Commercial Real Estate Dictionary
Abatement. Is a reduction or decrease. Usually referred to in terms of rent or other increases.

Above Building Standard. Typically refers to items not included in the Building’s construction work letter. The work letter indicates what the ownership of the building will include in a standard office buildout for their building.

Absorbed Space. Represents the net change of the amount of office space in a given period of time.

Absorption Rate. The percentage of space in a market either taken off the market or added back into the pool of existing office space. Typically a gain in market absorption represents space that is now leased, that was not previously leased, or in a negative absorbed market space that was leased, that’s now vacant.

Absorption Period. The amount of time given to lease or sell a given amount of space.

Addendum. A document containing any additions or changes negotiated in the original lease. This document is always attached to the signed lease, as part of the lease. Items addressed in an addendum supersede the item being replaced in the lease.

Add-On Factor. Also referred to as a loss factor, common area factor or core factor. The areas of a structure that are common to all tenants in the building, i.e. restrooms, corridors, storage rooms, electrical rooms, janitorial closets, lobbies etc.

Ad Valorem. This is a term typically used when referring to property taxes they are based according to the government’s valuation of the property. According to Value.

After Hours Usage. Tenant’s need for additional working hours beyond the normal operating hours for the building as set forth in the lease. Typically if tenant requires after hour utility usage, he will pay an additional agreed upon fee.

Amenities. Attractive features of a property such as a coffee shop, health facility, conference rooms, covered parking, etc.

Amendment. A document negotiated after the original lease is in affect, changing or adding items to the original lease. This document is to be attached to the signed original lease and now becomes part of the lease. Items addressed in an amendment supersede the item being replaced in the original lease document.

Americans with Disabilities Act (ADA). This is Federal legislation that was passed in 1990 requiring employees and business owners to make "reasonable accomodations" to facilitate the employment of the disabled.

Amortization. Represents periodic payments of principal and interest to be paid back over the term of a loan.

Annual Bumps. Slang for annual increases is such items as rent or operating expense increases.

Annual Operating Expense Increase/Overages. A charge passed on to the tenant representing the tenant’s proportionate share of building operating expense costs greater than the amount agreed upon in the original lease.

Annual Rental Rate. The cost per square foot that the landlord is quoting or receiving in rent. i.e. $14 per square foot. Sometimes quoted in annual dollar amounts i.e $14,000 per year.

Appraisal. The estimation of an opinion of value given on a property.. An appraisal of property is to be based on factual information given by a qualified professional appraiser.

Appreciation. An increase in the value of the property.

Assessment. The estimated value of property in order for a governmental fee to be imposed such as taxes or area improvements.

Assignment of Lease. Is the transfer of all responsibilities and liabilities of the lease from one party to another.

Attornment. The turning over of things of value such as money or property to a new owner.

Audit. The inspection of records to assure accuracy.

Base Rent. Is the rate at commencement of the lease. It is subject to annual increases unless otherwise negotiated in the lease or Addendum or an attached ammendment. This phrase has more than one meaning. To some landlords, and in some markets it refers to the rental rate minus operating expenses., i.e. $14 per square foot quoted rate, the building operates at $6.50 (operating expense cost); therefore, the base rate(net rent) is $7.50.

Base Year Operating Expenses. The cost the owner is paying to cover the cost of operating the building in a given year. i.e. Base Year 1995 expenses would reflect the cost to operate the subject building in 1995. In subsequent years you would pay the diffrence in the amount it costs to operate the building, based on the percentage of the building you occupy.

Bay Depth. Represents the distance from the building’s corridor wall to the outside window of the building.

B.O.M.A. Refers to The Building Owners and Manager’s Association. An International Organization made up of Building Owners, Building Managers and suppliers of the same. Because of its size and influence the organization establishes a variety of recommended guidelines, such as the B.O.M.A. method of measurement.

B.O.M.A. Method of Measurement. Is generally accepted throughout the office building industry as the standard and fair method of measuring office space. Some landlords use other methods, including their own. To determine the Usable area of your space, you must measure from the inside finished surface of the corridor wall and the dominant portion of other perminant walls (dominant portion of exterior walls, i.e. could be glass) to the center of the wall that separates your office from the adjoining office. Columns and interior walls should not be deducted from the measurement. To determine the Rentable area of your space, you must first determine the rentable area of your floor. This would be accomplished by measuring the inside finished surfaces of the outer building (might be outer glass to outer glass that makes up the exterior walls of the floor). Remember it’s length times width equals square footage. When measuring, exclude any "vertical penetrations" such as stairwells elevator shafts, flues, vertical ducting etc. before you determine the Usable area of that floor. This would be accomplished by taking the rentable measurement and subtracting areas of common use to the tenant, i.e. corridors, restrooms, utility closets, janitorial closets and building ammenities located on that floor, such as a common conference room. To determine your rentable area, usable area and common area factors apply the following conversion formulas:

Rentable area divided by Usable area = Rentable/Usable Ratio.

Usable area times Rentable/Usable Ratio = Rentable Area.

Rentable Area divided by Rentable/Usable Ratio = Usable Area

Broker. One who acts as an intermediary between landlord and prospective tenant. Broker could be acting on behalf of the tenant (Tenant Representative), or the landlord (Building Representative). The Broker is generally paid by the landlord, unless other financial arrangements have been made, or the Broker’s registration of the prospective tenant has been rejected by the landlord.

Building Amenities.. Features of the building that add to the comfort of the tenant while in occupancy. i.e., coffeeshop, health facility, covered parking, break rooms, conference rooms, Fed Ex Machines, UPS Machine, etc.

Building Codes. A set of laws enacted by the local governmental authorities, to regulate the operation of office buildings within their jurisdiction.

Building Improvements. Any improvements being made to the overall appearance or comfort of the building. i.e. new carpeting, painting, upgrade of elevator cabs, etc.

Building Operating Hours. The normal hours of operation for the building, as set forth in the lease.

Building Standard. Refers to the items covered in the building’s construction work letter, defining the items necessary to create a standard office space.

Build-out. Refers to the construction of the tenant’s proposed space, to make it ready for occupancy, or to comply with tenant’s construction needs according to the terms and conditions of the lease. Also referred to as T.I. (Tenant Improvements)

Build to Suit. Is the build-out of space according to the tenant’s established guidelines.

Buy Out. The ability to pay money or something of value in order to be released from the obligations of a lease.

Cash Flow. The amount of money the Landlord will receive from the lease, after the deduction of operating expenses, taxes and insurance.

Certificate of Occupancy. A document issued by the local governmental authorities, stating that the building of office space is in the proper condition to be occupied.

Change Order. A document usually signed by the tenant when making a revision to the original buildout plans. It represents the tenant’s authorization to revise and usually indicate the tenant’s willingness to pay for the revision.

Class A Building. A term commonly used when referring to the highest quality buildings. Building classification may rate how the building is generally accepted in the market, or could be a personal classification by the individual referring to that structure.

Class B Building. A term commonly used to describe an average building. Building classification may rate how the building is generally accepted in the market, or could be a personal classification by the individual referring to that structure. Class C Building. A term commonly used to describe a below average building. Building classification may rate how the building is generally accepted in the market, or could be a personal classification by the individual referring to that structure.

Commencement Date. Date the lease takes affect. Usually from the landlord’s perspective the day the tenant starts paying rent on the occupied space.

Commission. A fee generally paid to a Real Estate Broker, or other properly licensed individual for acting as the procurring cause of the transaction.

Common Area Factor. Any space in a building affording common use for all tenants, with the exception of vertical penetrations. Translation - Lobbies, corridors, restrooms, building breakrooms, building conference room, health facility, janitorial closets and storage rooms. It does not include the stairwells or the elevator shafts, flues or vertical ducting.

Common Area Maintenance Fees (CAM Recovery). In retail it’s a fee charged to tenants to maintain the outward and overall appearance of the property. In the office building industry it’s generally interchangable with overage of operating expenses.

Comparables. Properties similar to a particular property used as a comparison to determine a fair market value.

Concession. Is an item given up during negotiations. Coming from the landlord it could be in the form of free rent or other reduction. From a tenant it would be backing off a demand.

Condemnation. The process in which the government is able to take property from an owner, without the owner’s consent. Also referred to as eminent domain. Owner is compensated for the property.

C.P.I. (Consumer Price Index). In most leases this is used as the basis for adjusting annual rent increases. It is also referred to as a "Cost of Living" increase. This is the federal government index that measures the change in cost of a variety of goods. It is used as an indicator to reflect future pricing as an adjustment for inflation.

Contiguous Space. Refers to the space next door, or adjoining the tenant’s occupied space.

Contract Rent. The actual rent paid under the terms of the lease.

Conveyance. Is the transfer of title or ownership from one party to another.

Covenant. Is a promise or assurance given by one party to another. Another definition is a legal restriction of property.

Date of Lease. Is the date the lease has been executed by both the tenant and the landlord.

Debt Service. Payments made on a loan.

Deed. A document proving ownership.

Default. Non-performance under the terms of the lease.

Demising Wall. A common wall that separates two tenants. (Usually to the understide of the floor above.)

Depreciation. A decrease in property value.

Dominant Portion. A feature that makes up more than 50% of the inside surface of a permanent wall.

Easement. The right given to another party to either use a portion of or to cross the property freely.

Economic Rent. An analysis used to determine the property’s market rent.

Effective Rate. Would be the overall average of your rate, taken through the entire term of occupancy. This would take into affect annual increases. i.e A rate quoted at $14 per square foot, on a five year deal with annual increases of 4% would be effectively a $15.17 deal.

Efficiency. A term used when describing the building’s common area factor, sometimes used to describe how well the building is being run as reflected in lower operating expenses..

Electrical or Utilities. When referred to in a lease, it reflects a cost that is either being paid separately by the tenant under a net or triple net lease, or a cost that is included under the full service or gross lease.

Eminent Domain. A method used by the government to acquire property, by condemnation without having to get the owner’s consent. The owner is compensated for the property.

Encroachment. Refers typically to a property use or structure extending over someone elses property line.

Encumberance. A claim or lien filed against a property.

Equity. Usually refers to one’s ownership position in a property, reflecting the market value of the property.

Equity Participation. The participation by the lender in an active ownership position with the property.

Escalation Clause. The clause in the lease that addresses the increases to be passed on to the tenant during the life of the lease.

Estoppel Certificate. Is a document signed by the tenant stating the current condition of the lease and any other agreements between the landlord and tenant.

Escrow Agreement. Governs the terms under which money may be placed into an escrow account and how it is to be handled or distributed.

Exclusive Agreement. An agreement between and owner and a brokerage firm which states the broker will be the sole representative in marketing the property for sale or lease or to manage this property. In return the owner promises to compensate the broker by paying a commission or a fee, according to the terms and conditions of this agreement.

Exhibit. Is an attachment to the lease.

Expansion. Refers to the transaction involved for a tenant to add additional space to his existing leasehold space.

Expense Stop. Is an established dollar amount towards operating expenses of the building that the landlord is willing to pay. The tenant will be required to pay his proportionate share of any costs over and above this set amount.

Face Rent. The asking rent.

Fair Market Value. This is the price that the property would most likely bring in today’s market.

Fiduciary. Loyalty to a certain party.

Finished Surface. A wall, a ceiling or a floor, including glass that’s been placed in the space for the Tenant’s use.

First Right of Refusal. A right given to the tenant that states that before the landlord will lease the space in question, (usually expansion space), the tenant will be given the right to lease it first.

Fixed Costs. Costs that remain constant.

Flex Space. Sometimes referred to as office/showroom space. It consists of some office but mostly warehouse space.

Floor Load Capacity. The amount of weight a floor in a building is safely capable of sustaining, per square inch.

Force Majeure. A natural act or acts of God.

Free Rent. A period of time given to the tenant by the landlord to occupy the space before having to commence paying rent. Usually done during extreme soft periods in leasing when the market is known as a "tenant’s market."

Full Service Lease. In some markets referred to as a "gross lease," is meant to cover the cost of rent, electricity and janitorial service. Does not include phones or furniture, moving etc. BEWARE sometimes this term is used when referring to a "modified gross lease."

Functional Design. A plan affording a user maximum efficiency from their space.

General Contractor. The individual or company that coordinates all construction work, oversees the construction and hires and is responsible to pay all sub-contractors.

Graduated Lease. A lease with varied rental payments sometimes referred to as a stepped lease.

Gross Lease. The type of lease that as all inclusive. The tenant pays rent, the owner pays all expenses related to the property.

Gross Square Footage. Total square footage of the building, or property.

Guarantee. If a business is relatively new (under five years), their financial statement is not real strong, or the landlord has some discomfort with the prospective tenant’s ability to last through the lease, he might ask for a personal or corporate guarantee. It is assurance that if the tenant defaults, the person or entity guaranteeing the lease will pay rent and continue to live up to all the terms and conditions of the lease.

Holding Over. This is caused when a tenant remains in their space beyond the agreed upon term of the lease.

HVAC. A term used when referring to heating, air-conditioning and other ventilation systems within the building.

Improvements. Usually refers to construction being done within the tenant’s space or within the building itself.

Indirect Costs. These typically are support costs such as administrative, financing or property taxes, as opposed to costs such as direct labor or direct purchase of materials for your use.

Inventory. Is a term used reflecting the amount of space available within a given market.

Janitorial. This expense is generally covered under a full service lease, and paid for under the terms of a net or triple net lease arrangement. Normal janitorial functions typically included a light dusting, emptying of trash and ashtrays and light cleaning or vacuming of floors.

Landlord. The person who controls, operates, or owns the property.

Landlord’s Lease. A lease written that is weighed to the advantage of the Landlord.

Landlord’s Market. An office market showing strong signs of being favorable to the landlord. Typically a market that’s experiencing strong leasing activity, and doesn’t have a lot of available space.

Landlord’s Warrant. This gives the landlord the right to lien a tenant’s personal property and the right to sell it to collect delinquent rent.

Lease. The legal agreement between the Landlord and Tenant setting forth the rules and conditions for occupancy by the tenant and limitations of the landlord.

Leasable Square Footage. The amount of space in the building or within the Tenant’s space once the common area or load factor has been added to the usable measurement. It is typically the amount of square footage your rental rate is based on. Usable square footage plus the building’s load factor equals the leasable square footage.

Lease Commencement Date. The date that the lease begins.

Lease Expiration. The date when the lease expires, according to the terms and conditions set forth in the lease.

Lease Extension. An agreed upon period of time, between landlord and tenant that he lease term can be extended.

Lease Proposal. A presentation, usually written of the proposed lease terms and conditions for the prospective tenant’s occupancy.

Lease Term. Number of months, or years the agreed upon lease will remain in force.

Leasee. The individual or company leasing space from another party.

Leasing Agent. The individual assigned the responsibility, usually by the building owner to lease up the property.

Lessor. The individual or building owner leasing space to another party.

Letter of Credit. A pledge or a commitment made by a lender or other party at the request of a party to honor drafts or any other payment.

Letter of Intent. A lease proposal, with an acceptance signature block for both parties. It may or may not be legally binding, depending on the statements in this agreement.

Lien. An encumberance against personal items such as property for money.

Listing Agreement. An agreement between a property owner and a broker giving the broker the right to sell or lease the owner’s property in return for compensation.

Load Factor or Loss Factor. Also referred to as common area factor. It’s the difference between the rentable and usable square footage in the building.

Maintenance. The care and upkeep of the property.

Management. The responsibility for over-seeing the day to day operation of the office building.

Market Analysis. A study reflecting various conditions of a given market.

Market Indicators. Statistical data pinpointing particular reasons for affect on a market.

Market Rate. Price that is generally acceptable for a particular product within a given market.

Market Rent. The amount of rent the property would most likely attain on the open market.

Market Survey. A study of vital statistics from various properties effecting a segment of or the market.

Mixed Use Building. Also referred to as a multi-tenant building. Tenancy is made up of more than one tenant in various businesses.

Modified Gross Lease. This is a lease where the tenant pays rent and included are all costs related to the operation of the building, except the tenant pays his proportionate share of operating expense overages.

Month to Month Lease. An agreement by landlord and tenant to allow the tenant to occupy space on a month to month basis. Typically this type of lease can be terminated by either party with a thirty day notice.

Monthly Rent. One twelth of the Annual Rent, paid to the landlord usually on the first of the month,

Multi-Tenant Building. A building that houses more than one tenant.

Multi-Tenant Floor. A floor that houses more than one tenant.

Net Lease. A lease that is not all inclusive. i.e. Lease Agreement indicates the tenant will pay for his own Janitorial service or electric service, or lease indicates tenant will pay separately for both janitorial & utilities.

Net Operating Income. The amount of money left after deducting operating expenses, taxes and insurance from the building’s gross income.

Net Present Value (NPV). The value of the lease once all costs of doing a transaction are deducted from the gross income of a lease.

Net Rentable Area. Also referred to as usable. It is the measurement of a space, a floor or a building less all vertical penetrations.

Non Competitive Clause. A clause in a lease restricting the landlord to leasing space to a like or competitive type of business.

Nondisturbance Clause. Insures the tenant quiet enjoyment while occupying his office space.

Normal Use. Tenant will use the premises for permitted purposes within the guidelines of the lease, during normal building operating hours.

Open Space Plan. Is an office design which eliminates walls closing off the space into individual offices.

Operating Expenses. The landlord’s cost to operate the property. Some items included are: Real Estate Taxes and assesments and other taxes, utilities, insurance, maintenance and repairs, common area refurbishing, janitorial, matierials and supplies, repair service, cost of property management, security fees, employees and contractors, outside maintenance, cost of signs, rubbish removal, pest control, bulb replacement, etc.

Operating Expense Pass-thrus. The amount that is passed on to the tenant in order to operate the building. This would represent any amount over and above the amount agreed to in the lease, referred to as Base Year Expenses or the Expense Stop. This amount would be proportionate to the percentage of space occupied by the tenant in the building.

Option. A clause in the lease that gives the option holder some future right in the lease.

Pass Throughs. Building and operating expenses that are to be paid by the tenant.

Percentage Lease. Generally used for retail leases in which rent is based on a percentage of sales.

Pre-Leasing. The leasing of a project before construction of the project has been completed.

Pro-Rata Share. Percentage of building occupied by the tenant, which is usually based on the rentable or leasable square footage measurement of your space compared to the rentable or leaseable square footage of the building.

Proration. Is a division of cost proportionately, based on a given period of time.

Quoted Rate. The rate per square foot that is quoted to prospective tenants when inquiring about the property. May or may not be negotiable. This may be quoted on a rentable or usable basis.

Reassessment. Is re-evaluating the value of a property.

Relocation Clause. Any clause in a lease giving the landlord the right to move the tenant within the building, during the lease period.

Rehab. Re-construction of a building or a space to bring it up to date.

Renewal. The ability to renew a lease for a period of time, to remain in your present space.

Renewal Option. An option in the lease giving the tenant the right to renew their lease, under certain terms and conditions and usually within a certain given time frame.

Rent. Money or something of value paid from tenant to landlord for the right to occupy space in the landlord’s property.

Rentable Square Footage. The amount of square feet, including the common area factor of the building. This typically is the square footage the tenant will pay rent on.

Rent Commencement Date. The date the tenant begins paying rent.

Rental Rate. The agreed upon rate that space is leased at.

Rent Roll. A list of tenants occupying space in the building.

Security Deposit. An amount of money, usually placed in escrow, by tenant insuring landlord that all obligations of the lease will be met, and office space will not be damaged.

Single Floor Tenancy. A floor occupied by a single tenant.

Space Plan. A drawing representing the tenant’s build-out requirements within the desired office space.

Space Planner. One who draws the space plan, usually done by an architect.

Spec Space. This is office space that is built out prior to being leased to a particular tenant. The space is considred speculative in nature.

Sublease. Occurs when a tenant re-leases their space during the term of their tenancy. It is generally a three party transaction. Sub-leasee leases space from tenant and Landlord approves.

Tenant. An individual or company that occupys space, under the terms and conditions of a lease document.

Tenant-at-Sufference. Is a tenant who has stayed beyond the termination of their lease.

Tenant-at-Will. A tenant who holds occupancy for an unknown amount of time. Usually has the landlord’s approval.

Tenant Improvements. Usually refer to the improvements to be done to a space to make it ready for the new tenant’s occupancy. It can also mean improvements being done by a tenant.

Tenant Improvement Allowance. This is the amount of money the landlord is willing to contribute for the build-out of the tenant’s space. It is usually quoted as x amount of dollars per rentable or usable square feet.

Tenant Eviction. Landlord sues to remove tenant from the leased premises, usually due to non-payment or non-conformity to the rules and regulations of the property.

Tenant’s lease. Any lease giving the tenant more rights than the landlord.

Tenant’s Market. Normally a weak market. Slow leasing activity and lots of space available throughout the entire market.

Tenant Representative. Any Broker or representative exclusively representing the rights of a tenant during the course of a transaction

Tenant’s Services. Those services provided to the tenant by the landlord, under the terms and conditions of the lease.

Triple Net Lease. A lease in which the tenant pays all expenses, including their rent.

Turn-Key Buildout. Is a completed build-out of space, ready for the tenant to move into.

Unencumbered. Free of liens, or free and clear.

Usable Square Footage. The amount of square feet measured within the confines of the tenant’s space, no add ons.

Use. Purpose of occupancy.

Vacancy Factor. The amount of space not occupied in the building.

Vertical Penetration. Areas such as stairwells, elevator shafts, flues, pipe shafts, vertical ducts which serves more than one tenant. For measurement purposes, these items are not deducted if they serve a single tenant.

Warranty. Certain assurances given from the seller to the buyer or building owner to the tenant.

Wear and Tear. Deterioration of space due to occupancy.

Wet Column. A column through which plumbing can be accessed for installation of sinks, drinking fountains, etc.

Working Drawings. Are the plans from which the contractor will build your office space. These are also the plans that have received governmental approval during the permitting process.

Work Letter. This is usually an attachment to the lease. It indicates the materials that are considered building standard for the build-out of office space within the building and the amount of dollars the Landlord is willing to contribute towards the build-out of the Tenant’s space.

Zoning. Governmentally regulated permitted uses of a certain area or building. Zoning controls the type of businesses that can operate within this area.

Zoning Ordinance. The set of laws set up by the local government for the control of uses of property within the community.