Common Real Estate Terms Used
In The Sale Or Lease Of Property
| Choose a term from the scroll box to view an explanation or use the scroll bar located on the far right of your screen to move down the page. |
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| 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 moving expenses ,design fees, and tenant improvements. If the expense is less than the allowance, the savings are typically retained by the Landlord. If the expense exceeds the allowance amount, the Tenant is responsible for the excess amount. |
| Appraisal | The process through which conclusions of property value are obtained. |
| Approaches To Value | Used by an appraiser to estimate the value of real estate. The three approaches are: cost approach, income approach and market data approach. |
| Assignment | A transfer to another of any property, real or personal, or any rights or estates in said property. |
| Architectural Drawing | Includes all architectural contracts and drawings such as floor plans, elevations, plot plans, sections, details, schedules, etc., and any architectural drawing that forms a part of the contract documents. Exceptions include mechanical, electrical and structural drawings. |
| Assessed Value | The value placed on land and buildings by a township or a county assessor for use in levying annual real estate taxes. |
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| Bay | An unfinished area or space between a row of columns and the bearing wall. Usually the smallest area into which a building floor can be partitioned. |
| 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 year of a lease term that is used as the standard when implementing an escalator clause. Operating costs are judged higher or lower during the next year when compared to the base year, 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 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 mechanical facilities, toilet facilities, elevator banks, janitors' closets, utilities, smoke shafts and stairwells. |
| Building Shell | The skeleton of a building to which the finished exterior and interior are applied. It includes the building foundation. |
| Building Skin | The exterior materials that cover a building's shell. |
| Building Standard | The specific construction standards that have been established by the owner and architect to achieve a uniform element of design throughout the building and to establish a cost basis for tenant improvement charges and/or allowances. Such items may be changed only with the approval of the building owner or the managing representative. |
| Build-To-Suit | An agreement between a landlord and a new tenant whereby the landlord assumes the obligation of improving the demised space to the tenant's specification within the constraints of building standards. The tenant takes possession when the space is completed. |
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| CAM Charges | Common Area Maintenance charges. Those charges levied on or the expenses incurred in maintaining the common areas of a building. |
| 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 dividing Net Operating Income by Sale Price. (NOI/SALE PRICE.) Also know as Cap Rate. |
| Cash Flow | The net operating income of a property minus its debt service. |
| Cash-On-Cash Return | A Percentage figure arrived at by dividing Net Annual Income by Cash Down payment. (NAI/ CASH DOWN.) |
| 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 (COO) | A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied. |
| Circulation | Those areas (corridors, hallways, etc.) in an office space that are used to travel between offices, cubicles and the like. |
| 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. (See Occupancy Date.) |
| 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. |
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| Default | Failure to meet an obligation when due or to perform any provision of a lease, mortgage or other agreement. |
| Demised Area | The walled off area of a leased space, separated from spaces leased to others by a "demising" wall. |
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| Effective gross income | The scheduled gross income of a property minus the vacancy rate. |
| Effective Rent | The average per square foot rent paid by the tenant over the term of a lease. Takes into account only free rent and rental adjustments. Does not include allowances, free parking and other similar landlord concessions. |
| 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. Several such clauses are: (1) cost of living - a clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes; (2) fixed increases - a clause which calls for a definite, periodic rental increase; (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. |
| 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 | An instrument which itself prevents individuals from later asserting facts different from those contained in the document. Often required by the buyer of an office building. The tenant and landlord both sign the Estoppel Certificate, confirming the lease and pertinent facts thereto. Thereafter, neither party may make claims to the contrary. |
| 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 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. |
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| 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. |
| 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. |
| Footprint | The shape and configuration of a building. |
| 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. |
| Full Service Gross Lease | A lease in which the stated rent includes the operating expenses and taxes for the building. Same as Gross Lease and Fully Serviced Lease. |
| Fully Serviced Lease | A lease in which the stated rent includes the operating expenses and taxes for the building. Same as Gross Lease and Full Service Gross Lease. |
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| Gross Lease | A lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease and Full Service Gross Lease. |
| 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 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, either vacant or exclusive of any buildings on it. Usually a net lease on a long term basis. |
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| Holding Over | The act of a tenant retaining possession of the premises longer than the term expressed in the lease. |
| HVAC: Heating, Ventilation, Air Conditioning | A general term encompassing any system designed to heat and cool a building in its entirety. |
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| 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 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. |
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| Landlord (Lessor) | The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent). |
| 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 | Generally a written statement that two parties to a prospective transaction (lessor/lessee or buyer/seller) 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. |
| Load Factor | 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 20% for a multi-tenant floor. See BOMA Standard. |
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| 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. |
| Master Lease | A lease controlling subsequent leases. |
| Mechanic's Lien | A lien established by law in favor of those who provide labor or material for the improvement of real estate. |
| Month-to-Month Tenancy | A tenancy from month to month is generally created when no definite lease term is specified by the parties and the rent is payable monthly. 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 from month to month on the same terms. |
| Mullions | Metal or wood strips placed at regular intervals along a window line. They are designed to receive a wall partition in a manner ensuring a smooth, soundproof connection. |
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| Net Annual Income | (Net operating income - Annual debt service.) |
| Net Lease | 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. Also called "Triple Net" or NNN. |
| Net Operating Income (NOI) | The effective gross income from a property minus operating expenses. |
| Net Rentable Area | The area (square footage) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards. Net Rentable area includes the tenant's premises plus an allocation of the common area directly benefiting the tenant, such as common corridors, restrooms, mechanical and janitor's rooms and the elevator lobby on the tenant's floor. Also called Rentable Area. |
| 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. |
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| 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. (See also "Commencement Date".) |
| Operating Expenses | The cost of operating an office building, such as utilities, janitorial, management fees, 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. |
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| Pass Throughs | An increase in operating expenses over the base year amount that is billed to the tenant as additional rent. |
| Percentage Lease | Lease under which the tenant pays a fixed minimum monthly rent plus a percentage of his or her gross monthly income in excess of that minimum. Used primarily in retail leases. |
| 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. |
| Pro Forma | A set of figures projecting costs and income on a proposed new property. Used as a basis for capitalization. |
| Punch List | A list prepared by the architect, designer and owner and formally submitted to the contractor to note any deficiencies when they check all completed construction, which assures verification that such work has been accomplished in a good, workmanlike manner in respect to the contract documents. |
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| Quiet Enjoyment | A covenant, usually inserted into leases and conveyances on the part of the grantor, promising that the tenant or grantee shall enjoy possession of the premises in peace and without disturbance. |
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| Reasonable Consent | A standard applied in a lease which limits the landlord's ability to withhold consent in its sole discretion. |
| Recapture | A clause in a lease agreement providing for lessor's retaking or recovering possession of the premises, usually by cancellation of the lease under certain conditions. |
| Renewal Option | The right of a tenant to renew (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) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) 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. Typically stated on a per square foot per month or per year basis. |
| Replacement Cost | The current cost of replacing the subject property with property having exactly the same utility and amenities. |
| 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. Unlike a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be sold or leased to a third party. |
| 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. Included may be the costs incurred by tenant to cure defaults of the landlord, after notice and failure by landlord to cure the defaults. |
| 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. |
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| Scheduled Gross Income | The rental rate of a property multiplied by the total rentable space. |
| Schematic design | (1) A design concerning the building program resulting from inspection of the site and conferences with the client. The client's needs and requirements are carefully analyzed. Zoning regulations and codes affecting the work are studied. Sketches and statements of probable construction costs are prepared for the owner's approval. (2) A suggested plan, design or program of action. |
| Space Analysis | An analysis of an existing office situation to locate problem areas and to provide a basis for judgment in evaluating major changes. Also, it can be in the form of planning tools that will be used by the client in developing a planning decision. This includes space standards, adjacency requirements and space requirements. |
| Space Planning | A lease, under which the lessor is the lessee of a prior lease of the same property. |
| Substantial Completion | 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. |
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| Task Lighting | Overhead lighting systems that provide each workspace with individual overhead lighting controls. Designed to conserve energy by lighting only work areas that are occupied at any given time. |
| 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 Representative | An agent who is an advocate for the tenant. |
| Trade Fixtures | Articles installed by a tenant under terms of a lease and removable by the tenant before the lease expires. These remain personal property; they are not true fixtures. |
| Triple Net | A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property such as taxes, insurance, maintenance, utilities, cleaning etc. The terms "net net", "net net net", "triple net", are used. |
| 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, 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. |
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| Useable Area | The secured area (square footage)occupied exclusively by tenant within a tenant's leased space. The useable area times the load factor for common area results in rentable area on which rent is charged. Useable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards. |
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| Vacancy Factor | Annual gross income multiplied by percent vacant (AGI X % VACANCY) |
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| 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. |
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187 Madison Avenue, Suite 1
Skowhegan, Maine 04976 - Phone: 207-474-9553 Fax: 207-474-2037