Commercial Real Estate Terms and Definitions

Abatement

Sometimes referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.

Absorption

The rate, at which available space in the marketplace is leased during a predetermined period of time.

Absorption Rate

The net change in space available for lease between two dates, typically expressed as a percentage of the total square footage.

ADA

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

Add-On Factor

Is the tenant’s pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. It is usually expressed as a percentage which can then be applied to the usable square footage to determine the rentable square footage upon which the tenant will pay rent.

Additional Rent

Any amounts due under a lease that are in addition to base rent.

Agency

Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.

Allowance

A 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 design fees, etc.

Amortization

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

Anchor Tenant

The major or prime tenant in a shopping center, building, etc.

As-Is

The existing condition of real estate, prior to any improvements contemplated under a lease.

Assignment

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

Availability Rate

The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.

Available Space

The total amount of space that is currently available for lease in a given time frame.

Base Rent

A specific amount used either as a minimum rent in a lease (retail) which uses a percentage of sales or overage for additional rent or sets a base onto which is added expenses and taxes in a net lease or increases in those items in a fully serviced lease.

Base Year

The 12 month period upon which a direct expense escalation of rent is based. Typically the calendar year the lease commences.

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 Classifications

Refers to Class “A”, “B”, “C”. “A” being the best and most sought after building type.

Build-to-suite

A particular property, developed specifically for a certain tenant to occupy.

Buyer

The entity that has purchased a commercial real estate asset.

CAM Charges

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

Commencement Date

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

Common Area

Common area is the area used in common by the tenants of an office building. Common area includes building and elevator lobbies, restrooms and the corridor leading from an elevator lobby to a tenant space.

Effective Rent

The average per square foot rent paid by the tenant over the term of a lease

Effective Useable Area

Excludes those areas within the Useable Space that the tenant pays rent on but effectively cannot use such as columns and sharply angled spaces.

Escalation

A clause in a lease providing for an increased rental at a future time.

Exclusive Listing

Any property where the owner has signed an agreement with a real estate broker to lease and/or sell their property. That broker has an “exclusive listing” on the owner’s property.

Expansion Option

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

Fair Market Rent

The rent which would be normally agreed upon by a willing landlord and tenant for a specific property at a given time.

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.

Gross Lease

A lease in which the stated rent includes the operating expenses of the building.

HVAC

Heating, Ventilation, Air Conditioning. General terms encompassing any system designed to heat and cool a building in its entirety, as opposed to a space heater.

Lease Term

The specific period of time in which the Landlord grants to the tenant the right to possession of real estate.

Lessee (Tenant)

The party to whom a lease (the right to possession) is given in return for a consideration (rent).

Lessor (Landlord)

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

Letter of Intent

There are potentially multiple uses of this term. Generally a written statement that two parties to a prospective transaction (buyer/seller or lessor/lessee) intend to proceed to a final agreement in good faith on stated principal business terms of the deal to be entered into.

Listing Agent

The real estate agent hired by the property owner to lease a property on their behalf. The agent obtains a listing agreement, which calls for that agent to act on the owner’s behalf as a fiduciary in leasing the property.

Load Factor

In a lease, the load factor is the multiplier to a tenant’s useable space that accounts for the tenant’s proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.). The load factor is usually expressed as a percentage and ranges from a low of 5% for a full tenant to as high as 15% for a multi-tenant floor. Subtracting (1) from the quotient of the rentable area divided by the useable area yields the Load Factor. >/p>

Occupancy Cost

Any cost or charge incurred by a tenant pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.

Occupancy Date

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

Operating Expenses

The cost of operating an office building, such as janitorial, management, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for replacement of items which periodically wear out.

Premises

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

Present Value

The present value is the amount that must be invested now to produce the known future value. For any sum invested at a given interest rate, the amount one would receive at the end of the period can be determined by taking the investment time’s one (1) plus the interest rate of the period to the power of the period. For example, if $10 is invested in an interest rate of 10% for one year, the investment would grow to $11 at the end of the year. It follows, then, that $11 one year from now is worth $10 today; that is $10 is the present value of $11.

Renewal Option

The right of a tenant to renew a lease for a stated period of time at a rent to be determined (“fair market rent”).

Rent

Consideration paid for the occupancy and use of real property.

Rentable Area

The (square footage) for which rent can be charged. Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.

Rental Rate

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

Request For Proposal (RFP)

A document typically issued by a tenant’s agent to an owner(s) of real property, inviting the owner(s) to submit a proposal to the tenant for the leasing of a vacant space. The RFP sets forth the specific areas of concern to the tenant, such as the space in question, the lease term, expansion and renewal options, rental rate, and tenant improvements and other allowances to be provided by the owner.

Right of First Offer or First Opportunity

A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease.

Right of First Refusal

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

Space Planning

Is the planning of the layout of the interior space of a building to meet the needs of the user. Can also include detailed interior design and preparation of construction drawings.

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 contain a greater property interest.

Subordination

To make subject or junior to.

Substantial Completion

Generally used in reference to the construction of tenant improvements (TIs). The tenant’s premise is typically deemed to be substantially completed when all of the TIs for the premises have been completed in accordance with plans and specifications previously approved by the tenant.

Tenant Improvements (TI’s)

Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and be paid for by the landlord, tenant or part by each.

Tenant Representative

An agent who is an advocate for the tenant. The relationship is most often the product of a signed representation agreement.

Triple Net

A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property leases, such as taxes, insurance, maintenance, utilities, cleaning etc

Turnkey

Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory.

Useable Area

The secured area (square footage) occupied exclusively by tenant within a tenant’s leased space