|Absolute Net - Lease requiring tenant to pay in addition
to base rent all costs associated with the operation, repair and maintenance of
the building, all real estate taxes, and utilities including repair and maintenance
of the building's structure and roof. Often the tenant is directly responsible
both for all such costs and for the active handling of the items themselves. Distinguished
from Triple Net (see below) by tenant's responsibility for maintenance and repair
of the building structure and roof. |
ADA - Americans With Disabilities
Act passed by Congress in 1994 with intent to provide persons with disabilities
accommodations and access equal to or similar to that of the general public.
Rent - Any amounts due under a lease that are in addition to base rent. Most
common form is operating expense increases.
Agency - Any relationship
in which one party (agent) acts for or represents another (principal) under the
authority of the latter. Agency involving real property should be in writing,
such as listings, trusts, powers of attorney, etc.
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 tenant improvements, moving
expenses design fees, etc. If the expense exceeds the allowance amount, such excess
is the Tenant's responsibility. If the expense is less than the allowance, the
savings are retained by the Landlord unless their agreement specifies otherwise.
Workspace - Term embodies numerous concepts related to utilization of space
including telecommuting, hotelling, office sharing and open office plans.
- Payment of debt in regular, periodic installments of principal and interest,
as opposed to interest only payments. May also be used in a lease where the landlord
incurs costs for additional tenant improvements which are effectively treated
as a debt and repaid by tenant over the term of the lease.
- A transfer to another of any property, real or personal, or any rights or estates
in said property. Common assignments are of leases, mortgages, deeds of trust,
but the general term encompasses all transfers of title.
- The existing shell condition of a building prior to the installation of tenant
improvements. This condition varies from building to building, landlord to landlord,
and generally involves the level of finish above the ceiling grid.
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 12 month period upon which
a direct expense escalation of rent is based. Typically the calendar year the
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.
- Common Area Maintenance charges. Those charges levied on or the expenses
incurred in maintaining the common areas of a building.
Churn - Moving
people from one workspace to another within the leased premises. Usually involves
relocation of furniture, phones, and the like and can be very expensive and time
consuming. A high churn rate is to be avoided.
Circulation - Those
areas (hallways, corridors, 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.
Contingent Fees - Fees to be
paid only in the event of a future occurrence. Examples include: Attorneys (especially
in negligence cases) paid based on winning the suit and collecting damages; and
a broker's commission paid only upon closing the sale of a piece of property.
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.
Area - The walled off and secured area of a leased space, separated from spaces
leased to others (by a "demising" wall). Also measured as useable area.
Discount Rate - The rate of interest used in a present value analysis representing
the "time value of money".
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 stepped rents. Does not include allowances, space pockets,
free parking and other similar landlord concessions.
Area - Excludes those areas within the Useable Space (see below) that the
tenant pays rent on but effectively cannot use such as columns and sharply angled
Equivalent Level Rate (ELR) - The ELR is the flat rate per
square foot that, if paid each year in nominal dollars, will equal the same total
present value as a proposed lease's variable cash flows. The ELR is calculated
by discounting all cash flows to a net present value per square foot and then
amortizing this lump sum amount evenly over the term of the lease on a cost per
square foot basis.
Escalation - A clause in a lease providing for
an increased rental at a future time. May be accomplished by several types of
clauses, such as: (1) fixed increases -- a clause which calls for a definite,
periodic rental increase; (2) cost of living -- a clause which ties the rent to
a government cost of living index, with periodic adjustments as the index changes;
(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
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.
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
Expense Stop - A fixed amount (typically per square foot)
in a lease where the tenant is responsible for all building operating expenses
and taxes in excess of said amount.
Extension Option - An agreed
continuation of occupancy under the same conditions, as opposed to a renewal,
which implies new terms or conditions. In a lease, it is a right granted by the
landlord to the tenant whereby the tenant has the option to extend the lease for
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, even though the actual rent may be different.
In a lease, the term "fair market rent" is defined in a number of different
ways and is subject to extensive negotiation and interpretation.
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.
Serviced Lease - A lease in which the stated rent includes the operating expenses
and taxes for the building. Same as Gross Lease. Opposite of Net Lease.
Lease - A lease in which the stated rent includes the operating expenses of
the building. Same as Fully Serviced Lease. Opposite of Net Lease.
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
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 (30 years+).
Ground rent should not be charged back to the tenant as an operating expense.
- An alternative workspace concept where rather than having an assigned exclusive
workspace, an employee accesses one space, perhaps being one of many such spaces
in common with others on an as needed basis, and otherwise works outside of the
Hotelling - (Another usage is what those members of an office
relocation committee are entitled to after going through a relocation or office
redesign, making use of a commercial shelter offering food, lodging, etc.; preferably
in some warm spot like Hawaii.)
HVAC - Heating, Ventilation, Air
Conditioning. A general term encompassing any system designed to heat and cool
a building in its entirety, as opposed to a space heater.
- 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
Lessee (Tenant) - The party to whom a lease (the right
to possession) is given in return for a consideration (rent).
(Landlord) - The party (usually the owner) who gives the lease (right to possession)
in return for a consideration (rent).
Letter of Intent - There are
potentially multiple uses of this term. Generally a written statement that two
parties to a prospective transaction (buyer/seller or lessor/lessee) 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. To
avoid legal issues regarding offer and acceptance and thus formation of a binding
contract, care should be taken to include a clause stating that there is not a
specific offer and no intent to be a legally binding obligation. However, an obligation
to continue to negotiate in good faith to conclusion can be created.
Factor - In a lease, 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 15%
for a multi-tenant floor. Subtracting one (1) from the quotient of the rentable
area divided by the useable area yields the Load Factor. At times confused with
the "loss factor" which is the total rentable are of the full floor
less the useable area divided by the rentable area. (If a full floor broken up
into multiple tenancies has a useable area of 18,000 s.f. and a rentable area
of 20,000 s.f., the load factor is 11.1% and the loss factor is 10%.
Lease - A lease controlling subsequent leases. May cover more property than
subsequent leases. For example: "A" leases an office building, containing
ten offices, to "B". "B" subsequently subleases the ten offices
individually. The ten subleases from "B" as sublessor are controlled
by the lease from "A" to "B" (master lease).
Lease - (See also "Triple Net"). Today this generally indicates
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. Opposite
of Gross or Fully Serviced Lease.
Net Present Value (NPV) - The calculation
of NPV takes into account both the netting of cost and benefits and the time value
of money. See Present Value.
Net Rentable Area - (Same as 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 restrooms, common corridors,
mechanical and janitor's rooms and the elevator lobby on the tenant's floor.
- 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.
Cost - Any cost or charge incurred by a tenant pursuant to its lease, such
as rent, operating expense increases, parking charges, moving expenses, remodeling
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").
- The cost of operating an office building, such as janitorial, management
fees, utilities, 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.
Representative - An agent who is an advocate for the owner and/or landlord.
Throughs - An increase in operating expenses over the base year amount that
is billed to the tenant as additional rent. See escalation.
- 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.
Present Value - The present
value is the amount that must be invested now to produce the known future value.
For any sum invested at a given interest rate, the amount one would receive at
the end of the period can be determined by taking the investment times one (1)
plus the interest rate of the period to the power of the period. For example,
if $10 is invested in an interest rate of 10% for one year, the investment would
grow to $11 at the end of the year. It follows, then, that $11 one year from now
is worth $10 today; that is $10 is the present value of $11.
Consent - A standard applied in a lease (most often in a sublease clause)
which limits the landlord's ability to withhold consent in its sole discretion.
If a reasonable person would give consent to an action given the circumstances,
so must the landlord.
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.
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 under 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. These are called "self help".
Space Planning -
Term is often loosely used. Most often it is the planning of the layout of the
interior space of a building to meet the needs of the user. Can also include detailed
interior design and preparation of construction drawings. Space planning and interior
design only need not be licensed architects. Preparation of construction drawings
for permit have to be prepared by architects licensed in the jurisdiction.
Pocket - A portion of a leased premises that is set aside to accommodate future
growth on the part of the tenant. The space pocket is typically fully improved
at the commencement of the lease and no rent is due on the pocketed area until
the earlier of "actual use" or a specified future date.
- A lease, under which the lessor is the lessee of a prior lease of the same
property. The sublease may be different in terms from the original lease, but
cannot contain a greater property interest. Example: "A" leases to "B"
for five years. "B" may sublease to "C" for three years, but
not for six years. (Rent can be greater or less than that in the prior lease.)
- To make subject or junior to.
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.
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.
Representative - An agent who is an advocate for the tenant.
Net - A lease requiring the tenant to pay in addition to a fixed rental, the
expenses of the property leases, such as taxes, insurance, maintenance, utilities,
cleaning etc. The terms "net net", "net net net", "triple
net", and other such repetitions 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.
Value Engineering - Process by which costs
can be decreased or benefits can be added to an undertaking or project through
redesign, prioritization or other similar actions.
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.
Office - An office that moves with the person. Typically used in a sales organization
where the salespeople are given portable computers, modems, and cellular phones
in return for having their offices taken away.
- Elevators, stairs or escalators moving people or freight between floors in a
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.
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.