Commercial Real Estate Terminology and Definitions

Above Building Standard: Upgraded finishes for the interior design, necessary to accommodate a tenant’s requirements.

Anchor Tenant: A term commonly used in retail leasing for shopping centers, usually referring to a supermarket. The major tenant in a shopping center or building occupying a large amount of space.

"As-Is" Condition: The acceptance by the tenant of the existing condition of the premises at the time the lease is executed.
Assignment: A transfer by lessee of lessee’s entire estate in the property. Different from a sublease, where the sub-lessee acquires something less than the lessee’s entire interest.

Base Rent: Most often the rent due during the first term of the lease. A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.

Base Year: Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences.

Building Classifications: Signifies the type of property or “Class” the building represents. Class A properties are typically newer buildings, larger in size with upgraded lobbies i.e. granite or marble flooring, etc. They also offer superior construction, great proximity to expressways or easy access to the property, usually offering amenities such as an onsite café, water feature, courtyard, exercise room, etc. These types of amenities typically draw larger corporations or companies with a national presence. Buildings with these types of features also command higher rents. Class B and C buildings are usually classified as such due to smaller size and location.

Building Standard: Construction materials used in the build-out process to prepare a tenants space for occupancy, i.e. carpet, paint, vinyl tile covering (VTC), doors, wall paper, etc.

Build-out: The process by which the tenant’s space is prepared for occupancy. The build-out results through meetings with a space planner. The space planner helps the tenant design and lays out the interior of the office for the most productive work environment.

Build-To-Suit: Usually an offer from the property owner to build a building to the direct requirements of the lessee. Typically occurs with vacant land.

Central Business District: Generally refers to the commercial and geographic heart of a city. The central business district is also known as the “downtown” area of a city.

Certificate of Occupancy: Certifies that an office space, building or dwelling has met all the local government laws and regulations in relation to occupancy. The property has been inspected and certified to be a safe place to dwell and is issued a Certificate of Occupancy.

Common Area: The common areas of a building are considered to be the hallways, public restrooms, elevators, lobbies, courtyards, parking area, etc.

Common Area Maintenance (CAM): A CAM fee is the charge in addition to rent needed to maintain the common areas of a property. Examples of this are trash removal from common area trash cans, a common dumpster provided for the tenants, landscaping, common area and outdoor lighting, property insurance, taxes, etc. This fee is typically used for non-full service properties.

Construction Management: The over sight of the construction process. This is typically done by a construction manager who is employed by a general contractor. Duties include managing the construction process so that construction is completed as scheduled.

Core Factor: In full service properties the core factor represents the lobbies, elevators restrooms, hallways, etc. It is a percentage that when multiplied by the square footage being leased gives you the “Rentable Square Feet” on which rent is calculated.

Demising Walls: The wall that separates one tenant space from another. This wall goes from deck to deck, meaning that it does not stop at the drop ceiling.

Escalation Clause: Is a provision in a lease, usually a fixed percentage over base rent that allows for the increase in rent due. This increase usually takes affect on the anniversary date of the lease starting with the second year of the lease.

Exclusive Agency Listing: An agreement in writing between the property owner and a real estate broker to lease or sell a designated property. The owner agrees to pay a fee or commission when a transaction takes place.

Executive Suite Space: Is a business whereby new businesses are able to lease space on a temporary basis that give the lessee all the features of having their own office without all of the startup cost of having your own office. Typically a secretary is provided along with all of the necessary business equipment to run a business. Common conference room is shared with other tenants leasing other offices within the space.

Expense Stop: A provision in the lease that allows for pass throughs to the tenant for unexpected increases in property taxes, energy expenses, etc. Typically out of the control of the landlord.

First Generation Space: Space in a property that has never been leased to anyone else, usually found with new construction.

First Refusal Right or Right of First Refusal: A lease clause giving a tenant the first right to lease additional space that might become available in the same property. Typically this space would be contiguous to the tenant’s current space.

Flex Space: Most commonly a property with some office space and some warehouse space. This type of property allows the tenant to use the space to meet the needs of their business.

Full Service: An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount.

General Contractor: The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, (e.g., plumbing, electrical, etc.), coordinates all work, and is responsible for payment to subcontractors.

Ground Lease: The lease of land on which the tenant would normally build a building. This type of lease is for longer periods of time, i.e. 20 years, 30 years, 99 years, etc.

High Rise: Usually found in city centers or a central business district. These types of properties are usually buildings that are 25 stories or higher. In smaller markets or sub-markets these properties are more likely to be 7 to 12 stories.

HVAC: The term used to describe the heating, ventilating and air conditioning system of a property.

Lease: A written agreement used in contracting for real property. Landlord/lessor gives the right of possession to the tenant/lessee for a specific period of time known as the lease term for valuable consideration or rent.

Lease Agreement: The formal legal document entered into between a landlord and a tenant to reflect the terms of the negotiations between them; that is, the lease terms have been negotiated and agreed upon, and the agreement has been reduced to writing. It constitutes the entire agreement between the parties and sets forth their basic legal rights.

Lease Commencement Date: Typically refers to the date in which the lease actually begins the term of the lease.

Letter Of Intent: A document used to state the intentions of a party to enter into a contract with a property owner. It states the proposed terms for a contract. These types of agreements can be either binding or non-binding.

Listing Agreement: An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.

Lot: Generally, one of several contiguous parcels of land making up a fractional part or subdivision of a block, the boundaries of which are shown on recorded maps and “plats”.

Low Rise: Typically a building of less than four stories.

Metes and Bounds: The boundary lines of land, with their terminal points and angles, described by listing the compass directions and distances of the boundaries. Originally, metes referred to distance and bounds referred to direction.

Mid-Rise: A building with between four and eight stories above ground level although in a central business district, this might extend to buildings up to twenty-five stories.

Mixed-Use: Space within a building or project providing for more than one use (i.e., a loft or apartment project with retail, an apartment building with office space, an office building with retail space).

Net Lease: A lease in which there is a provision for the tenant to pay, in addition to rent, certain costs associated with the operation of the property. These costs may include property taxes, insurance, repairs, utilities, and maintenance. There are also “NN” (double net) and “NNN” (triple net) leases.

Non-Compete Clause A clause that can be inserted into a lease specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in the building. This clause benefits service-oriented businesses desiring exclusive access to the building’s population (i.e. travel agent, deli, etc.).

Open Space: An unimproved area of land or water, or containing only such improvements as are appropriate to the use and enjoyment of the open area, and dedicated for public or private use or enjoyment or for the use and enjoyment of owners and occupants of land adjoining or neighboring such open spaces.

Operating Expenses: The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord’s definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.

Parking Ratio: The number of parking spaces available for parking for every one thousand square feet of office space for lease.
Pass Throughs: Refers to the tenant's pro rata share of operating expenses not included in a typical lease, this is paid in addition to the base rent.

Percentage Lease: This type of lease is normally used in the retail market place where a landlord is paid a percent of the tenant’s total gross revenues in addition to a base rental rate paid each period.

Pre-leased: This usually occurs when a developer announces to the market place the intent to build a building. Pre-leasing is done so the banks involved are assured of rental income prior to any construction starting.

Pro rata share: Is the tenant’s portion of the expenses above and beyond normal expenses. This figure is based on the amount of space each tenant has in conjunction with the whole property. (i.e. a tenant occupies 2,500 square feet of a 25,000 square foot building; their pro rata share would be 10%).

Punch List: A tenant will prepare a list itemizing unfinished work and/or unsatisfactory construction that is given to the property owner that is to be remedied prior to the move in date.

Raw Land: Undeveloped land.

Renewal Option: A clause in a lease giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount as provided for in the original lease.

Rent: Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Abatement: Often and commonly referred to as free rent or early occupancy, may occur outside or in addition to the primary term of the lease.

Rent Commencement Date: The date on which a tenant begins paying rent. The dynamics of a marketplace will dictate whether this date coincides with the lease commencement date or if it commences months later (i.e., in a weak market, the tenant may be granted several months free rent). It will never begin before the lease commencement date.

Rentable Square Footage: Is the actual useable square footage in a space multiplied by a percentage (determined by the landlord) that covers the use of the common areas of the building.

Rental Concession: Rental concessions for incentives the landlord will give the tenant in order for the tenant to execute a lease. Typical incentives are free rent for a short period, signage on the building if the tenant is taking a large portion of the property, increased tenant improvement allowance, etc.

Representation Agreement: An agreement between a real estate broker and a landlord or a tenant to work on their behalf to find a tenant or a space appropriate to meet the needs of the client in exchange for a commission or fee.

Request for Proposal (“RFP”): The formalized request for proposal represents a compilation of the many considerations that a tenant might have and should be customized to reflect their specific needs. Just as the building’s standard form lease document represents the landlord’s “wish list”, the RFP serves in that same capacity for the tenant.

Security Deposit: A deposit of valuable consideration (money) used as security for the leasing of property.

Shell Space: Also referred to as a dark shell, the space in a property before improvements have been done.

Site Analysis: The study of a specific parcel of land which takes into account the surrounding area and is meant to determine its suitability for a specific use or purpose.

Site Development: The installation of all necessary improvements such as utilities, preparing the ground for development and removal of any unwanted objects.

Site Plan: A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by the zoning ordinance.

Slab: The exposed wearing surface laid over the structural support beams of a building to form the floor(s) of the building or laid slab-on-grade in the case of a non-structural, ground level concrete slab.

Soft Cost: The costs involved in a property not necessarily realized, i.e. architectural, permits, fees, commissions, etc.

Space Plan: A drawing used for the specific purpose of laying out an office space or the interior of the building based on the specifications of the tenant to give them the most productive work environment possible.

Strip Center: Any shopping area, generally with common parking, comprised of a row of stores but smaller than the neighborhood center anchored by a grocery store.

Subcontractor: A contractor working under and being paid by the general contractor. Often a specialist in nature, such as an electrical contractor, cement contractor, etc.

Subdivision Plat: A detailed drawing which depicts the manner in which a parcel of land has been divided into two or more lots. It contains engineering considerations and other information required by the local authority.

Survey: The process by which a parcel of land is measured and its boundaries and contents ascertained.

Tenant (Lessee): Someone or entity who rents space from a property owner by the use of a lease.

Tenant Improvements: Improvements made to a space for the use by a tenant. These improvements are usually decided and/or negotiated in the lease.

Tenant Improvement Allowance: Also know as “T I”, is the amount of money to be contributed by the landlord to build-out the space to the tenants requirements.

Triple Net (NNN) Rent: Typically used in all non Class A leases, where the tenant pays all the expense of the leased space in addition to rent. These additional expenses include utilities, HVAC maintenance for their space, property taxes, insurance, etc.

Turn Key: This involves the landlords’ commitment to prepare a space for a tenant where the “Tenant Improvement Allowance” covers all the expenses of the build-out of the space. Usually meaning there are no special requirements or finishes are used.

Under Contract: A contract where the two parties have agreed to perform certain duties explained in the contract. However, the contract has not yet closed.

Usable Square Footage: Usable Square Footage is the actual space contained inside the demising walls.

Vacant Space: Refers to existing tenant space currently being marketed for lease. This excludes space available for sublease.

Zoning: Is the actual designation a local government has given to a particular area, i.e. residential, industrial, agricultural, retail, etc. This designation will limit the type of use the land or building can be used for. There are also regulations for the type of structure and design that will be allowed for a building on any given property.