for the actual policy, and is normally a non-negotiable document that cannot be assigned to a third party. The certificate simply gives evidence of an abstract of the most important provisions of the insurance contract, including the name of the insured, relevant dates, description of the insured property and notice of cancellation.
Channeling: The illegal practice of directing people to, or away from, certain areas or neighborhoods because of minority status; Cutting, chipping or routing a prescribed sectional area in a linear pattern on any surface, usually in concrete or plaster.
Class A Building: A prestigious building competing for premier office users with rents above average for the area. Class A buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence; per the Building Owners and Managers Association International (BOMA), which developed the rating system to encourage standardization of office markets and encourage the reporting of office market conditions that differentiate among the classes.
Class B Building: A building competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price; per the Building Owners and Managers Association International (BOMA), which developed the rating system to encourage standardization of office markets and encourage the reporting of office market conditions that differentiate among the classes.
Class C Building: Buildings competing for tenants requiring functional space at rents below the average for the area; per the Building Owners and Managers Association International (BOMA), which developed the rating system to encourage standardization of office markets and encourage the reporting of office market conditions that differentiate among the classes.
Clear Span: Term used to describe an open area clear of interference from columns or other obstructions. For example, a commercial property with a 20-foot ceiling can store more items than one with a ten-foot ceiling.
Common Areas: Those areas used by multiple tenants and not under the control of any one tenant; both small and large-scale tenants play some portion of the shared areas within a building. Common areas can be divided into two categories:
a) Floor Common Area, which is a common areas on a specific floor and in which a tenant’s share typically averages out at eight percent of the floor;
b) Building Common Area, which is a common area in the overall building space and in which a tenant share ranges from six to eight percent.
Condemnation: The seizure of a property by a public authority for a public purpose. Condemnation often occurs when a taxpayer owns property or real estate in a place that has been designated for public use or construction and is exercised by public authorities through the power of eminent domain.
Consideration: A legal concept that means something of value given in exchange for something else. There are two types of considerations: Valuable consideration, which is the money or a promise of something that can be measured in terms of money; or good consideration which is a promise that cannot be measured in terms of money, such as love and affection.
Construction Allowance: A convenient method of allocating construction funds by a Landlord toward the cost of construction and/or alteration necessary to prepare a space or portions of work that cannot be specified before a tenant’s occupancy – usually an established amount, but is negotiable.
Construction Cost: The cost of all the construction portions of a project, generally based upon the sum of the construction contract(s) and other direct construction costs; does not include the compensation paid to the architect and consultants, the cost of the land, right-of-way, or other costs which are defined in the contract documents as the responsibility of the owner.
Constructive Eviction: A circumstance that takes place when commercially leased property is in such disrepair – or when a condition exists on the property – that makes it impossible or extremely difficult for a tenant to conduct business there, forcing the tenant to leave it; the facts and circumstances are such that the tenant is unable to have full use and possession of the rental property and thus, in reality, has technically been evicted.
Constructive Notice: A legal term meaning that persons are assumed to have knowledge of something by virtue of the fact that it is in the public record. This binding principle means that someone cannot deny knowledge of a fact because they have a duty to inquire of it, i.e. if a client purchases property, he is presumed to know the legal status of that property because it is available through public records.
Contract Documents: Legally binding documents used to detail the agreement to buy or sell a property. Real estate contracts are typically bilateral contracts (agreed to by two parties) and must have the legal requirements specified by contract law and in writing to be enforceable. Riders (or addenda) are special attachments (separate sheets) that become part of the contract in certain situations.
Contractor: A manager, and possibly a tradesman, employed by the client on the advice of the architect, manager or client responsible for the overall coordination of a construction project, including all of the material, labor, equipment and services, necessary for the construction of the project. The general contractor also may be required to apply for building permits, dispose or recycle construction waste, monitor schedules and cash flows and hire specialized subcontractors to perform all or portions of the construction work.
Cost Approach: A real estate valuation method deducing that the price someone should pay for a piece of property should not exceed what someone would have to pay to build an equivalent building. In cost approach pricing, the market price for the property is equivalent to the cost of land plus cost of construction, less depreciation. It is often most accurate for market value when the property is new.
Default: The failure to promptly pay interest or principal when due – occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt. Defaulting on a debt obligation can place a company or individual in financial trouble.
Demarcation Point: The physical point at which a telecommunications company’s public network ends and the customer’s private network begins. The demarcation point is often the point at which the cable physically enters the building, but this varies from one country to another.
Demised Premises: The act of to convey land by deed to another for a limited time period. That grantee does not acquire a fee, but retains the fee. The “demised premises” is generally taken to mean the premises are leased.
Demolition Clause: A clause that allows the landlord to terminate the lease if the landlord intends to demolish the premises, usually as part of a larger demolition project. This clause is included in leases where the landlord thinks an opportunity may arise during the term of the lease to develop the property requiring the premises as a part of the proposal.
Diffuser: A mechanical duct system that is set in the ceiling at predetermined locations to produce even temperatures throughout the space and cut down on wasted energy.
Duct: A cable, pipe, tube, or pathway designed to contain and enclose wiring, plumbing, and conditioned or exhaust air within a structure. The term is mostly identified with air-conditioning systems through sheet-metal ducts, but it also applies to under-floor duct systems for protection and transport of telephone lines and other electrical conductors.
Effective Gross Income: The amount of income earned by a piece of property, including miscellaneous earnings, less vacancy costs and collection losses – a calculation commonly used to evaluate the value of a piece of investment property.
Egress: The legal right to exit or leave a property, which is usually used in conjunction with the right of ingress, or the legal right to enter a property. Rights of ingress and egress apply whether the property is owner-occupied, rental or sublet. They are generally used in the context of an easement, or the right to use another’s property for a specific purpose.
Eminent Domain: The power the government has in most countries – in the U.S. under the 5th Amendment – to obtain the property at fair market value of an individual even without the owner’s full consent. This power allows the government to seize land to be used in public enterprises.
Encroachment: A situation in which a property owner – knowingly or unknowingly – violates the property rights of his neighbor by building on the neighbor’s space or by allowing something to impinge on the location.
Encumbrance: A claim against a property by another party – usually in the form of an outstanding mortgage or unpaid property taxes – impacting the transferability of the property and can restrict its free use until it is removed. However, encumbrance can also take place in an accounting context to refer to restricted funds inside an account that are to be used only for a specific liability.
Equity: The difference between the current market value of the property and the amount still owed on the mortgage – the amount an owner would receive after selling a property and paying off the mortgage.
Escalation Clause: A contract provision in real estate transactions that allows for one involved parties to pass an increase in costs to another party, usually related to influences beyond both parties control, such as inflation. Escalation clauses allow people to enter large or long-term contracts, while accounting for changes in the market or economy.
Escrow: An item such as money or a piece of property that has been transferred to a third party with the intentions of delivery to a grantee as part of a binding agreement. Items in escrow are delivered generally by an escrow agent, to a grantee upon satisfaction of outlined terms in the agreement.
Exclusive Listing: A contract to sell property as an agent, whereby the agent is given the exclusive right to sell the property or is made the exclusive agent for its sale, no matter how a buyer is found.
Exclusive Right to Sell: A formal agreement under which a real estate agent has the sole right to sell a specified property within a given amount of time. During this period, the landlord cannot list the property with any other agent and must pay the agent’s commission even if the owner finds a buyer.
Fee Simple: The most common type of land ownership, meaning that the owners have complete ownership of the land and the property, but are still subject to taxation and debt obligations on their mortgage. Fee simple is contrasted with lease ownership, meaning the owners have complete access to the land, but they don’t actually own it. The absolute right of ownership of real property can be held without time limitation and is freely transferable and inheritable.
Fiduciary: a real estate agent or broker acting in an agency capacity for a buyer or seller client in a transaction; he or she has certain legally mandated duties acting in the best interests of the client. In a fiduciary capacity, it is the duty of the real estate agent or broker to protect the clients’ privacy and keep all information confidential, unless required to divulge it by a court of law.
Fixture: Personal property or improvements so attached to property so that they become part of the real property. The right of the tenant to remove fixtures may be given by stipulation in the lease or by separate written agreement between the parties.
Footprint: The area of the portion of a parcel of land that is covered by a structure.
Foreclosure: The process by which a homeowner’s rights to a property are forfeited because of failure to pay the mortgage. If the owner cannot pay off the outstanding debt or sell it via short sale, the property then goes to a foreclosure auction. If the property does not sell at auction, it becomes the property of the lending institution.
General Lien: Lien against a borrower’s personal assets, as opposed to a claim against real property. The lender may use the lien to seize property in satisfaction of a debt, including assets not specifically covered by the obligation.
Graduated Lease: A type of long-term lease – generally used for commercial property – in which the payments are adjusted periodically to reflect changes in the property’s appraised value or a certain publicized benchmark rate, such as the Consumer Price Index (CPI).
Grantee: The recipient of a property – a person who will be taking its title, as named in the legal document, whether a deed, grant or will – used to transfer the real estate.
Grantor: A person who transfers his or her interest in land to another by a written instrument.
Gross Rent Multiplier: A rough measure of the value of an investment property calculated by dividing the property’s sale price by its gross annual rental income. Usually used in valuing commercial real estate, it is limited because it does not consider the cost of factors such as utilities, taxes, maintenance and vacancies.
Ground Lease: An agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned over to the property owner. The landlord owns the property improvements made by the tenant, unless an exception is created stipulating that all relevant taxes incurred during the lease period will be paid for by the tenant. Ground leases are typically for 10 years or more and prevent the tenant from purchasing potentially expensive land in order to begin a development.
Hard Construction Costs: Readily identifiable construction costs such as labor, materials and construction arrangement fees.
HVAC: Acronym for heating, ventilation and air conditioning, (HVAC) system which is used to provide heating and cooling systems to businesses. These have become the required industry standard for construction of new buildings. Prior to their invention, three or more devices split the tasks.
Holdover Tenant: A situation in which a tenant continues to occupy a landlord’s premises without an agreement after the original lease has expired. The tenant is responsible for the payment of the monthly rental at the existing rates, which the landlord may accept without admitting the legality of the occupancy. The holdover tenant is subject to a lawsuit if he or she does not vacate.
Income Approach: A real estate appraisal method allowing investors to estimate the value of an income-producing property. The income approach is computed by taking the net operating income of the rent collected divided by the capitalization rate (the investor’s rate of return).
Insured: The indemnified person(s) or company(ies) that receive the proceeds of a policy that provides financial reimbursement to the owner or renter of a structure and its contents, in the event of damage or theft. When a claim is filed, the property insurance policy will either reimburse the policyholder for the actual value of the damage, or the replacement cost of the new property or its contents.
Instrument: Usually called a “negotiable instrument”, an instrument is an unconditional order or promise to pay an amount of money, easily transferable from one person to another, such as a check, promissory note or draft (bill of exchange). The Uniform Commercial Code requires an instrument must be signed by the maker or drawer, contain an unconditional promise or order to pay a specific amount of money and must be payable to the bearer at a specified future time.
Interior Partitions: All types of interior non load-bearing partitions that enclose or subdivide tenant space. May be of steel, wood, glass, masonry or combinations of these materials. Such partitions may be either movable or non-movable, prefabricated or built on the job.
Irrevocable: Often used in reference to an irrevocable trust, landlords who take title to a commercial property in an irrevocable trust help prevent the property from creditors and gives them the ability to stay in control as the trustee. These agreements are also incapable of being altered, changed, or recalled.
Joint Tenants: A form of ownership whereby two or more persons share equally in the value of the property involved, with each person holding equal rights to keep or dispose of the property. Joint tenancy is to create an equitable form of property transference; if one of the participants dies, the remainder of the property is transferred to the survivors.
Judgment: A formal decision issued by a court relating to the specific claims and rights of the parties to an act or suit. When a judgment is rendered in court, the winning party usually files and records a lien notice (called an Abstract of Judgment in many states) against real estate owned by the defendant or party against whom the judgment is given.
Landlord: A real estate owner who rents or leases space in a building or a building to another party, known as a tenant. Landlords usually provide the necessary maintenance or repairs during the rental period, while the tenant holds responsibility for the general upkeep of the property.
Lease: A contract whereby, for a consideration (usually termed rent), one who is entitled to the possession of real property transfers such rights to another for life, for a term of years, month to month or at will. There are three different kinds of lease arrangements:
1. Gross or Full-Service: All-inclusive rent, in which landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out – utilities and janitorial services are included.
2. Net Lease: The landlord charges a lower base rent for the commercial space, plus some or all of “usual costs,” which are expenses associated with operations, maintenance, and use that the landlord pays.
3. Modified Gross Lease: Rent is requested in one lump sum, which can include any or all of the “nets” – property taxes, insurance, and CAMS. Tenants and landlords negotiate theses “nets” included; utilities and janitorial services are typically excluded from the rent, and covered by the tenant.
Leasehold: An estate or interest in real property held under a rental agreement by which the owner gives another the right to occupy or use land for a period of time.
Lessee: The person renting property under a written lease from the owner, also called a lessor. This party is the tenant and the lessor is the landlord.
*Lessor: The owner of a property that is leased under an agreement to the lessee. The lessee makes one-time or periodic payments to the lessor in return for the use of the property. The agreement between both parties is not only binding, but also spells out the rights and obligations of both.
*Letter of Intent: A letter written for the benefit of the landlord and the tenant that summarizes key issues already discussed between the parties and may mention other aspects of the lease negotiations, such as a timeline for improvement work and tenancy date. The letter can be legally binding or nonbinding, depending on the way it is written, as either a mini-lease or a road map for future negotiations.
Levy: The legal seizure of property to satisfy a debt. In the U.S., the Internal Revenue Service (IRS) has the authority to levy an individual’s property even if someone else holds it.
Listing: A written agreement whereby a property owner agrees to offer to sell property at a stipulated price within a defined period of time and which authorizes the listing real estate broker to solicit offers to purchase; the broker is paid a fee or commission, either up front or at sale.
License: A certification allowing a person (broker or real estate agent) to represent a buyer or a seller in a real estate transaction in exchange for commission. Real estate agents stand on the front lines of the real estate market and perform such tasks as showing homes to perspective buyers and negotiating transactions on behalf of their client.
Lien: A legal claim on a tract of real estate granting the holder a specified amount of money upon the sale of the property. These claims are often used to ensure the payment of a debt, with the property acting as collateral against the amount owed.
Loss Factor: A factor in a real estate transaction that allows landlords to charge for space that is shared by all tenants, or space that is dedicated to the building’s common areas, such as the lobby, hallways, elevators and stairwells.
Market Price: The current price at which a piece of property can be bought or sold – market price converges at a point where the forces of supply and demand meet, according to market theory.
Market Value: The expected price that a property should bring if put up for lease after considering the size and the condition of the actual building as well as the comparable size and location of the property.
Market data approach: A real estate valuation method that estimates that the price someone should pay for a piece of property should not exceed the amount of money extended to build an equivalent building. In market data approach pricing, the market price for the property is equivalent to the cost of land plus cost of construction, less depreciation.
Mechanic’s Lien: A “hold” against commercial property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, usually recorded with the county recorder’s office. If a mechanic’s lien goes unpaid, it permits a foreclosure action, forcing the sale of the property in lieu of compensation.
Meeting of the Minds: An agreement between parties in which each party is aware of the commitments that is being made by each individual. Also called a “consensus ad idem”, a “meeting of the minds” is fundamental for the existence of a contract to purchase or lease a property.
Month-to-Month Tenancy: A type of rental agreement, in which tenancy is based upon the renewal of the lease at the end of each month. Such a lease may be written or oral, and can be terminated by either party at the end of any month. Otherwise, it is renewed automatically on the same terms.
Mullions: Metal strips placed at regular intervals along a window line designed to bolster wall partition in a manner that ensures a smooth, soundproof connection.
Multiple Listing: An arrangement among Real Estate Board of Exchange Members, whereby each broker in a transaction process presents the other broker’s listings so that if a lease results, the commission is divided between the broker bringing the listing and the broker making the lease.
Net Lease: A provision in a lease requiring the tenant to pay a portion or all of the taxes, fees and maintenance costs for the property in addition to rent.
Net-Net-Net Lease: Also called a Triple-Net Lease is an agreement that designates the tenant as being solely responsible for all of the costs of the property, in addition to the rent fee. These include net real estate taxes, net building insurance and net common area maintenance.
Net Operating Income (NOI): The effective income after operating expenses are deducted, but before income taxes and interest are taken out. A positive value, is net operating income, while a negative value is a net operating loss.
Non-Disturbance Agreement: A clause that ensures the rental agreement between the tenant and the landlord will continue under any circumstances, primarily to protect the renter from eviction in the event the landlord goes bankrupt.
Notary Public: A public official, usually appointed by the state, given the authority to authorize signatures, take depositions, affirm affidavits, and administer oaths and subpoenas.
Obsolescence: A reduction in the usefulness, value or desirability of an object because of an outdated design feature, usually one that cannot be easily changed.
Offer to Lease: An agreement that binds the lessor to continuing negotiations in good faith once a qualified tenant has been found, until all negotiating points have been covered. In effect, it takes the space off the market during the negotiating period.
Open Listing: A property listing that uses multiple real estate agents in order to sell it; the agent that moves the property the fastest collects the commission. An open listing also refers to an owner who sells property on without paying a commission to a real estate agent.
Option: An contractual agreement between two parties that provides one of the parties with the right but not the obligation to buy, sell or obtain a property at an agreed upon price at some time in the future.
Pass-through: Expenses or a portion of expenses associated with tenancy that are “passed through” from the landlord to the tenant who then pays them. Percentage Lease: A lease of property in which the rent is based upon the percentage of the sales volume made on the specific premises. There is usually a clause for a minimum rent as well.
Personal Property: Any property which is not real property. Examples include furniture, clothing, and artwork.
Power of Attorney: A written instrument duly signed and executed by an individual which authorizes an agent to act on his behalf to the extent indicated in the document.
Prime tenant: A tenant who occupies a great portion of the space available within a given building that may, in addition, be owned by that tenant.
Principal: (1) A sum lent or employed as a fund or investment, as distinguished from its income or profits; (2) the original amount (as of a loan) of the total due and payable at a certain date; (3) a party to a transaction, as distinguished from an agent.
Principal and agent: The relation created by express or implied contract or by law whereby one party delegates the transaction of some lawful business, with more or less discretionary power, to another who undertakes to manage the affair and render an account thereof.
Procuring cause: A broker will be regarded as the ‘procuring cause’ of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun” Coles versus Pattison, 189 Okl. 160, 114 P. 2d 457, 458.
Pro forma: A set of figures projecting costs and income on a proposed new property. Used as a basis for capitalization.
Public corridor: The space that leads to different tenants’ spaces from a service core.
Punch list: A list prepared by the architect, designer and owner and formally submitted to the contractor to note any deficiencies when the check all completed construction, which assures verification that such work has been accomplished in a good, workmanlike manner in respect to the contract documents.
Quiet Enjoyment: An implied obligation for landlords to ensure that no one, including the landlord himself or an employee or his agent, shall interfere with his tenant’s right to possession of and to the lawful use of the premises. If this right is substantially violated, a tenant may claim damages or possibly an injunction to stop the interference.
Realtor: A real estate professional who is a member of the National Association of Realtors. Realtors include agents that work as residential and commercial real estate brokers, salespeople, property managers and other real estate professionals. Realtors must also belong to both a local board and a state association.
Real Estate Board: A national or local organization of real estate brokers, created to promote the real estate profession and foster professional behavior in its members. Boards have their own code of ethics to which they require members to adhere.
Real Estate Broker: A person with a state license to represent a buyer or a seller in a real estate transaction in exchange for commission. Most agents work for a real estate broker or realtor.
Real Estate Salesperson: A licensed salesperson working for a real estate broker, in exchange for a portion of the sale price of a property as a commission.
Real Estate Syndicate: A professional real estate group formed temporarily for handling a large transaction that would difficult for the entities involved to handle individually. A syndicate allows companies to pool their resources and share risks.
Real Property: Any property that is attached directly to land, as well as the land itself; it includes buildings and other structures, and rights and interests. Real property can be either rental or residential.
Recapture: A provision usually found in percentage leases, giving the landlord the right to terminate the lease – thereby “recapturing” the premises – if the tenant does not maintain a specified minimum amount of business.
Rent: Compensation from tenant to landlord for the use of real estate.
Restriction: Private agreements listed in a real estate deed that restrict the use of the real estate in some way. The restrictions travel with the deed, and cannot generally be removed by new owners. Restrictions that are against public policy are unenforceable.
Revocation: A legal document used by the signatory of the Power of Attorney to cancel the powers granted to a real estate agent.
Recording: The act of entering a record of documents affecting or conveying interest in real estate in a county recorder’s office. Until recorded, a deed or mortgage generally is not effective against subsequent purchasers or mortgages or other third parties.
Redemption Period: The legal right of any mortgagor or borrower who owns real estate to reclaim his or her property. Right of redemption allows property owners who pay off the back taxes or liens on their property to prevent foreclosure or the auctioning off of their property, sometimes even after the auction or sale has occurred.
Rentable Area: The actual square-unit of a building that may be leased or rented to tenants and the area upon which the lease or rental payments are tallied. The generally accepted means of measuring space within an office building is the Building Owners and Managers association (BOMA) standard, which usually excludes common areas, elevator shafts, stairways and space devoted to HVAC.
Replacement Cost: The cost to replace the assets of a company or a property of the same or equal value. This cost can change depending on changes in market value.
Rules and Regulations: Building standards binding on the tenants usually set forth in a part of the lease covering such things as use of common areas, door lettering, signs, noise, moving or installation of equipment, special locks and other parts of the leased space.
Save Harmless: Clause that refers to a condition in an agreement by which one party agrees to guarantee that a debt, lawsuit or claim which may arise as a result of a contract will be paid or covered by the party making the guarantee. Liability, however, depends on whether the injury arose out of the use or occupancy of the premises or any part of it. The clause also provides for indemnification for the landlord, when the injury or damage took place wholly or in part by any tenant’s act or omission.
Schematic Design: A design that lays out the building program of a space that results from site inspection and client conferences. In the schematic design, the client’s needs and requirements are carefully analyzed; zoning regulations and codes affecting the work are studied; and sketches and statements of probable construction costs are prepared for the owner’s approval.
Sites: Prospective locations of a property.
Specific Performance: A part of a legal remedy available once a real estate buyer has decided to sue for the seller to sell the property to the buyer on the agreed upon price and terms. As part of this lawsuit, the buyer can record a notice that an action is pending, known as lis pendens, which practically disables the seller from selling, leasing or financing the property until the case is resolved.
Square Feet: The usual method by which rental space is defined. It is the area of that space, calculated by taking length times width. For example, a room 30 feet by 60 feet has an area of 1,800 square feet.
Statute: A law established by an act of a legislature.
Statute of Frauds: A law in every state which requires that certain documents be in writing, such as real property titles and transfers, leases for more than a year, wills and some types of contracts. The purpose of the law is to protect against false claims for payment from contracts that were not agreed upon. Specific requirements vary by state and different statutes may apply to different transactions.
Statute of Limitations: A type of federal or state law that restricts the time within which legal proceedings may be brought.
Subagent: A real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction.
Surrender: A legal document transferring property ownership for a given time period, provided certain conditions are met. A deed of surrender allows one party, such as a tenant, to relinquish his or her claims on a particular piece of property to the landlord. Once the deed of surrender has been signed, any outstanding claims on the property can be resolved.
Sublease: A real property rental agreement between an original tenant and a new tenant, then between the landlord who owns the property and a tenant. If that tenant finds him or herself unable to continue meeting the terms of their lease, they may opt to create a sublease if the landlord allows it. The sublessee is subject to the same rental terms as the original lessee.
Subordinated Ground Lease: An agreement by a property owner in a ground lease situation to allow a tenant’s construction lender to have superior rights to the land. The ground lease tenant often builds improvements on the rented land.
Subordination: A legal agreement that establishes one debt as ranking behind another debt in the priority for collecting repayment from a debtor. The priority of debts is extremely important if the debtor defaults on payments or declares bankruptcy.
Tenant Representation Agreement: An agreement between a tenant and a real estate broker in which the tenant engages the broker to be the exclusive agent in negotiating a lease or purchase of commercial space, and the broker agrees to act on the tenant’s behalf.
Tenancy by the Entirety: A statute that allows spouses to own property together as a single legal entity. An estate that exists only between husband and wife. Each has equal right of enjoyment and possession during their joint lives, and each has the right of survivorship.
Tenancy at Will: A tenancy agreement in which a tenant occupies property with the consent of the owner, but without an agreement that specifies a definite rental period or the regular payment of rent.
Tenant Improvements: Customized alterations a building owner makes to rental space as part of a lease agreement in order to configure the space for the needs of the particular tenant. These customized tenant improvements usually have an economic life of 5 to 10 years, which spans the average commercial lease term.
Tenancy in Common: A form of concurrent ownership of real property in which two or more persons possess the property simultaneously. It is created by deed, will or another operation of law.
Trade Fixtures: A piece of equipment on or attached to the real estate that is used in a trade or business. Trade fixtures differ in that they may be removed from the property before the lease expires, while ordinary fixtures attached to the real estate become part of the real estate. The tenant must compensate the owner for any damages due to the removal of the trade fixture.
Triple Net Lease: An agreement that designates the tenant as being solely responsible for all of the costs of the property, in addition to the rent fee. These include net real estate taxes, net building insurance and net common area maintenance.
Tenants at Sufferance: An agreement by which a property renter is permitted to live in a property after a lease term has expired, but before the landlord demands the tenant vacate the property. The original lease conditions must be met; otherwise, the tenant can be evicted at any time without notice.
*Tort: A wrongful act or an infringement of a right leading to civil legal liability.
Unit Office Space: Fully enclosed or semi-enclosed space, providing workspace for a single occupant and involving a circulation provision required to access the space.
Usable Area: Any area in a given floor that could be used by the tenant. This area includes a point from the perimeter glass line to demising walls; it also includes column areas within such a space.
Value: An estimate of what a home or a piece of land is actually worth; the price may be higher or lower, depending on fair market value, which is the estimated price on which a buyer and seller agree if both wanted to make a deal. The definition assumes that both parties have sufficient information about the market and the property.
Valuation: An expert’s assessment, appraisal or opinion as to the market value of an item of property.
*Variance: A request to deviate from current zoning requirements. If granted by the local authority, it permits the owner to use land in a manner ordinarily not permitted by a zoning ordinance. A variance is not a change in the zoning law, but a waiver of its requirements.
Violation: Act, condition, or deed that violates the permissible use of property.
Void: A formal agreement that is illegitimate and unenforceable from the moment of its creation. The Common causes of a void contract are contract terms that are illegal or become illegal due to changes in law; a party’s lack of capacity to enter into the contract; a court’s declaration of it null because it violates a fundamental principle.
Voidable: A formal agreement between two parties rendered unenforceable for a number of legal reasons: Failure by one or both parties to disclose a material fact; a mistake, misrepresentation or fraud; undue influence or duress; one party’s legal incapacity to enter a contract; one or more unconscionable legal terms; or a breach of contract.
Wall Base: A defined material applied to the base of walls for general protection and finish. The base is available in various heights and colors, a straight or flat base or a cove base, which is normally used for tile floors as a maintenance and finish advantage.
Waiver: The voluntary action of a person or party that removes that person’s or party’s right, particular ability or personal liability in an agreement. The waiver can either be in written form or some form of action.
Work Letter: An addendum to a commercial lease that defines the improvements made at the landlord’s expense and the work done at the tenant’s expense.
Wet Columns: Columns in which provisions are made to have a plumbing fixture; the pipes are taken through the small enclosure (chase) against the column.
Working Drawings: The set of plans for a building or project that comprise the contract documents that indicate the precise manner in which a project is to be built – includes a set of specifications for the building or project.
Zone: An area, delineated by a governmental authority, which is authorized for and limited to specific uses.
Zoning Ordinance: A law by a local governmental authority (e.g., city or county) that sets the parameters for which the property may be put to use.
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