» Common Terms

Common Terms

Individual/Entity to whom a contract is assigned.
The manner by which a contract is transferred from one individual/entity to another individual/entity.
Base Rent
The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.
Build Out
The construction or improvements of the interior of a space, including flooring, walls, ceiling grid, finished plumbing, electrical work, etc.
Building Permit
Written government/municipality permission to develop, renovate, or repair a building.
Capital Improvement
Any major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof, and renovations of the lobby.
Capitalization Rate (Cap Rate)
The value given to the property when the Net Operating Income (NOI) is divided by the current market value or sales price. A cap rate can be used as a rough indicator of how quickly an investment will pay for itself. The higher the cap rate, the better.
Household goods, including personal property such as lamps, desks, and chairs.
Common Area
For lease purposes, the areas of a building (and its site) that are available for the non-exclusive use of all it tenants, such as lobbies, corridors, and parking lots.
Common Area Maintenance (CAM)
Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants are charged for parking lot maintenance, snow removal and utilities.
Deed Restriction
An imposed restriction in a deed that limits the use of the property. For example, a restriction could prohibit the sale of alcoholic beverages.
Discount Rate
The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium.
Due Diligence
The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. Applying a consistent standard of inspection and investigation one can determine if the actual conditions do or do not reflect the information as represented.
Estoppel Certificate
A legal instrument executed by the one taking out the mortgage (i.e., mortgagor). The owner of a property may require an individual leasing a property to sign an estoppel certificate, which verifies the major point (e.g., base rent, lease commencement and expiration) existing lease between the landlord and tenant.
1031 Tax Deferred Exchange
Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the from of (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).
Personal property so attached the land or building (e.g., improvements) it is considered part of the real property
Free rent
See rent concessions.
Ground Lease
A lease of land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the land from ownership of buildings and improvements constructed on the land.
Holdover Tenant
A tenant who remains in possession of leased property after the lease term expiration.
Joint Tenancy
Ownership of real property by two or more individuals, each of whom has an undivided interest with the right of survivorship.
Letter of Intent
An informal, usually non-binding, agreement among parties indicating their serious desire to move forward with negotiations.
Net Operating Income (NOI)
The potential rental income plus other income, less vacancy, credit losses, and operating expenses.
Non-Disturbance Agreement
The tenant signs this to prevent himself from being evicted if the property owner does not pay its mortgage to the bank.
Office Property
A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern. Properties Classed B and C in the same market typically command lower rents because
they are older and in need of modernization. They may not be as efficient or desirable as Class A properties because their design or condition causes functional problems.
Operating Expenses
Operating Expenses – Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.
Percentage Rate
The additional rent (over a base amount) that is paid by tenants to owners on tenant sales over a specified dollar amount. It is frequently found in retail leases. Also known as overage rent.
Real Estate Investment Trust (REIT)
An investment vehicle in which investors purchase certificates of ownership in the trust, which in turn invests the money in real property and then distributed any profits to the investors. The trust is not subject to corporate income tax as long as it complies with the tax requirements for REIT. Shareholders must include their share of the REIT’s income on their personal tax returns.
Rent Concession
A period of free rent given to the tenant by the lessor.
Residential Property
Single or multifamily housing units that are used, serve, or are designed as a place of residence.
Retail Property
Properties used exclusively to market and sell consumer goods and services.
A leasing and financing strategy in which a property owner sells its property to an investor, then leases it back. This strategy frees capital that otherwise would be frozen in equity.
Specific Performance
When a court requires a defendant to carry out the terms of an agreement or contract.
A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property. Also known as sandwich lease due to the sandwiching of the original lessee between the lessor and the subtenant.
A segment or portion of a larger geographic market defined and identified on the basis of one or more attributes that distinguish it from other submarkets or locations.
Tenancy In Common
Ownership of property by two or more individuals, each of whom has an undivided interest, without the right of survivorship.
Tenant Improvements
Preparation of leased premises prior to or during a tenant’s occupancy, which may be paid for by either the landlord, the tenant, or both.
See tenant improvements.
TI Allowance
Entry on the tenant’s Cash flow Form. A specified amount of money the owner will pay for tenant improvement.
Usable Area
Rentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant. Usable area = rentable area x building efficiency percentage.
Government authorization to use or develop a property in a manner which is not permitted by the applicable zoning regulations.
Work Letter
An amount of money that a landlord agrees to spend on the construction of the




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