Realty 101 ››
Ross Forman
Jeff Pilkington

FormanPilkington.com

Glossary of Terms - Improve your knowledge of real estate terms using this Commercial Real Estate Glossary.

ABSORPTION RATE - The amount of office space taken off the market in a given locality within a specified period, usually one year.
ADDENDUM - A legal document that adds to or amends the terms of a standard form lease.
ADDITIONAL RENT - Is the total reimbursements the tenant pays under the lease in respect to expenses of the landlord. Expenditures for real estate taxes, insurance, maintenance, utilities, janitorial, management fees, and other items paid in conjunction with the operation of the building.
AGENCY - A legal relationship created when an individual (the principal) delegates to another (the agent) the right to act on behalf of the principal in business transactions, specifically the leasing of office space.
AGENT - An individual authorized to represent and act on behalf of another person or entity, (referred to as the principal.)
AMENITIES - Tangible and intangible features that enhance and add to the subject property's desirability and perceived value, e.g., cafeteria, indoor parking, special janitorial services.
ANCHOR TENANT - A major shopping centre tenant that will draw the majority of customers.
ASSIGNMENT - The transfer of title, right, and interest in certain real property. The document used to convey a leasehold is called and "assignment of lease."
ASSIGNMENT OF LEASE The transfer of all a lessee's title, right, and interest in certain real property. Also, the document used to convey a leasehold is called an assignment of lease rather than a deed. (See also Sublease.)
AUDIT - An inspection of accounting records and procedures, conducted by a trained person, to check their accuracy, completeness, and reliability.


BASIC RENT - Minimum monthly rent payments, as set forth in a retail lease, excluding pass-through, percentage rents, and other additional charges.
BASE YEAR - The year in a lease term used as a standard in a rent escalation clause. Operating costs in the next year are compared with costs in the base year, and tenant's rent is adjusted either up or down.
BAY DEPTH - The distance from a building's corridor wall to the outside window or wall.
"BOILERPLATE" LEASE - The owner's lease form containing clauses that are usually standard for all tenant-owner relationships.
BREAKPOINT - In retail leases, the point at which the tenant's percentage rent is equal to the base rent and beyond which the tenant will begin to pay overages; also called natural breakpoint. Sometimes tenant and owner negotiate an artificial breakpoint which allows the tenant to begin paying percentage rent either before or after the natural breakpoint is reached.
BUILD-TO-SUIT - An arrangement between a shopping centre developer and a large tenant (supermarket, department store, fast food franchise, bank, etc.) whereby the developer agrees to construct the tenant's building according to the tenant's specific instructions. The tenant will then lease that building and the site from the developer.
BUY-OUT - A form of concession whereby an owner or developer arranges to pay for the rent of a tenant's lease term so that the tenant will relocate to the owner's shopping centre or move out of a space that the owner wants to use for another purpose.
BUILDING OWNERS AND MANAGERS ASSOCIATION (BOMA) - A national organization of professionals active in the commercial real estate sector.
BUILDING MODULE - A unit of length and width by which a building's plan is standardized, facilitating office space design and layout.
BUILDING STANDARDS - The specific items of construction which a developer or owner decides to use throughout a building; for example, in an office building, building standards would include a certain type of carpeting, wall and floor coverings, etc.


CAPITALIZATION RATE - A rate used to calculate an estimate of a property's value based on that property's income.
CASH FLOW - The amount of spendable income from a real estate investment; cash available after all payments have been made for operating expenses and mortgage principal and interest.
COMMON AREA MAINTENANCE (CAM) CHARGES CLAUSE - In a retail lease, this clause stipulates how much the tenant will pay for maintaining the common area -- that area within a shopping centre or mall which tenants use in common; i.e., courtyards, escalators, sidewalks, skyways, parking areas, etc.
CONCESSION - A benefit granted by the owner to encourage the leasing of new space or to retain a tenant; usually related specifically to the rental rate or improvement allowance.
CONSUMER PRICE INDEX (CPI) - A way of measuring consumer purchasing power by comparing current costs of goods and services to those of a selected base year.
CONTINUOUS OCCUPANCY CLAUSE - A lease clause that requires the tenant to occupy the space continuously throughout the lease term.
CONTINUOUS OPERATION CLAUSE - A retail lease clause that requires tenants to keep their stores fully stocked at inventory levels equal to (1) when they first opened for business (2) their stores in other locations, or (3) stores offering similar merchandise in the area. There may also be requirements regarding store hours, staffing, and business name.
CO-INSURANCE CLAUSE - A clause found in property insurance policies intended to encourage insuring the full value of a property. A co-insurance clause states that if you are insured for less than a certain percentage of the replacement value of your property, you suffer a penalty in the case of a claim.
CO-OPERATING BROKER - An agent who brings a suitable prospect for a particular location to the broker who represents the owner of the site, or vice versa, thereby qualifying for a portion of the remuneration fee; also called an outside broker.
CORE SPACE - The central or arterial area in a building that houses the building's function and service needs; usually includes elevator banks, washrooms, stairwells, and electrical and janitorial closets.
CORRIDOR - A hallway or a passageway which provides a common way of travel to an exit, another office, etc.
COVENANT - A promise by one party to another of performance or non-performance of certain acts or a promise that certain conditions do or do not exit.
CREDIT RATING - Evaluation of a company or individual's financial trustworthiness, particularly with regard to meeting obligations.


DEBT SERVICE - The periodic payments (principal and interest) made on a loan.
DECLINING PERCENTAGE RENT - A negotiated percentage rent structure such that the tenant pays a smaller percentage of gross sales after a specified sales volume is reached.
DEFAULT - Failure to make either a mortgage or lease payment; nonperformance of the terms of a loan or lease.
DEFERRED MAINTENANCE - Ordinarily, unperformed maintenance on a property that noticeably affects its use, occupancy, welfare, and value.
DEMOGRAPHICS PROFILE - The social and economic statistics of a specific population, including population density, age, education, occupation, and income.
DESTRUCTION PROVISION - A lease provision stating the applicable procedure and rights in the event that the leased premises are damaged or destroyed by fire or other mishap. As a rule, the lessee will be held financially liable if deemed responsible.


EQUITY - An owner's interest or value in a retail property over and above any mortgage or claim on it by others based on money invested.
EQUITY FINANCING - Capitalization of a retail project through partnerships or other investment entities that acquire an interest in the project.
ESCALATION CLAUSE - In a retail lease, a provision requiring the tenant to pay more rent based on increased operating costs, changes in a given economic index, or an agreed-upon schedule stated in the lease.
ESTOPPEL CERTIFICATE - A document by which the tenant states the terms of the rent agreement and the full amount of rent to be paid for the entire term of the lease; commonly requested as part of a transfer of ownership or refinancing.
EXCLUSIVE USE CLAUSE - A clause preventing the owner from leasing space to other retailers that sell merchandise similar to that specified in the tenant's lease.
EXHIBIT - A lease attachment elaborating on points in the standard lease.


FIXED EXPENSE - A regular expense that does not vary according to sales volume.
FIXED RATE OPTION - The tenant's guaranteed right to renew at the end of a lease term at a previously determined rental rate.
FLOOR LOAD CAPACITY - The weight per square foot that a building's floors are able to sustain.
FRONTAGE - The section of a store that faces the street or the pedestrian walkway in a mall; also refers to window display area and entrance.


GROSS LEASE - A lease that allows the tenant to pay a fixed rent while the owner pays all operating expenses for the property. (See also net lease.)
GROSS PROFIT - The retailer's sales income minus the cost of the goods sold; sometimes the cost of returns is also subtracted from the total.
GROSS SALES - The total sales that the retailer makes during a financial period, usually a calendar year.
GROUND LEASE - A lease that gives the tenant the right to use and occupy the land under a property. Under a subordinated ground lease, the owner offers the land as collateral for the mortgage commitment on the property. If the ground lease is unsubordinated, the land will not become collateral for the mortgage.
GUARANTY - A lease clause or addendum that promises the owner that, in case of tenant default, the tenant's rent will be paid and all other obligations performed. The individual or organization making such a pledge is called a guarantor.


HOLD HARMLESS LEASE CLAUSE - A standard provision that states that the owner will not be liable for damages or injury sustained in, on, or about the leased premises; also referred to as an indemnification clause.
HVAC - A building's heating, ventilating, and air conditioning system.


INDEX ESCALATION CLAUSE - A provision in a retail lease whereby the rental rate is adjusted according to a specified cost-of-living index.
IN-HOUSE AGENTS - Leasing representatives who work for a particular developer, owner, or retailer; they are paid a salary and normally do not receive remunerations as part of their compensation.
INSURANCE PROVISION - A lease clause requiring the tenant to obtain a certain amount of public liability insurance and name ownership as co-insured in that policy.


LANDLORD - The owner of the leased premises. (See also lessor.)
LEASE - A contract between owner and tenant that transfers to the tenant the right to use a piece of property for a specified length of time under specific conditions.
LEASING PLAN - For a given site, the statement of rental rates and suitable tenants for specific space, usually presented to the owner or developer in the early stages of prospecting.
LESSEE - The tenant in a lease agreement.
LESSOR - The landlord in a lease agreement; the property owner.


MAINTENANCE - Care and work necessary to keep a property in good physical and operating condition and appearance.
MANAGEMENT - The job of planning, organizing, and controlling a business enterprise; the persons in an organization who are engaged in management.
MARKET RENT - The rent a retail site could command under prevailing market conditions.
MARKET RESEARCH - The gathering of information about a trade area and a particular retail site pertaining to population, economy, local industries, per capita expenditures, the competing retail sites, and sales potential.
MARKET SHARE - That portion of consumer dollars spend on a particular merchandise category which a given retailer can capture.
MERCHANT'S ASSOCIATION - An organization formed in shopping centres and controlled by the tenants to plan promotions and advertisements for the good of the centre as a whole; usually all tenants are required to participate and both tenants and landlord pay dues.
MINIMUM RENT - The rent which will always be due each month in a tenant's lease term, regardless of sales volume and exclusive of any additional charges. Often used in conjunction with a percentage rent arrangement, sometimes called fixed-minimum rent.
MIXED-USE DEVELOPMENT (MXD) - A type of real estate project, often found in central business districts, that develops a single property for several different purposes, including hotel, office, residential, and entertainment.
MULTI-TENANCY FLOOR - A floor of an office building that houses several businesses.


NEGOTIATIONS - The process of bargaining by tenant and owner to reach a mutually profitable agreement on rental rates, term of the lease, options, and other points.
NET EFFECTIVE RENT - The amount of rent a tenant actually pays when extra improvement allowances and other concessions are taken into account; contrasts with the quoted base rent that is stated in the lease.
NET LEASE - A lease specifying that the tenant will pay a share of the owner's operating expenses, real estate taxes, and insurance premiums, usually in return for a lower base rent. The terms net-net and net-net-net (or triple net) are also used. These terms are being discontinued in use, as their meaning is not clear in spelling out who pays, and what are the services offered.
NET OPERATING INCOME (NOI) - The money available to an owner or developer after deducting a property's operating expenses from its effective gross income. Debt service is deducted from NOI to determine cash flow.
NOTICE CLAUSE - In a retail lease, the clause that establishes the proper method and time frame each party must use to inform the other of matters that require notification as provided in the lease.


OCCUPANCY COST - The retail tenant's cost of the leased space; includes base and percentage rent plus pass-through prorations such as insurance, real estate taxes, utilities, common area maintenance, management and marketing fees, etc.
OCCUPANCY LEVEL - The relation of space already rented to the total amount of leasable space (Gross Leasable Area) in a centre, expressed as a percentage. (See also vacancy rate.)
OPEN SPACE PLAN - An office design eliminating fixed partitions and allowing tenants to rearrange their work stations as the need arises.
OPERATING EXPENSES - The expenditures for real estate taxes, salaries, insurance, maintenance, utilities, and similar items paid in connection with the operation of a retail site or centre and which are properly charged against income.
OPERATING STATEMENT - The record of a retailer's or developer's income and expenses over the course of a year; details expenditures and the percentage of income that can be expressed as profit.
OPTION - In a retail lease, a statement of the tenant's right to obtain a specific condition within a specified time; often incorporated as an addendum. Typical options are renewal, expansion, and cancellation.
OVERHEAD - The cost of doing business (i.e., wages, salaries, rent, common area fees, insurance, taxes, utilities, etc.) that cannot be charged to a particular part of the operation; in retailing, usually all expenses exclusive of the cost of goods sold or inventory.
OVERHOLDING - It occurs when the tenant remains in possession after the term expires.


PARKING AREA RATIO - The relationship between the size of the parking area and the size of the retail building.
PERCENTAGE RENT - Rent a tenant pays that is based on a percentage of gross sales or net income; often set against a guaranteed minimum rent, and therefore considered "Supplementary Basic Rent."
PERMANENT LOAN - A long-term loan used to finance the purchase of an existing project or to replace the construction loan for a new development; a mortgage.
PRELEASING - The leasing of a large retail project before and during construction to ensure a high occupancy level when completed; often necessary to obtain financing.
PRO FORMA - A financial statement developed by the owner and projecting costs for a retail site based on assumptions about construction, financing, leasing rates, and operating costs; also projects gross income and net operating income of a property.
PRO RATA SHARE - The gross leasable area (GLA) of the tenant's site divided by the GLA of the premises, the resulting fraction being used to compute the tenant's share of operating expenses, HVAC charges, common area maintenance (CAM) fees, taxes, insurance, etc.


QUIET ENJOYMENT - A clause in most leases stating that the tenant has a right of peaceful and disturbance-free possession of the premises, and that ownership will protect the tenant against the claims of others.


RADIUS CLAUSE - Article in a retail lease that prevents a retailer from opening and operating another business, whether competitive or not, within a certain radius from the shopping centre.
RENT ROLL - A record of rents and other income payable from and paid by tenants.
RENTABLE AREA - The interior area in a building, usually expressed in square feet, which a tenant leases. Can be computed differently according to the measurement system used. Usually includes a percentage of common areas, making it a higher figure than the actual usable area.
RENTAL CLAUSE - In an office lease, a provision stating the amount of rent to be paid, the method of payment, and to whom the payment is to be made.
RIGHTS AND NEGOTIATIONS - A section of a typical office lease clearly outlining the rights and obligations of the parties named in the lease.


SECURITY DEPOSIT - A payment by tenant to ownership before occupancy as a guarantee that lease conditions will be met.
SHELL SPACE - The condition of a tenant's space before occupancy and before any tenant improvements. For retail space, definition may vary with regional location and type of shopping centre.
SINGLE-TENANCY FLOOR - An office building floor housing a single business.
SITE PLAN - A drawing of the retail site as it will look when it is completed, including individual tenant spaces, common areas, elevators, escalators, food courts, service areas, parking, and access routes.
SPACE PLANNING - The process of deciding how office space can be most efficiently and effectively used; based on a potential tenant's operational and aesthetic requirements and financial limitations.
SPECIALTY CENTRE - A shopping centre characterized by the use of a dominant theme or image and concentrating on a particular type of merchandise. Often these centres have no conventional anchor tenant.
STANDARD FORM LEASE - A basic lease form into which specific clauses or provisions may be written.
SUBLEASE - A lease given by one tenant to another to create a sub-tenancy, usually only for the duration of the original tenant's lease term. Original tenant remains liable to owner in case of default by subtenant. (Compare Assignment.)
SUBORDINATION - The condition whereby a tenant's lease is transferred to the mortgagee in the event of a foreclosure on the owner's mortgage.
SUBSTITUTION OF PREMISES CLAUSE - A lease clause reserving the owner's right to relocate the tenant to comparable space in the building.


TAKE BACK CLAUSE - A lease article giving the owner the right to take back subleased space in order to rent it to a new tenant.
TENANCY - The occupancy or holding of land or other real estate on a rental basis, with or without a written lease.
TENANT - The individual or entity that pays rent in order to exclusively occupy a retail site for a specific length of time. (See also lessee.)
TENANT IMPROVEMENT ALLOWANCE - Funds allowed by the owner for the tenant to use to improve the premises before move in; exact amount, if any, is negotiable.
TENANT MIX - The combination of retailers and service vendors leasing space in a shopping centre.
TENANT PROFILE - A study and listing of the similar and dissimilar characteristics of a property's current tenants.
TERM - The duration of a tenant's lease.
TURNKEY OPERATION - A concession whereby the owner agrees to provide a completely finished store space for a retail tenant.


USABLE AREA - On a given floor, any area that could be used solely by a tenant. On a multi-tenant floor, the gross area minus core space. (Core space includes the square footage used for public corridors, elevators, washrooms, stairwells, and electrical and janitorial closets.) On a single-tenant floor, the gross square footage excluding the building lobby, ducts, stairwells, and elevators.
USE CLAUSE - A lease clause indicating the purpose for which the leased space is to be used.
UTILITIES AND SERVICES CLAUSE - A lease detailing any and all utilities and services that the owner is to provide the tenant.


VACANCY RATE - The ratio of vacant space to total rentable area expressed as a percentage. (See also occupancy level.)


WAIVER OF SUBROGATION - A lease clause whereby tenant and owner both agree not to file insurance claims against each other for any damages to the property.


ZONING - A public regulation to control the character and intensity of land use.