Glossary of Terms
Ad valorem - the value of property used in the determining taxes.
Agent - One who acts or who has power to act for another. A licensed real estate broker authorized to act under a listing or management agreement executed by a property owner (the Principal); this creates a fiduciary relationship under the law of agency.
Amortization - The process of paying off a debt together with interest, usually with equal payments at regular intervals over a period of time.
Appraisal - An estimate of quantity, quality or value. The process through which conclusions of property value are obtained; also refers to the report setting forth the estimate and conclusion of value.
Architectural drawing - Includes all architectural contracts and drawings such as plot plans, floor plans, elevations, sections, details, schedules, etc., and any architectural drawing that forms a part of the contract documents. Exceptions include mechanical, electrical and structural drawings, as well as specialized data that are normally handled by specialists in those fields.
Assessed value - The value placed on land and buildings by a township or a county assessor for use in levying annual real estate taxes.
Assignment - The transfer of leasehold interest in a property to a second party.
As-is - The existing condition of real estate, prior to any improvements contemplated under a lease.
BOCA - Building Officials Conference of America which writes the guidelines for basic, community building codes.
BOMA - Building Owners and Managers Association which established methods of computing square footage in commercial buildings.
Base lease - A contract stating the minimum established requirements that are applicable to all tenants.
Base rent - The minimum monthly rent, usually computed on a per- square-foot-per-year basis, due under the lease (see percentage rent).
Base year - A specific year of a lease against which certain rent escalations and additional expense reimbursements to landlord may be calculated.
Binder - A preliminary agreement evidencing a meeting of the minds and effective until the principal agreement can be executed.
Build-out - Refers to the interior construction of a tenant's space whether new construction or the reconfiguration of existing space.
Build-to-suit - A customized design and build approach to a tenant's space usually resulting in a single occupant building which is then leased or sold to the tenant.
Building standard - A list of materials and finishes used in the the build-out, repair or restoration of a tenant's suite.
Building core - The central or arterial part of a multistory building that integrates functions and service needs for established occupants. Such areas are normally composed of toilet facilities, elevator banks, janitors' closets, utilities, mechanical facilities, smoke shafts and stairwells.
Building permit - The approval that must be obtained under state or local regulations. Drawings an specifications must be filed with the legal authorities in control of building operations.
Building shell - The skeleton of a building to which the finished exterior and interior are applied. It includes the building foundation.
Cancellation clause - A provision in a lease that confers upon one or both of the parties to the lease the right to terminate the lease upon the occurrence of the condition or contingency set forth in the said clause.
Capitalization - The process of ascertaining the value of a property by the use of a proper investment rate of return and the net income expected to be produced by the property. The formula of net annual income divided by proper capitalization rate is express: Income/Rate=Value.
Certificate of insurance - A certificate issued by an insurance company or its agent. It verifies that a certain insurance policy is in effect for stated amounts and coverage and names those insured.
Certificate of occupancy - Presented by city building department to landlord or tenant after completion of tenant improvements and satisfactory inspections by city building department inspectors.
Change order - An order issued any time there is a change in the specification, price or time set forth in the building contract as authorized by the owner, architect or engineer.
Circulation allowance - The space needed to have sufficient access to, from and around workspaces.
Class A - Building classification defined by BOMA as the most prestigious buildings competing for premier office users with above average rental rates for the area along with high-quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence
Class B - Building classification; defined by BOMA as buildings 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 the systems are adequate, but the building does not compete with Class A at the same price.
Class C - Building classification by BOMA as buildings competing for tenants requiring functional space at rents below the average for the area.
Commission - The fee paid to a real estate broker as procuring cause and/or for his or her services rendered in a real estate transaction. May be paid by either party in a transaction; it is usually governed by a prior written agreement.
Common areas - Areas used by two or more tenants and/or third parties and not under the control of any one tenant.
Common area maintenance (CAM) - An additional, annual charge often assessed to tenants for maintenance of the property's "common area", such as its entryways, hallways or bathrooms.
Construction allowance - The amount a Landlord contributes to the cost of construction and/or alteration necessary to prepare a space for a tenant's occupancy.
Constructive eviction - Any disturbance by the landlord of the tenant's possession of leased premises, whereby they are rendered unsuitable for. In such a case, the tenant is not liable for further payment of rent.
CPI - (Consumer Price Index) A measure of inflation as determined by the US federal government by using a "basket of goods". Used in leases as an impartial benchmark for the calculation of escalations.
Contract documents - The complete set of drawings, specifications, bidding instructions, construction agreement, etc. used in the construction industry
Cost approach - The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the replacement cost of the building, less depreciation.
Default - Failure to meet an obligation when due or to perform any provision of a lease, mortgage or other agreement.
Demarcation point - The location where a telecommunications provider's network ends and a private network begins
Demised premises - Premises, or parts of real estate, in which an interest or estate has been transferred temporarily, such as an interest in real property conveyed in a lease.
Demising wall - The wall which separates a tenant's suite from another tenant's suite, or building common areas.
Design development - The process by which, upon approval of the schematic design, the architect proceeds with development of he plans and elevation of the building. Drawings establishing all major elements and outline specifications are prepared. A revised statement of probable construction cost is usually made at this time.
Economic obsolescence - Impairment of desirability or useful life or loss in the use and value of property arising from economic forces outside the building or property, such as changes in optimum land use, legislative enactments that restrict or impair property rights and changes in supply-demand relationships.
Effective gross income - The scheduled gross income of a property minus the vacancy rate.
Egress - The right to leave a tract of land. Often used in connection with access.
Eminent domain - The right of a government entity to take (condemn) property with just compensation for the public good.
Encroachment - A building or some portion of it, or a wall or fence, that extends beyond the land of the owner and illegally intrudes upon land of an adjoining owner, a street or an alley.
Encumbrance - Any lien, such as a mortgage, tax or judgment lien. It can also be an easement a restriction on the use of the land or an outstanding dower right that may diminish the value of the property.
Equity - The interest or value an owner has in real estate over and above the mortgage against it.
Escalation clause - A clause in a contract providing for increases or decreases in rent payments in accordance with fluctuations of certain costs or expenses of the landlord.
Escrow - A written agreement between two or more parties providing that certain instruments or property be placed with a third party to be delivered to a designated person upon the fulfillment or performance of some act or condition.
Estoppel certificate - A statement concerning the status of an agreement, (usually a lease) and the performance of obligations under the agreement. A third party such as a lender, relies on the statement (which is usually unilaterally executed by the tenant) for such things as making a loan on property.
Exclusive agency listing - A listing contract under which the owner appoints a real estate broker as the one exclusive agent for a designated period of time to sell the property on the owner's stated terms, and under which the owner agrees to pay the broker a commission. However, the owner reserves the right to sell without a commission to a prospect not introduced or claimed by the broker (see Exclusive right to sell).
Executive suite - Executive suites are shared offices with services provided by a management firm.
Exclusive right to sell - A listing contract in which the owner appoints a real-estate broker as the exclusive agent for a designated term. The broker must sell the property on the owner's stated terms, and the owner agrees to pay the broker a commission when the sale is consummated.
Expense ratio - The percentage of gross income that is consumed by the operating expenses of a property.
Expense stop - A ceiling or limit on the dollar amount one party, typically the landlord, will pay in an expense category. This ceiling is determined by adding a percentage or dollar amount to the base year costs.
Fair market value (FMV) - The price which the market would bring, over a reasonable period of time, for a property for sale or for lease.
Fixture - Personal property or improvements so attached to the land as to 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.
Flex space - A building providing use flexibility between office, and other uses such as manufacturing, laboratory, warehouse, etc. Usually provides high bays and relocation flexibility for overhead doors and other entrances.
Footprint - The shape and configuration of a building.
Force majeure - An event outside the reasonable control of the parties to a contract such as an "Act of God", war, riots or strikes which would prevents the parties from complying with the provisions of an agreement.
Functional obsolescence - Defects in a building or structure that detract from its value or marketability.
General lien - A lien on all property, both real and personal, of a debtor.
Go-dark - The condition that results from a tenant's closing its business, even though the lease is still in effect. Lease language may provide a means for a landlord to void a lease and take back the leased premises if the tenant ceases to operate its business at that location.
Graduated lease - A lease that provides for specific increases or decreases in rent at definite times during the term of the lease.
Grantee - A person to whom an interest in land is conveyed by deed, grant or other written instrument.
Grantor - A person who transfers his or her interest in land to another by a written instrument.
Gross lease - Commonly specifies one rental amount inclusive of rent, taxes, utilities, maintenance, etc. associated with the rental of a property.
Gross rent multiplier - A figure that produces an estimate of the property's value when used as a multiplier of the gross income of a property.
Gross square feet - Usually refers to gross area of a building by measuring from the outside of its exterior walls and including all vertical penetrations, such as elevator shafts. Also includes basement space.
Ground lease - A long-term lease of land, entered into by a tenant to construct a building (at its expense) from which to conduct its business.
Hard construction costs - The costs of constructing a building shell plus most of the covering materials.
Highest and best use - That possible use of land that will produce the greatest net income and thereby develop the highest land value.
Hold over - The condition that results when a tenancy exists beyond the end of the term of a lease.
Income approach - The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.
Interior partitions - All types of interior nonload-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.
Joint tenants - Two or more landowners who have been specifically named in one conveyance as joint tenants. Upon the death of a joint tenant, the surviving joint tenant or tenants receive the deceased tenant's interest by the right of survivorship, which is the important element of joint tenancy.
Lease commencement date - The date upon which the lease commences and the obligations of the parties begins.
Leasehold improvements - Construction or improvements for the purpose of preparing the premises for the conduct of tenant's business. Improvements permanently attach to the premises unless they are trade fixtures, and they remain with the premises after the end of term of the lease.
Lessee - The tenant.
Lessor - The landlord.
Lien - A right given by law to a creditor to have a debt or charge satisfied out of the property of the debtor. It applies to a particular piece or pieces of real or personal property.
Lien waiver - A waiver of mechanic's lien rights signed by a general contractor and his subcontractors.
Load factor - The amount of square footage is a lease, in addition to a tenant's usable square footage, which represents tenant's pro rata share of the building's common area/s. May also be referred to as a percentage of building's rentable square feet.
Market data approach - The process of estimating the value of property through the examination and comparison of actual sales of comparable properties.
Market value - The highest price that a buyer ready, willing and able but not compelled to buy, would pay, and the lowest a seller ready, willing and able but not compelled to sell, would accept.
Mechanic's lien - A claim provided for under state statutes securing the priority of payment for the value of work and materials furnished in the construction or repair of real property.
Month-to-month - A lease for a specific period of time, usually one month, which automatically renews itself for the same period of time, unless landlord or tenant provide notice to terminate.
Net lease - Structured such that a base rent for a rental property is paid to landlord. In addition, other charges such as utilities and building property taxes, insurance and maintenance are also payable by tenant. Sometimes referred to as triple net or absolute net lease.
Net operating income (NOI) - The effective gross income from a property minus operating expenses.
Notice of commencement - Legal notice to the county's register of deeds that remodeling/improvements will be undertaken at an address.
Notice of furnishing - Legal notice by a subcontractor or supplier that it furnished labor or materials, subsequent to the notice of commencement, thereby establishing the legal right to be paid for the services rendered.
Obsolescence - Lessening of value due to being out of date (obsolete) as a result of changes in design and use; and element of depreciation.
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 listing contract under which the broker's commission is contingent upon the broker producing a buyer before the property is sold by the owner or another broker.
Operating expenses - The costs associated with operating income producing property usually before interest and income tax expense, but including property taxes, insurance, repairs and maintenance, replacement reserves.
Option - A term in a lease for the rights either tenant or landlord may have with respect to one another, usually with stipulations regarding timing of those rights.
Partition wall - A wall constructed to create work areas such as offices or conference rooms. Depending on security needs, a partition wall may not be constructed to the roof or floor decking, but may terminate at lower point such as a suspended ceiling.
Pass-through expense - An expense associated with tenancy in which landlord "passes through" to tenant certain increases in building operating expenses occurring after a base year in the lease.
Percentage lease - Provides for a rent to be paid as a percentage of retail sales, usually quarterly or annually. Often coupled with a base rent.
Personal Property - Items that do not fit the definition of realty; movable objects.
Planned unit development (PUD) - A zoning category in which each of the proposed buildings or uses are approved in advance as a part of a parcel's overall use. Usually preserves large common or open areas on a site.
Premises - In commercial real estate, the description of the leasehold and the specific square footage for which the parties enter into a lease.
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.
Public corridor - The space that leads to different tenants' spaces from a service core.
Punch list - A list of incomplete or unacceptable construction items which upon remedy and completion will usually complete the obligations of the contractor under a construction contract.
Real estate broker - A person licensed to act as an agent for another person or business to negotiate a lease or purchase of a leasehold or property, respectively, for a fee.
Real property - The land and anything permanently attached to the land such as buildings, parking lots, landscaping, or other items which would otherwise be classified personal property if not attached, excluding fixtures designed to be removable and reusable.
Redemption period - A period established by state laws during which the property owner has the right to redeem his or her real estate from a foreclosure or tax sale by paying the sale price, interest and costs.
Renewal option - Lease language that provides the means for tenant to give landlord notice of its intent to renew (extend) the lease.
Rent commencement date - The date upon which the rent and usually the term of the lease begins. May be different from the lease commencement date when certain obligations must be fulfilled such as the construction of tenant improvements.
Rentable area - Denotes the number of square feet in a commercial building deemed to be rentable, according to BOMA. May include a common area load factor or allowance for building amenities such as hallways and lavatories.
Replacement cost - The current cost of replacing the subject property with property having exactly the same utility and amenities.
Rules and Regulations - Building standards that are binding on the tenants are usually set forth in a part of the lease covering such things as use of common areas, door lettering, signs, noise, odors, moving or installation of equipment, special locks, etc.
Sale-leaseback - A financing arrangement usually designed to raise capital for the property owner or obtain favorable income tax results.
Save harmless - To indemnify another; to secure another against loss or damage or claims of a third party. Often referred to as hold harmless.
Scheduled gross income - The rental rate of a property multiplied by the total rentable space.
Security deposit - Generally, a deposit of money by a tenant with a landlord to secure performance of a lease.
Setback - Zoning requirement that requires a building or an improvement to be set back a certain number of feet from the property line.
Shell space - The interior condition of either a new or existing building without improvements or finishes. Typically denotes floor, windows, walls and roof of an enclosed premises. May include some electrical or plumbing improvements, but not demising walls.
Space planning - Architecturally designing any space with all the amenities and mechanical gadgets to make it more functional for the occupants. Besides amenities, gadgets and good communication systems, it includes better sound and light control within the space.
Special assessment - Any special charge levied against real property for public improvements the benefit the assessed property.
Sublease - A lease executed by the lessee of an estate to a third person that conveys the same estate for a shorter term, or a portion of the estate for the same or a shorter term, is a sublease.
Subordination agreement - An agreement by which the tenant agrees to the priority of a mortgage over the leasehold interest, or other claim held by the tenant on the property.
Substantial completion - The point during construction at which the contractor is ready to turn the property over to the tenant or client for acceptance and final punch list. Usually occurs upon the issuance of a certificate of occupancy.
Tenancy at sufferance - A tenancy that exists when, after expiration of a lease, the tenant remains in possession without the consent of the landlord or the person entitled to possession. No notice is required to terminate this tenancy.
Tenancy at will - One wherein the landlord agrees that the tenant may stay in possession after expiration of the lease and pay rent for the time the space is occupied, until either landlord or tenant desires to terminate the tenancy.
Tenant representation - Arrangement whereby a prospective tenant engages a real estate broker as its exclusive agent in negotiating a lease for commercial space. Also know as a "buyer's broker."
Tenant’s use clause - Lease language which specifies the business activities tenant will engage in at the leased premises.
Trade fixtures - Certain fixtures installed at the premises which are unique to tenant's business, and which may generally be removed by tenant at the end of the term of the lease.
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 square feet - Denotes the number of square feet in a commercial building or suite deemed to be usable by BOMA.
Wet columns - Columns where provisions are made to have a plumbing fixture for drinking fountains, sink, etc.; the pipes are taken through the small enclosure (chase) against the column.
White box - The interior condition of either a new or existing building or suite in which the improvements generally consist of heating/cooling with delivery systems, lighting, electrical switches and outlets, lavatories, a finished ceiling, walls that are prepped for painting, and a concrete slab floor. Also called a "vanilla box".
Working drawings - Detailed floor-space plans that diagram all improvements to be made. They are designed as instructions to the various contractors involved.
Work letter - That part of the lease stated in detail pertaining to all work that is to be done for a tenant by a landlord