Absolute Net: Lease requiring tenant to pay in addition to base rent all costs associated with the operation, repair and maintenance of the building, all real estate taxes, and utilities including repair and maintenance of the building's structure and roof. Often the tenant is directly responsible both for all such costs and for the active handling of the items themselves. Distinguished from Triple Net (see below) by tenant's responsibility for maintenance and repair of the building structure and roof.
ADA: Americans With Disabilities Act 1994 passed with the intent to compel business and government to provide persons with disabilities accommodations and access equal to or similar to that of the general public.
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. If the expense exceeds the allowance amount, such excess is the Tenant's responsibility. If the expense is less than the allowance, the savings are retained by the Landlord unless their agreement specifies otherwise.
Amortization: liquidation of a financial debt, 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 lease term.
Assessment: A fee imposed in the lease, usually to pay for improvements such as water, sewers, streets, etc.
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.
Base Rent: A set amount used either as a minimum rent in a lease. with provisions for increasing 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.
Build-out: Space improvements put in place per the tenant's specifications. Takes into consideration the amount of tenant finish allowance provided for in the lease agreement.
BOMA: Building Owners and Managers Association. BOMA publishes the definition of rentable and usable area, which is used to determine the square footage (measure) leased in most commercial office buildings.
Common Area Maintenance: (CAM) - Charges. 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.
Class: Class is usually used in conjunction with an office property description, and refers to the owners opinion of the quality of the property. Class definitions usually follow these guidelines.
Class A+ Property: Landmark quality, highrise building with prime central business district location (the best of the Class A buildings).
Class A Property: 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 Property:Renovated and in good locations. Newer building or smaller in size, wood frame, or in non-prime location.
Class C Property: Older buildings, average to fair condition, perhaps a poor location. 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.
Contingent Fees: Fees to be paid only in the event of a future occurrence. Examples include: Attorneys (especially in negligence cases) paid based on winning the suit and collecting damages; and a broker's commission paid only upon closing the sale of a piece of property.
Certificate Of Occupancy: (COO) - A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied.
Demised Area: The walled off and secured area of a leased space, separated from spaces leased to others (by a "demising" wall). Also measured as usable area.
Discount Rate: The rate of interest used in a present value analysis representing the "time value of money".
Effective Rent: The average per square foot (measure) rent paid by the tenant over the term of a lease. Takes into account only free rent and stepped rents. Does not include allowances, space pockets, free parking and other similar landlord concessions.
Effective Useable Area: Excludes those areas within the Useable Space, is that tenant pays rent on but effectively cannot use such as columns and sharply angled spaces.
Escalation: Clause in a lease agreement providing for an increased rent at a future time. 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 expense -- the rent adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.
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).
Expense Stop: A fixed amount (typically per square foot) in a lease where the tenant is responsible for all building operating expenses and taxes in excess of said amount.
Extension Option: An agreed continuation of occupancy under the same conditions, as opposed to a renewal, which implies new terms 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 for an ad.
Fair Market Rent: The rent which would be normally agreed upon 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 be different. In a lease, the term "fair market rent" is defined in a number of different ways and is subject to extensive negotiation and interpretation.
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 Gross Lease. Opposite of Net Lease.
Gross Lease: A lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease. Opposite of Net Lease.
Gross Up: An adjustment made to operating expenses to account for the occupancy level in a building. When operating expenses are "grossed up", it means that the building's variable expenses have been adjusted upwards to the level that those expenses would be incurred if the building was fully occupied (typically 95%).
Ground Lease: A lease of land only, -not- any buildings on it.
HVAC: Heating, Ventilation, Air Conditioning. A general term commonly used to describe any system designed to heat and cool an area or building.
Landlord: (Lessor) - Usually the owner of the property or assigned agent who offers the lease.
Lease Term: The specific period of time described in the contract which permits the tenant to occupy the real estate.
Lessee: (Tenant) - The party to whom a lease is given in return for a consideration.
Lessor: (Landlord) - The party, owner, who gives the lease in return for a consideration.
Letter Of Intent: (LOI) - 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. This meaning applies when executed by both parties. Alternatively such a document 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 formation of a binding contract, care should be taken to include a clause stating that there is not a specific offer and no intent to be a legally binding obligation. However, an obligation to continue to negotiate in good faith to conclusion can be created.
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.
Master Lease: A lease controlling subsequent leases. May cover more property than subsequent leases. For example: "A" leases an office building, containing ten offices, to "B". "B" subsequently subleases the ten offices individually. The ten subleases from "B" as sublessor are controlled by the lease from "A" to "B" (master lease).
Net Lease: Triple Net, Today this generally indicates a lease in which the stated rent excludes the insurance, utilities, operating expenses and real estate taxes for the building. The tenant is then responsible for the payment of these costs either directly or as additional rent. Opposite of Gross or Fully Serviced Lease.
Net Present Value: (NPV) - The calculation takes into account both the netting of cost and benefits and the time value of money. See Present Value.
Non Disturbance: So long as lease is not in default, its rights to occupancy under the lease will not be disturbed by the lessor or it's successors or assigns.
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.
Open Listing: Any property that is leased directly by the owner. Sometimes, the owner will employ an in-house leasing agent. Typically, these are called open listings, where the owner will pay a full commission to any broker who brings a tenant to the property.
Operating Expenses: The cost of operating an office building, such as janitorial, management fees, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for replacement of items which periodically wear out. Should not include capital expenses such as roof replacement nor expenses associated with the production of income such as leasing commissions and legal fees.
Owners Representative: An agent who is an advocate for the owner and/or landlord.
Pass Through: Expenses/Charges An increase in operating expenses over the base year amount that is billed to the tenant as additional rent. See escalation.
Premises: The premises is the entire rentable area leased by lessee. stated in the lease need to be defined clearly. For example, that for which the lessee has exclusive occupancy as opposed to the common areas. To be clear, spell out exactly what the premises constitutes.
Present Value: The present value is the amount invested now, to produce the known future value or calculation.
Reasonable Consent: A standard applied in a lease, limits the ability to withhold consent in its sole discretion. If a reasonable person would give consent to an action given the circumstances, so must.
Renewal Option: The right of a tenant to renew or extend-the-term-of a lease for a stated period of time at a rent to be determined (i.e. 9.5% of "fair market rent").
Rent: Consideration paid for the occupancy and use of real property. Also a general term covering any consideration (not only money).
Rentable Area: The square footage (measure) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations such as elevator shafts, stairwells, chimneys, columns, mechanical shafts, etc. Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.
Rent Rate: The amount of Rent paid per volume of "measure", against a unit, such as "time". Rent per month. For the occupancy and use of real property. Typically stated on a per square foot (measure) per month (time) or per year(time) basis.
Security: If clause is included regarding securing your premises. There are several typical considerations, a) who is responsible for security, system installed, third party expenses.
Space Pocket: A portion of a leased premises that is set aside to accommodate future growth on the part of the tenant. The space pocket is typically fully improved at the commencement of the lease and 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 contain a greater property interest. Example: "X" leases to "Y" for five years. "Y" may sublease to "Z" for 3 years, but not for 6 years.
SubstantialCompletion: Generally used in reference to the construction of tenant improvements (TIs). The tenant's premises 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. Sometimes used to define the commencement date of a lease.
Tenant: (Lessee) - A holder of an interest in property for a specific term under a lease or other rental agreement (generally a right to occupancy and use).
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 Agent: An agent who is an advocate for the tenant. The relationship is most often the product of a signed representation agreement or successor.
Triple Net: (NNN) - 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. The terms "net net", "net net net", "triple net", are commonly used.
Turn Key: Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory, if any. Turnkey tenant improvements are provided at the landlord's expense according to plans and specifications previously 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.
Useable Area: The secured area (square footage/measure) occupied exclusively by tenant within a tenant's leased space. The usable area times the load factor for common area results in rentable area on which rent is charged. Usable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.
Work Letter: Specifications for tenant improvements usually attached to a lease and/or letter of intent. The work letter provides the basis for working drawings and contractor pricing and may allocate costs between the parties. Also establishes critical dates for approval of drawings and processes.
Working Drawings: Drawings prepared by a licensed architect and used by contractors in the construction of tenant improvements. Shows all architectural detail such as electric, plumbing, partitions, etc.
