We are pleased to provide some lay definitions to common commercial real estate terms. The list below is not exhaustive, but we hope it will provide you with a better understanding of the terminology used in commercial real estate. Please remember, always consult with an attorney before entering into any real estate transaction. First Martin Corporation believes these terms or definitions can be useful in understanding commercial real estate; however, we can not accept any responsibility for the reader's specific interpretation of them.
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valorem: (According to value) which refers to the value of property
used in the computation of taxes.
as-is:
The existing condition of real estate, prior to any improvements contemplated
under a lease.
assignment:
The transfer of leasehold interest in a property to a second party.
attorn:
To transfer to another or to agree to recognize a new owner of a property and
to pay them rent.
BOCA:
Building Officials Conference of America, which writes the guidelines for
basic, community building codes.
BOMA:
Building Owners and Managers Association which, among other things, established
widely-accepted methods of computing square footage in commercial buildings.
base
rent: The minimum monthly rent, usually computed on a per-
square-foot-per-year basis, due under the lease (see percentage rent).
base
year: A specific year of a lease against which certain rent escalations
and additional expense reimbursements to landlord may be calculated.
building
standard: A list of materials and finishes used in the the build-out,
repair or restoration of a tenant's suite.
build-out:
Refers to the interior construction of a tenant's space whether new
construction or the reconfiguration of existing space.
build-to-suit
A customized design and build approach to a tenant's space usually resulting in
a single occupant building which is then leased or sold to the tenant.
certificate
of occupancy: Presented by city building department to landlord or
tenant after completion of tenant improvements and satisfactory inspections by
city building department inspectors.
commercial
property: Other than residential. Owned or leased property such as
office, research, retail and industrial properties.
commission:
The fee paid to a real estate broker as procuring cause and/or for his or her
services rendered in a real estate transaction. May be paid by either party in
a transaction; it is usually governed by a prior written agreement.
common
area maintenance (CAM): An additional, annual charge often assessed to
tenants for maintenance of the property's "common area", such as its entryways,
hallways or bathrooms.
construction
management: Construction supervision by a qualified manager.
CPI:
(Consumer Price Index) A measure of inflation as determined by the US federal
government by using a "basket of goods". Used in leases as an impartial
benchmark for the calculation of escalations.
contract
documents: The complete set of drawings, specifications, bidding
instructions, construction agreement, etc. used in the construction industry.
The AIA (American Institute of Architects) standard forms are routinely used,
but are not mandatory.
demising
wall: The wall which separates a tenant's suite from another tenant's
suite, or building common areas. In most cases, a demising wall will be
constructed from floor to either the building roof deck or floor deck. The wall
may also be a fire rated wall (see "partition wall").
DBA:
The abbreviation for "doing business as".
deal:
The state of agreement both parties are looking for.
eminent
domain: The right of a government entity to take (condemn) property
with just compensation for the public good.
escalation:
The mechanism in a lease which increases the rent, usually annually. May be set
forth in fixed steps, tied to increases in operating expense, or to increases
in the Consumer Price Index (CPI).
estoppel
certificate: A statement concerning the status of an agreement,
(usually a lease) and the performance of obligations under the agreement. A
third party such as a lender, relies on the statement (which is usually
unilaterally executed by the tenant) for such things as making a loan on
property.
fair
market value (FMV): The price which the market would bring, over a
reasonable period of time, for a property for sale or for lease.
flex
space: A building providing use flexibility between office, and other
uses such as manufacturing, laboratory, warehouse, etc. Usually provides high
bays and relocation flexibility for overhead doors and other entrances.
force
majeure: (An uncontrollable force) an event outside the reasonable
control of the parties to a contract such as an "Act of God", war, riots or
strikes which would prevents the parties from complying with the provisions of
an agreement.
go-dark:
The condition that results from a tenant's closing its business, even though
the lease is still in effect. Lease language may provide a means for a landlord
to void a lease and take back the leased premises if the tenant ceases to
operate its business at that location.
gross
lease: Commonly specifies one rental amount inclusive of rent, taxes,
utilities, maintenance, etc. associated with the rental of a property.
gross
square feet: Usually refers to gross area of a building by measuring
from the outside of its exterior walls and including all vertical penetrations,
such as elevator shafts. Also includes basement space.
ground
lease: A long-term lease of land, entered into by a tenant to construct
a building (at its expense) from which to conduct its business.
HVAC:
Acronym for heating, ventilation and air conditioning.
hold
over: The condition that results when a tenancy exists beyond the end
of the term of a lease.
improvements:
See "leasehold improvements".
lease
commencement date: The date upon which the lease commences and the
obligations of the parties begins (see also "rent commencement date").
leasehold
improvements: Construction or improvements for the purpose of preparing
the premises for the conduct of tenant's business. Improvements permanently
attach to the premises unless they are trade fixtures, and they remain with the
premises after the end of term of the lease.
letter
of attornment: see "attorn".
lien
waiver: A waiver of mechanic's lien rights signed by a general
contractor and his subcontractors.
load
factor: The amount of square footage is a lease, in addition to a
tenant's usable square footage, which represents tenant's pro rata share of the
building's common area/s. May also be referred to as a percentage of building's
rentable square feet.
mechanic's
lien: A claim provided for under state statutes securing the priority
of payment for the value of work and materials furnished in the construction or
repair of real property.
month-to-month:
A lease for a specific period of time, usually one month, which automatically
renews itself for the same period of time, unless landlord or tenant provide
notice to terminate.
NNN:
See triple-net below.
net
lease: Structured such that a base rent for a rental property is paid
to landlord. In addition, other charges such as utilities and building property
taxes, insurance and maintenance are also payable by tenant. Sometimes referred
to as triple net or absolute net lease.
notice
of commencement: Legal notice to the county's register of deeds that
remodeling/improvements will be undertaken at an address.
notice
of furnishing: Legal notice by a subcontractor or supplier that it
furnished labor or materials, subsequent to the notice of commencement, thereby
establishing the legal right to be paid for the services rendered.
operating
expenses: The costs associated with operating income producing property
usually before interest and income tax expense, but including property taxes,
insurance, repairs and maintenance, replacement reserves.
option:
A term in a lease for the rights either tenant or landlord may have with
respect to one another, usually with stipulations regarding timing of those
rights.
partition
wall: A wall constructed to create work areas such as offices or
conference rooms. Depending on security needs, a partition wall may not be
constructed to the roof or floor decking, but may terminate at lower point such
as a suspended ceiling.
party
wall: Usually located in a fraternity house.
pass-through
expense: An expense associated with tenancy in which landlord "passes
through" to tenant certain increases in building operating expenses occurring
after a base year in the lease.
percentage
rent: Provides for a rent to be paid as a percentage of retail sales,
usually quarterly or annually. Often coupled with a base rent.
planned
unit development (PUD): A zoning category in which each of the proposed
buildings or uses are approved in advance as a part of a parcel's overall use.
Usually preserves large common or open areas on a site.
premises:
In commercial real estate, the description of the leasehold and the specific
square footage for which the parties enter into a lease.
punch
list: A list of incomplete or unacceptable construction items which
upon remedy and completion will usually complete the obligations of the
contractor under a construction contract.
real
estate broker: A person licensed to act as an agent for another person
or business to negotiate a lease or purchase of a leasehold or property,
respectively, for a fee.
real
property: The land and anything permanently attached to the land such
as buildings, parking lots, landscaping, or other items which would otherwise
be classified personal property if not attached, excluding fixtures designed to
be removable and reusable (see "trade fixtures").
renewal
option: Lease language that provides the means for tenant to give
landlord notice of its intent to renew (extend) the lease.
rent
commencement date: The date upon which the rent and usually the term of
the lease begins. May be different from the lease commencement date when
certain obligations must be fulfilled such as the construction of tenant
improvements.
rentable
area: Denotes the number of square feet in a commercial building deemed
to be rentable, according to BOMA. May include a common area load factor or
allowance for building amenities such as hallways and lavatories.
sale-leaseback:
A financing arrangement usually designed to raise capital for the property
owner or obtain favorable income tax results.
security
deposit: Generally, a deposit of money by a tenant with a landlord to
secure performance of a lease.
setback:
Zoning requirement that requires a building or an improvement to be set back a
certain number of feet from the property line.
shell
space: The interior condition of either a new or existing building
without improvements or finishes. Typically denotes floor, windows, walls and
roof of an enclosed premises. May include some electrical or plumbing
improvements, but not demising walls.
special
assessment: Any special charge levied against real property for public
improvements the benefit the assessed property.
subordination
agreement: An agreement by which the tenant agrees to the priority of a
mortgage over the leasehold interest, or other claim held by the tenant on the
property.
substantial
completion: The point during construction at which the contractor is
ready to turn the property over to the tenant or client for acceptance and
final punch list. Usually occurs upon the issuance of a certificate of
occupancy.
tenant
representation: Arrangement whereby a prospective tenant engages a real
estate broker as its exclusive agent in negotiating a lease for commercial
space. Also know as a "buyer's broker."
tenant's
use clause: Lease language which specifies the business activities
tenant will engage in at the leased premises.
trade
fixtures: Certain fixtures installed at the premises which are unique
to tenant's business, and which may generally be removed by tenant at the end
of the term of the lease.
triple
net: Generally refers to the requirement for the lessee to pay for its
share of the property's taxes, insurance and operating expenses.
usable
square feet: Denotes the number of square feet in a commercial building
or suite deemed to be usable by BOMA.
white
box: The interior condition of either a new or existing building or
suite in which the improvements generally consist of heating/cooling with
delivery systems, lighting, electrical switches and outlets, lavatories, a
finished ceiling, walls that are prepped for painting, and a concrete slab
floor. Also called a "vanilla box".
Thanks to everyone who have provided us with suggestions.
Do you have any comments or suggestions regarding the information contained in
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