GLOSSARY

Abatement


Often and commonly referred to as free rent or early occupancy and may occur outside or within the primary term of the lease.




Absorption Rate


The net change in space available for lease between two dates, usually expressed as a percentage of the total square footage.




Add-On Factor


Often referred to as the Loss Factor or Rentable/Usable (R/U) Factor, it represents the tenant’s pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. It is usually expressed as a percentage which can then be applied to the usable square footage to determine the rentable square footage upon which the tenant will pay rent.




Absorption


The rate, expressed as a percentage, at which available space in the marketplace is leased during a predetermined period of time. Also referred to as “Market Absorption”.




Allowance Over Building Shell


Most often used in a yet-to-be constructed property, the tenant has a blank canvas upon which to customize the interior finishes to their specifications. This arrangement caps the landlord’s expenditure at a fixed dollar amount over the negotiated price of the base building shell. This arrangement is most successful when both parties agree on a detailed definition of what construction is included and at what price.




“As-Is” Condition


The acceptance by the tenant of the premises in their existing condition at the time the lease is executed. This would include acceptance of any physical defects, code violations, or other problems with the physical and legal condition of the premises.




Base Year


Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes a dollar stop lease, meaning that the tenant pays the increases in taxes and operating expenses in excess of the base year figures.




Building Classifications


Building classifications in most markets refer to Class “A”, “B”, “C” and sometimes “D” properties. While the rating assigned to a particular building is very subjective and relative to the market, Class “A” properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the “Class” of the building decreases (i.e. Class “B”, “C” or “D”) one component or another such as age, location or construction of the building becomes less desirable. Note that a Class “A” building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.




Building or “Core” Factor


Represents the percentage of Net Rentable Square Feet devoted to the building’s common areas (lobbies, rest rooms, corridors). This factor can be computed for an entire building or a single floor of a building. Also known as a Loss Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage.




Build-out


The space improvements put in place per the tenant’s specifications. Takes into consideration the amount of Tenant Finish Allowance (see Tenant Finish) provided for in the lease agreement. See also “Tenant Improvement Allowance”.




Build-To-Suit


An approach taken to lease space by a property owner where a new building is designed and constructed per the tenant’s specifications, often a specialized use.




Capitalization Rate (a/k/a “Cap Rate”)


Most traditionally calculated as Net Income before debt service divided by the purchase price and expressed as a percentage. The rate that represents a reasonable return on investment (on the basis of both the investor’s alternative investment possibilities and the risk of the investment). Used to determine and value an investment. Also called “free and clear return”. See “Capitalization”.




Certificate of Occupancy


A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.




Circulation Factor


Interior space required for internal office circulation not accounted for in the Net Square Footage. Based upon our experience, we use a Circulation Factor of 1.35 x the Net Square Footage for office and fixed drywall areas and a Circulation Factor of 1.45 x the Net Square Footage for open area workstations. Also see: Net Square Footage and Usable Square Footage.




Common Area


There are two components of the term “common area.” If used in association with the Rentable/Usable or Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees (i.e. lobbies, corridors, restrooms, etc.). On the other hand, the cost of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term “common area” when calculating the tenant’s pro-rata share of building operating expenses.




Common Area Maintenance (CAM)


This is the amount of Additional Rent charged to the tenant, in addition to the Base Rent (see Base Rent), to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, and property taxes. Most often, this does not include any capital improvements (see Capital Expenses) that are made to the property.




Concessions:


Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses, cabling expenses or other monies expended to influence or persuade the tenant to sign a lease.




Consumer Price Index (“CPI”)


Measures inflation in relation to the change in the price of a fixed market basket of goods and services purchased by a specified population during a “base” period of time. It is not a true “cost of living” factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the base rental periodically as a means of protecting the landlord’s rental stream against inflation or to provide a cushion for operating expense increases for a landlord unwilling to undertake the record keeping necessary for operating expense escalations. There are many different consumer price indices for different markets (urban, rural), and different goods or services. When using a CPI as a basis for rent increases, care should be given to selection of the proper CPI.




Contiguous Space


(1) Multiple suites/spaces within the same building which adjoin and which can be combined and rented to a single tenant; (2) A block of space located on multiple adjoining floors in a building (i.e., a tenant leases floors 6 through 12 in a building).




Construction Documents


The complete set of design plans and specifications for the construction of a building or of a building’s interior improvements. Working Drawings specify for the contractor the precise manner in which a project is to be constructed. See also “Specifications”. “Working Drawings”.




Core Factor


Represents the percentage of Net Rentable Square Feet devoted to the building’s common areas (lobbies, rest rooms, corridors). This factor can be computed for an entire building or a single floor.




Demising Walls


The partition wall that separates one tenant’s space from another or from the building’s common area such as a public corridor.




Design/Build


A system in which a single entity is responsible for both the design and construction. The term can apply to an entire facility or to individual components of the construction to be performed by a subcontractor; also referred to as “design/construct.” This sometimes refers to a project constructed by a developer for a prospective buyer’s specific requirements on a turn key basis.




Depreciation


Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.




Effective Rent


The actual rental rate to be achieved by the landlord after deducting the cost of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.




Efficiency Factor


Represents the percentage of Net Rentable Square Feet devoted to the building’s common areas (lobbies, rest rooms, and corridors). This factor can be computed for an entire building or a single floor of a building. Also known as a Core Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage. See “Usable Square Footage”.




Escalation Clause


A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs and the like. This may be accomplished by several means such as fixed periodic increases, increases tied to the Consumer Price Index, or adjustments based on actual changes in expenses paid by the landlord in relation to a dollar stop or base year reference.




Estoppel Certificate


A signed statement regarding the lease certifying that certain statements of fact are correct as of the date of the statement, and can be relied upon by a third party such as a prospective lender or purchaser. In the context of a lease, this is a statement by a tenant confirming that the lease is in effect, that no rent has been prepaid and that there are no known uncured defaults by the landlord (except those specified in the estoppel certificate).




Exclusive Agency


Exclusive Agency: A generic term for a representation or listing agreement between landlord and a broker, providing that such broker is the only broker hired to list the property for sale or lease.




First Refusal Right or Right Of First Refusal (to Lease adjacent space)


A lease clause giving a tenant the first opportunity to lease additional space that might become available in a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept. This right is often restricted to specific areas of the building such as adjacent suites or other suites on the same floor. See “Right Of First Refusal” and “Right Of First Offer”.




Fixture


Usually a fixture is personal property (e.g. equipment, display pieces, shelving, racking) which becomes affixed or attached to real property. Unless the right to remove fixtures (and repair the leased premises) is reserved by the tenant, a landlord may claim ownership of fixtures at lease termination.




Full Service Rent


An all-inclusive rental rate which 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.




Gross Building Area


The total floor area of the building measuring from the outer surface of exterior walls and windows and including all vertical penetrations (e.g. elevator shafts, etc.) and basement space.




Gross Lease


A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, and non sub-metered utilities, with no pass through of these expenses or increase in these expenses to tenant.




Gross Up


An adjustment made to operating expenses to account for the present occupancy level in a building as compared to a higher level such as 95% or more. When operating expenses are "grossed up", it means that the building's variable expenses have been adjusted (usually) upward to the level that those expenses would be if the building were fully or almost fully occupied (typically 95%).




Ground Rent


Rent paid to the owner for use of land, normally on which to build a building. Generally, this involves a long-term lease (e.g. 99 years) with the ground lessor retaining title to the land and owning the building upon ground lease expiration. Unless the ground lessor agrees to subordinate its interest to the ground lessee’s lender, the ground lessee will not likely be able to use the land for collateral for a loan.




HVAC


The acronym for “Heating, Ventilating and Air-Conditioning”




Lease Agreement


Any agreement which gives rise to a relationship of landlord and tenant. A contract for the exclusive possession of the leased premises entered into between landlord and tenant reflecting agreed upon terms and conditions.




Lease Commencement Date


The date which usually constitutes the commencement of the term of the lease for all purposes, whether or not the tenant has actually taken possession, so long as occupancy is possible. In reality, there could be other agreed




Leasehold Improvements


Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the lease negotiations will include in some detail the improvements to be made in the leased premises by Landlord or in the alternative, an allowance provided to the tenant to fund improvements made by the tenant. See also “Tenant Improvements”. These improvements are usually considered landlord’s property upon lease termination.




Letter of Intent


A preliminary agreement stating the proposed terms for a final contract of purchase or lease. They can be "binding" or "non-binding", depending on their terms and the intent of the parties.




Limited Partnership


A partnership consisting of one or more general partners (see general partnership) and other partners called limited partners, where the liability for the acts of the partnership is total for each general partner. A limited partner whose role is generally passive, as an investor, has liability only to the extent of the specific amount invested in the partnership. A type of partnership, created under state law, comprised of one or more general partners who manage the business and who are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running the business, and most important, incur no liability beyond the amount they have contributed to the partnership.




Market Value


The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade.




Modified Gross Lease


A lease in which a tenant pays a fixed sum for rent from which landlord pays all operating expenses for the first or lease year (or dollar stop), and thereafter tenant pays all increases in operating expenses or the increases beyond the fixed ceiling, called a dollar stop.




Net Lease


A lease in which there is a provision for the tenant to pay, in addition to base rent, certain costs associated with the operation of the property, which include some or all of property taxes, insurance, repairs, utilities, and maintenance. There are also “NN” (double net) and “NNN” (triple net) leases, depending upon the degree to which the tenant is responsible for operating costs. See also “Gross Lease.”




Net Rentable Area


The floor area of a building which remains after the square footage represented by vertical penetrations, such as elevator shafts, stairways, plumbing and HVAC chases has been deducted. Common areas and mechanical rooms are included and no deductions are made for necessary columns and projections of the building. (BOMA Standard).




Operating Expense Escalation


Although there are many variations of escalation clauses, all are intended to adjust rents by reference to external standards such as published indices, negotiated wage levels, or expenses related to the ownership and operation of buildings. During the past 30 years, landlords have developed the custom of separating the base rent for the occupancy of the leased premises from escalation rent. This technique enables the landlord to better ensure that the “net” rent to be received under the lease will not be reduced by the escalating costs of operating and maintaining the property. The landlord’s definition of Operating Expenses is likely to be broad, covering most costs of operation of the building.




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 if not all aspects of operating the building.




Parking Ratio or Index


The intent of this ratio is to provide a uniform method of expressing the amount of parking that is available or required at a given building. Dividing the total rentable square footage of a building by the total number of parking spaces for the building provides the amount of rentable square feet per each individual parking space (expressed as 1/xxx or 1 per xxx). Dividing 1000 by the previous result provides the ratio of parking spaces available per each 1000 rentable square feet (expressed as x per 1000).




Pass Throughs


Refers to the tenant's pro-rata share of operating expenses paid in addition to the tenant’s base rent.




Raw Space


Unimproved shell space in a building.




Renewal Option


A clause giving a tenant the right to extend or renew the term of a lease, usually for a stated period of time and at a rent amount as provided for in the lease and option clause.




Rent Commencement Date


The date on which a tenant is obligated to begin paying rent, as contrasted with the lease commencement date when the lease term commences, but payment of rent is deferred for a period of time.




Rentable Square Footage


Rentable Square Footage equals the Usable Square Footage plus the tenant’s pro-rata share of the Building Common Areas, such as lobbies, public corridors and restrooms. The pro-rata share, often referred to as the Rentable/Usable (R/U) Factor, will typically fall in a range of 1.10 to 1.16, depending on the particular building. Typically, a full floor occupancy will have an R/U Factor of 1.10 while a partial floor occupancy will have an R/U Factor of 1.12 to 1.16 ratio to the Usable Area.




Rentable/Usable Ratio


The number resulting from dividing the Total Rentable Area in a building by the Total Usable Area. The inverse of this ratio describes the proportion of the rentable leased square feet that a tenant may expect to actually utilize.




Rental Concession


Concessions a landlord may offer a tenant in order to secure the tenancy. While rental abatement or reduced rent over a fixed period of time is one form of monthly concession, there are many others such as: increased tenant improvement allowance; special signage; below market rental rates; and moving allowances. See also “Abatement”.




Request for Proposal (“RFP”)


The formal and often customized compilation of the many considerations that a tenant might seek to reflect the tenant’s specific needs. Just as a building’s standard form lease document represents the landlord’s “wish list”, the RFP serves in that same capacity for the tenant. A standardized RFP issued to multiple prospective landlords gives the tenant the opportunity to compare various landlord proposals on the same criteria.




Right Of First Refusal (“ROFR”)


A right which a tenant may hold to lease additional space in the property or to purchase the property under the following circumstances. If and when landlord is prepared or has agreed (subject to this right of first refusal) to lease space to a third party or sell the property to a third party on certain terms and conditions, that same transaction must be offered to the holder of the right of first refusal who has a fixed period in which to exercise the ROFR and purchase the property or lease the subject space on the specified terms and conditions, or waive the ROFR. See definition for option and for right of first offer (“ROFO”) which is similar, but differences from ROFR should be noted.




Shell Space


The interior condition of the tenant's “usable square footage” when it is delivered to the tenant without improvements or finishes. While existing improvements and finishes can be removed, thus returning space in an older building to its "shell" condition, the term most commonly refers to the condition of the usable square footage after completion of the building's "shell" construction but prior to the build-out of the tenant's space. Shell construction typically includes the floor, windows, walls and roof of enclosed premises and may include some HVAC, electrical or plumbing improvements but usually does not include completion of demising walls or interior space partitioning. In a new multitenant building, common area improvements, such as lobbies, restrooms and exit corridors may also be included in the shell construction. With a newly constructed office building, there will often be a distinction between improvements above and below the ceiling grid. In a retail project, all or a portion of the floor slab is often installed along with the tenant improvements, to better accommodate tenant specific under-floor plumbing requirements.




Site Plan


A detailed plan depicting the location of improvements on a parcel of land and containing all information required by the zoning ordinance, best included as an exhibit to a lease.




Space Plan


A graphic representation of a tenant’s space requirements, showing wall and door locations, room sizes, and sometimes including furniture layout. A preliminary space plan will be prepared for a prospective tenant at any number of different properties and this serves as a “test-fit” to help the tenant determine its actual space needs and which property will best meet its requirements. When the tenant has selected a building, a final space plan is prepared which addresses all of the landlord and tenant objectives, and then is approved by both parties. It should be sufficiently detailed to allow an accurate estimate of construction costs. This final space plan should be an exhibit to the lease.




Tenant Improvements


Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord or at landlord’s expense. See also “Leasehold Improvements” and “Workletter”.




Tenant Improvement (“TI”) Allowance or Work Letter


Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays costs that exceed this amount.




Trade Fixtures


Personal property used in a business and attached to a structure, but removable upon lease termination because it is deemed to be part of the business, not of the real estate. This term often refer to articles of personal property by tenants for use in their trade or business, and are often removed from leased premises at lease termination.




Triple Net (NNN) Rent


A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also Net and “NN” (double net) leases, depending upon the degree to which the tenant is responsible for all operating expenses. See also “Gross Lease”.




Vacancy Rate


The total amount of available space compared to the total inventory of space, expressed as a percentage. Computed by multiplying vacant space times 100 and then divided by the total inventory.