Real Estate Terminology

Below is a list of the most commonly used words in real estate along with their definition.


A

ABATEMENT: A reduction, decrease, or diminution; usually applies to the forgiveness of rent or a decrease of assessed valuation of ad valorem taxes after the assessment and levy.

ABOVE BUILDING STANDARD: Specialized design and engineering services and all construction necessary to personalize tenant space above and beyond the standard tenant finish designed for the particular building.

ABSOLUTE TRIPLE NET LEASE (BOND LEASE): An absolute triple net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes, the property insurance, and the maintenance.  Under an absolute triple net lease there are no legal defenses if a tenant fails to meet his responsibilities.

ABSORBED SPACE: Net change in leased space between two dates.

ABSORPTION: (1) The rate at which land or buildings will be sold or leased in the marketplace during a predetermined period of time, usually a month or a year. (2) The filling of space, such as the rental of units or sale of a tract. The time or rate must be estimated and considered as part of the owner’s (usually the builder) costs.

ABSORPTION PERIOD: The number of months required to convert vacant space into leased space assuming there is no new delivered space. Computed by dividing the average monthly absorbed space during a recent period by the current vacant space.

ADD-ON FACTOR: Considered a loss factor, the percentage of gross rentable square footage that is lost due to the tenant’s physical occupancy.

AD VALOREM TAX: (According to value) Used in reference to general property tax, which is usually based on the official valuation of property.

ALIENATION CLAUSE: A type of acceleration clause where a debt becomes due in its entirety upon the transfer of ownership of a secured property. See also Due on Sales Clause and Acceleration Clause.

ALLOWANCE OVER BUILDING SHELL: An arrangement used for financing tenant improvements (finishing out office space to accommodate a tenant such as walls, doors, carpeting, etc.), often used in a yet-to-be-built building whereby the landlord’s expenditure is capped 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. Tenants may ask for a contingency in the event the actual build-out costs are less than the allow- ance, requiring the landlord to return the savings in the form of rent abatement or other concession.

AM: Accredited Member (designation offered by the American Society of Appraisers).

ANNUAL PERCENTAGE RATE (APR): APR reflects the cost of a loan on a yearly basis. It may be higher than the note rate because it includes interest, loan origination fees, loan discount points, and other credit costs paid to the lender.

ANTICIPATORY BREACH: Occurs when one party to a contract prior to the time of performance informs the other of his or her intent not to perform. For example, when a buyer informs the seller before the closing date of his or her intent not to buy, an anticipatory breach has occurred.

APPRAISAL: (1) The estimation and opinion of value placed upon a piece of land based upon a factual analysis by a qualified professional. (2) The process of estimation and the appraisal report itself.

APPRECIATION: An increase in the value of property caused by an improvement or the elimination of negative factors.

AS IS CONDITION: Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

ASSESSMENT: (1) An estimate of property value for the purpose of imposing taxes. (2) A fee imposed on property, usually to pay for public improvements such as streets and sewers.

ASSET-BASED LENDER: A lender who loans money based primarily on the values of an asset – accounts receivable, inventory, a place of equipment, real estate – rather than on the financial strength of the business which is the primary criterion for banks.

ASSIGNMENT: A transfer of interest between parties of title to any property, real or personal, or of any rights or estates in the property. Common assignments include leases, mortgages, and deeds of trust.

ATTACHMENT: Legal procedure to aid in the collection of a debt. Usually the court issues a writ to seize the property of a debtor and holds it pending the outcome of a lawsuit, keeping the property available for sale to pay any money judgment entered in such lawsuit.

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B

BALLOON PAYMENT: A large payment due on a balloon note. Generally a balloon payment is required when regular monthly or quarterly payments have not covered both the increase due and the principal of the loan.

BANKRUPT: The condition when one is found to be unable to repay one’s debts by a court having proper jurisdiction. The bankruptcy may be one of two types: one that is petitioned by the debtor (voluntary) or petitioned by creditors (involuntary).

BANKRUPTCY: Proceedings under federal statutes to relieve a debtor who has been declared bankrupt from insurmountable debt. After addressing certain priorities and exemptions, the bankrupt’s property and other assets are distributed by the court to creditors as full satisfaction for the debt. See also Chapter 11.

BASE RENT: A set amount used as a minimum rent in a lease which also employs a percentage or other allocation for additional rent.

BASE YEAR: The year upon which a direct expense escalation of rent is based. See also Escalation Clause.

BELOW-GRADE: Any facility or part of a facility located underground or below the surface grade.

BREACH OF WARRANTY: The failure of the seller of real property to pass title as either express or implied by law in the conveyancing document.

BUFFER: A strip or parcel of land established as a transition between parcels of land, such as a strip or parcel of land between an industrial and residential area. May contain natural or planted shrubs, walls or fencing, singly or in combination. Also known as Buffer Zone or Buffer Strip.

BUILDING CLASSIFICATIONS: Class A – Building has excellent location and access to attract the highest quality tenants. Building must be of superior construction and finish, relatively new or competitive with new buildings,and providing professional on-site management. Class B – Building with good location, management, construction land tenancy. Can compete at low end of Class A. Class C – Generally an older building with growing functional and/or economic obsolescence. Class D – An older building in need of extensive renovation as a result of functional obsolescence or deterioration.

BUILDING CODE: A set of laws, usually enacted by city ordinance or other local jurisdiction, regulating the design, materials, and construction of buildings.

BUILDING STANDARD: A list of construction materials and finishes used in building out office space for a tenant that the landlord contributes as part of the basic tenant improvements and within the basic rent structure. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. May also specify the quantity and quality of the materials to be used and often carries a dollar value. See also Workletter.

BUILDOUT: The cost of configuring and finishing new or re-let space in accordance with a tenant’s specifications.

BUILD TO SUIT: A method of leasing property whereby the landlord builds a new building in accordance with a tenant’s specifications and leases the entire building to the tenant.

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C

COMMON AREA.:For lease purposes, the areas of a building (and its site) that are available for the nonexclusive use of all its tenants, such as lobbies, corridors, and parking lots.

C.A.M.: Common Area Maintenance. This is the amount of additional rent charged to the tenant to maintain the common areas of the property shared by tenants. Typical examples include such work as landscaping, snow removal, exterior lighting, as well as insurance and property tax.

CAPITALIZATION: A process of determining the value of real property in which project income is divided by a predetermined annual rate (capitalization rate). For example, a building with annual project income of $100,000 is worth $1,000,000 at a 10 per cent capitalization rate ($100,000/10% = $1,000,000).

CAPITALIZATION RATE: The rate that is considered 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 real property through the capitalization process. See also Free and Clear Return and Capitalization.

CAPITAL EXPENDITURES: Property improvements that cannot be expensed as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot—such items are added to the basis of the property and then can be depreciated over the holding period.

CARRYING CHARGES: (1) Various costs that are incidental to property ownership (e.g. taxes, insurance costs, and maintenance expenses). (2) The costs involved in keeping a property which is intended to produce income (either by sale or rent) but has not yet done so.

CERTIFICATE OF OCCUPANCY: A certificate issued by a local government building department or agency stating that a building is in a condition suitable for occupancy. Sometimes also called a C of O or a Non-Residential Use and Occupancy Permit (NON RUP).

CHAPTER 11: A section of the Federal Bankruptcy Code dealing with business reorganizations. A separate section referred to as Chapter 7 deals with business liquidations.

CLEAR-SPAN FACILITY: An interior area which does not use columns or posts to hold up the roof, thereby creating a large, open area with maximum visibility and use of the floor space – for example, a clear span parking structure construction utilizing vertical columns on the outside edges of the structure and a clear span between columns, making it unnecessary for vehicles to maneuver between columns.

COMMON AREA: The area owned in common by the owners of condominiums or planned unit development homes in a subdivision. Also, the total area within the shopping center that is not designed for rental to tenants but that is available for common use by all tenants or groups of tenants, their invitees, and adjacent stores. Parking and its appurtenances, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are typically included in the common area.

COMMON AREA MAINTENANCE (C.A.M.) CHARGES: Includes income collected from tenants for operating and maintaining items pertaining to common areas. Shopping center leases usually contain a clause requiring the tenant to pay its share of operation and maintenance for common areas. Such clauses typically define the basis on which charges are made and the type of cost items allocable to maintenance of the common area. The most common methods by which landlords prorate common area charges among tenants are (1) a prorated charge based on a tenant’s leased area as a portion of the total leasable area of the center or the linear exposure in store frontage, (2) a fixed charge for a stated period, and (3) a variable charge based on a percentage of sales. Some centers include a cost-of-living increase in the common area charges.

COMPARABLE: Recorded sales of properties similar in size, use, construction quality, age, and often located within the same sub market that are used as comparisons to determine the fair market value of another particular property.

CONCESSIONS: (1) A granting of a right by government or privately, usually for use of land or area in a building to carry on a business. (2) Cash expended by the landlord in the form of rent abatement, build-out allowance, or other payments to induce the tenant to sign a lease.

CONDEMNATION: The process by which private property is taken by a governmental agency for public use without the consent of the owner but only upon payment of just compensation.See also Eminent Domain.

CONSTRUCTION MANAGEMENT: An arrangement for building construction whereby the owner engages a contractor to oversee the work of all building trades, each of which enters a separate construction contract with the owner. By contrast, see General Contractor.

CONSUMER PRICE INDEX (CPI): A federal government index that measures the change in the cost of a variety of goods and services. Used in loans, purchase agreements, and leases as a measure by which to adjust future payments to reflect inflation. See also Cost-of-Living Index.

CONTIGUOUS SPACE: Adjoining office space.

CONTRACT DOCUMENTS: The design plans and specifications for construction of a facility. Working drawings that detail for the contractor the exact manner in which a project should be built. See also Specifications and Working Drawings.

CONTRACT RENT: Rent paid under a lease. The actual rent as opposed to the market rental value of the property.

CONVEYANCE: Most commonly refers to the transfer of title to land between parties. The term may also include most of the instruments by which an interest in real estate is created, mortgaged, or assigned.

CORE FACTOR: The percentage of common areas in a building (rest rooms, hallways) that, when added to the net usable square footage, equals the net rentable square footage. May be computed for a building or floor of a building. A Loss Factor or Load Factor is calculated by dividing the rentable square footage by the usable square footage. See also Design Efficiency.

COST APPROACH: A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction less depreciation, plus land value.

COVENANT: A private, legal restriction on the use of land recorded in the land records.

COVENANT OF QUIET ENJOYMENT: Usually inserted in leases or conveyances whereby landlord or grantor promises that the tenant or grantee shall enjoy possession of the premises in peace and quiet without disturbance.

CUMULATIVE DISCOUNT RATE: A discount factor applied to the rental rate that takes into effect all landlord lease concessions expressed as a percentage of base rent.

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D

DEDICATE: Transfer of property from private to public ownership.

DEED: Generally, a conveyancing instrument given by the seller to pass fee title to property upon sale. DEED IN LIEU OF FORECLOSURE: A deed given by an owner/borrower to a lender to prevent the lender from bringing foreclosure proceedings.

DEED OF TRUST: An instrument securing a loan that is used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed to the borrower upon payment in full.

DEFAULT: The omission or failure to perform a legal or contractual duty or to pay an obligation when due. Some specific examples are: (1) Failure to make a payment of principal or interest or other type of financial obligation when due. (2) The breach or failure to perform any of the terms of a note or the covenants of a mortgage or deed of trust.

DEFICIENCY JUDGMENT: Commonly, the amount for which the borrower is personally liable on a note and mortgage if the foreclosure sale does not bring enough to cover the amount owed. Actually, the judgment is for the total amount of the obligation and not for the deficiency. Any recoveries from a foreclosure sale are deducted from the judgment. May also apply to debt due after repossession of personal property subject to a security interest.

DELIVERED BUILDINGS: Buildings that have completed construction and are ready for tenant build-out. May or may not yet have a Certificate of Occupancy.

DEMISING WALLS: The boundaries that separate a tenant’s space from another tenant’s space and from a public corridor.

DENSITY: Number of dwelling units divided by the gross acreage being developed. For an urban project, this term is also used to refer to the Floor Area Ratio.

DESIGN/BUILD: A system in which a single entity is responsible for both the design and construction of a facility, often involving the fast-track method of construction; also referred to as Design/Construct.

DEPRECIATION: (1) Decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence. (2) A loss in value as an accounting procedure to use as a deduction for income tax purposes. (3) Spreading out the cost of a capital asset over its useful life.

DISTRAINT: The act of taking (legally or illegally) personal property and retaining control until the property owner performs an obligation. Commonly, a landlord takes possession of personal property of a tenant in default until the default is satisfied.

DISTRESS SALE: The sale of property under less than favorable conditions. Usually, the seller is experiencing financial difficulties and is under extreme pressure to sell.

DOUBLE NET LEASE (NN): A double net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes and the property insurance.  The landlord is responsible for all other operating expenses of the premises.

DUE DILIGENCE: The process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. Applying a consistent standard of inspection and investigation one can determine if the actual conditions do or do not reflect the information as represented.

 

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E

EARNEST MONEY: A sum of money paid by a buyer at the time of entering a contract to indicate the intention and ability of the buyer to carry out the contract. Normally such earnest money is applied against the purchase price.

EASEMENT: A right to use the property of another created by grant, reservation, agreement, prescription, or necessary implication. It is either for the benefit of land appurtenant, such as the right to cross A to get to B, or in gross, such as a public utility easement.

ECONOMIC FEASIBILITY: A project’s feasibility in terms of costs and revenue with excess revenue establishing the degree of feasibility.

ECONOMIC RENT: Calculations or analysis to determine market rental value of a property at any given time, even though the actual rent may be different.

EFFECTIVE RENT: The rental rate actually achieved by the landlord after deducting the value of tenant improvements and other concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.

EFFICIENCY FACTOR: The number resulting from dividing the Usable Area by the Gross Building Area in an office building, providing a benchmark measurement for the economic efficiency of that building’s use as an office building.

EMINENT DOMAIN: A right of the government to acquire private property for a public use by condemnation, in return for just compensation. See also Condemnation.

ENCROACHMENT: Generally, a structure that extends impermissibly over a property line, easement boundary, or building setback line.

ENCUMBRANCE:Any right to, or interest in, real property that may exist in one other than the owner but which will not prevent the transfer of fee title. A claim, lien, charge, or liability attached to and binding real property.

ENVIRONMENTAL IMPACT REPORT: A report generally prepared by an independent company in accord-ance with federal, state, and local laws detailing the probable environmental effect of a development on the surrounding area.

EQUITY: The value of one’s interest in a property, consisting of its fair market value less any outstanding debt or other encumbrances.

EQUITY KICKER: Also called a participation loan. Under this kind of loan the lender gets not only interest payments and principal repaid, but also the right to share in the net cash flow, profits, and/or sale proceeds of a building. Equity participation is generally required for riskier deals or in return for lower rates.

EQUITY LEASE: A type of joint venture arrangement in which an owner enters into a contract with a user who agrees to occupy a space and pay rent as a tenant, but at the same time, receives a share of the ownership benefits such as periodic cash flows, interest and cost recovery deductions, and perhaps a share of the sales proceeds.

EQUITY PARTICIPATION: The participation by a lender in the equity ownership of a project as one of the conditions for granting a loan. Used by financial institutions to partially offset the effects of inflation. Typically occurs when lending standards are tight or the risk is unusually high. See also Equity Kicker.

EQUITY OF REDEMPTION: Properly, the right to pay off the mortgage lien in default by payment of the principal, interest, and costs due. Not the same as the redemption period after a foreclosure sale, which is a right established by statute.

ESCALATION CLAUSE: A clause in a lease providing for increased rent at a future time. May be accomplished by several means such as (1) Fixed increase – A provision that calls for a definite, periodic rental increase; (2) Cost of living – A clause that ties the rent to a government cost of living index with periodic adjustments as the index changes; or (3) Direct expense – Rent adjustments based on changes in expenses paid by the landlord such as tax increases, increased maintenance costs, etc. Typically used in leases subject to price control regulation to allow the landlord to collect the maximum amount permitted by law.

ESCROW AGREEMENT: A written agreement usually made between a buyer, seller, and escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the objects deposited in escrow, and instructs the escrow agent concerning the disposition of the objects deposited.

ESTOPPEL CERTIFICATE: A statement concerning the status of an agreement and the performance of obligations under the agreement relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect, and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).

EXCLUSIVE LISTING: A written agreement between a real estate broker and a building owner in which the owner promises to pay a fee or commission to the broker if specified real property is sold or leased during a stated period. The broker may or may not be the cause of the sale or lease.

EXCHANGE (1031): Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the form of (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).

EXPENSE STOP: Provision in a lease establishing the maximum level of operating expense(s) to be paid by the landlord. Expenses beyond this level are to be reimbursed by the tenant. May be applied to specific expenses only (e.g. property taxes or insurance).

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F

FACE RENTAL RATE: The asking or nominal rental rate published by the landlord.

FAIR MARKET VALUE: A term usually found in appraisals that attempts to determine the cash price that would likely be negotiated between a willing seller and willing buyer in a reasonable amount of time. For a sale to be considered a reflection of Fair Market Value, it must meet all the conditions of a fair sale whereby: (1) both buyer and seller act prudently, knowledgeably, and under no necessity to buy or sell, e.g. other than in a forced or liquidation sale; (2) the property must be offered on the open market for a reasonable amount of time, taking into consideration the property type and local market; and (3) payment is made in cash or terms equivalent to cash. When a sale is unlikely, e.g. when it is unlikely to be completed within 12 months, the appraiser must discount all cash flows generated by the property to ascertain the estimate of Fair Value.

FEASIBILITY STUDY: An analysis of needs, costs of recommended improvements, and anticipated revenue and costs; establishes the basis for the construction of an individual improvement or a complete system.

FEE SIMPLE: An estate of real property that the owner has unrestricted powers to dispose of and which can be left by will or inherited. Commonly used as a synonym for ownership.

FINANCE CHARGE: The cost of credit as a dollar amount. It includes any charges payable by the borrower as a condition of the loan. The finance charge includes the total amount of interest, points, loan fees, and other credit charges paid for the term of the loan. Does not include amounts charged for insurance premiums, delinquency charges, attorney’s fees, court costs, collection expenses or official fees. Regulated by state and federal truth in lending statutes which require full disclosure of finance charges.

FIRST REFUSAL RIGHT: A clause occasionally inserted into a lease that gives a tenant the first opportunity to buy a property if the owner decides to sell. The owner must have a legitimate/ good faith offer which the tenant can match or refuse. Also known as Right of First Refusal.

FIXED COSTS: Costs, such as rent, which do not fluctuate in proportion to the level of sales or production.

FLEX SPACE: A one- or two-story building with high ceilings, load-bearing floors, and loading dock facilities, and little or no common areas. Usually configured to allow a small amount of office space in combination with light assembly or warehouse/distribution uses.

FLOOR/AREA RATIO (FAR): The ratio of the bulk area of a building to the land on which it is situated. Calculated by dividing the total square footage in the building by the square footage of land area. A term commonly used to indicate the allowable square footage of a building according to zoning requirements.

FLOODPLAIN: Land adjoining a river that would flood if the river overflowed its banks.

FORCE MAJEURE: A force that cannot be controlled or resisted. Something beyond the control of the parties involved. Includes acts of God (e.g. flood, tornadoes, etc.) and acts of man (e.g. riots, strikes, arson, terrorism, war, etc.).

FORECLOSURE: A proceeding, in or out of court, designed to extinguish all rights, title, and interest of the owner(s) of property in order to sell the property to satisfy a lien against it.

FULL RECOURSE: A borrowing with an unconditional guaranty. Should the borrower become delinquent under a full recourse loan, he or she must accept full responsibility for the loan.

FUTURE PROPOSED SPACE: Commercial space in proposed development projects that either have not started construction or set a construction start date. Future proposed projects include all those waiting for a lead tenant, financing, zoning, approvals, or any other event necessary to begin construction. Also may refer to the future phases of a multi-phase project that have not yet been built.

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G

GAP ANALYSIS: An evaluation of the difference in the demand and supply of space (measured in terms of square footage) for a particular type of commercial property in a given market area where gaps are expressed as the amount of square footage demanded less the amount of square footage available in a given time period. Note that if demand exceeds supply, the gap will be positive. A positive gap indicates that potential opportunities exist for successful commercial real estate transactions. However, transactions might be avoided when supply exceeds demand (or when a negative gap occurs), as there is an oversupply of available space in the market.

GENERAL CONTRACTOR: The party that contracts for the construction of an entire building or project rather than a portion of the work. The general contractor hires subcontractors, (e.g. plumbing contractors, electrical contractors, etc.), coordinates all work, and is responsible for payment to the subcontractors.

GENERAL PARTNER: A member of a partnership who has authority to bind the partnership. A general partner also shares in the profits and losses of the partnership. See also Limited Partnership.

GEOGRAPHIC SUB-MARKET: The total number of households or housing units within a given area as defined by tenure, income, and other socio-economic attributes that are known to exist or estimated to be within specific geographic units or divisions.

GRADUATED LEASE: A lease, generally long term in nature, with varied rental payments and usually based on periodic appraisal or simply the passage of time or other contingencies such as amount of traffic or gross income produced.

GRANT: To transfer an interest in real property such as the fee or a lesser interest (e.g. an easement).

GRANTEE: One to whom a grant of property or property rights is made; generally, the buyer.

GRANTOR: One who grants property or property rights; generally, the seller.

GROSS ABSORPTION: Absorption is a measure of the amount of office space leased over a period of time. Gross absorption is a measure of the total square feet leased over a period of time with no consideration for office space vacated in the same area during the same period. See also Net Absorption.

GROSS BUILDING AREA: The total floor area in an office building measured in square feet or square meters that is associated with that building’s use as an office building. The area extends to the outer surface of exterior walls and windows and includes office area, retail area, and other rentable areas such as vending machine space and storage area but excludes parking and roof space.

GROSS LEASABLE AREA (GLA): The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors, and it is measured from the center line of joint partitions and from outside wall faces. GLA is that area on which tenants pay rent; it is the area that produces income.

GROSS LEASE: A lease that provides that the landlord shall pay all expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.

GROUND LEASE: A lease covering the use of land only, with the lease sometimes secured by improvements installed by the tenant. Also called a land lease.

GROUND RENT: Rent paid for vacant unimproved property. If the property is improved, ground rent is that portion of the total earnings attributable to the land only.

GUARANTOR: One who makes a guaranty. Person who becomes secondarily liable for another’s debt or performance in contrast to a strict surety who is primarily liable with the principal debtor. See also Guaranty.

GUARANTY: Agreement whereby the guarantor agrees to pay the debt or perform the obligation of another who fails to do so. Differs from a surety agreement in that there must be a failure to pay or perform before the guaranty can be in effect. Generally, rent is paid for a long-term lease with lessor retaining title to land. It is commonly renewable. Office buildings, hotels, and similar large structures in cities are commonly built on land under such types of ground leases.

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H

HIGHEST AND BEST USE: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value over a given time. The four criteria the highest and best use must meet are: legal permissibility, physical possibility, financial feasibility, and maximum profitability.

HOLD OVER TENANT: A tenant who retains possession after the expiration of a lease.

HVAC: The acronym for Heating, Ventilating, and Air-Conditioning. Refers to the equipment used to heat and cool a building.

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I

IMPROVED VALUE: An appraisal term that encompasses the total value of land and improvements rather than the separate values of each.

IMPROVEMENTS: Generally, the term refers to buildings, but may include any permanent structure or other development, such as a street, utilities, etc. An addition made to property or an amelioration in its condition amounting to more than mere repairs or replacement, costing labor or capital, and intended to enhance value, beauty, or utility or to adapt it for new or further purposes.

INDIRECT COSTS: Development costs other than direct material or direct labor costs, including administrative and office expenses, title, legal, survey, financing costs, and property taxes.

INVENTORY: When referring to a market of office or industrial space, the total amount of rentable square feet of existing and delivered space in a given category; for example, prime office space. Inventory refers to all space within a certain proscribed market without regard to its availability or condition and can include both office and flex and warehouse space.

INVOLUNTARY CONVEYANCE: An involuntary transfer of real property without the consent of the owner, such as by a divorce decree, condemnation, etc.

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J

JUDGMENT: The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant.

JUDGMENT LIEN: A lien placed against the property of a judgment debtor. An involuntary lien.

JUST COMPENSATION: In a condemnation proceeding, the term refers to the amount paid by the government agency to the property owner. The theory is that in order to be just, the property owner should be no richer or poorer than before the taking.

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K

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L

LAND CONTRACT: An installment contract for the sale of land whereby the seller has legal title until paid in full. The buyer has equitable title during the contract term.

LANDLORD: The lessor or owner of the leased property.

LANDLORD’S LIEN: Several types of landlord’s liens are created by contract or by statute. Some examples are: 1) a contractual landlord’s lien; 2) statutory landlord’s lien; and 3) landlord’s remedy of distress (or right of distraint), which is not truly a lien but has a similar effect.

LANDLORD’S WARRANT: A warrant enabling a landlord to levy upon a tenant’s personal property (e.g. furniture, etc.) and to sell this property at a public sale to collect delinquent rent.

LAND, TENEMENTS AND HEREDITAMENTS: Originally used to describe freehold estates only. The terms have come to mean the most technical and all-inclusive description of real estate.

LEASE: An agreement whereby the owner of real property (e.g. landlord) gives the right of possession to another (e.g. tenant) for a specified period of time (e.g. term) and for a specified consideration (e.g. rent).

LEASE BUYOUT: The process by which a landlord, tenant, or third-party pays to extinguish the tenant’s remaining lease obligation and rights under its existing lease agreement.

LEASE COMMENCEMENT DATE: The date on which beneficial occupancy commences and the legal terms of the lease go into effect.

LEASEHOLD IMPROVEMENTS: Improvements made to leased premises by a tenant. The term is used in condemnation proceedings to determine the portion of the award to which the lessee is entitled. See also Tenant Improvements.

LEGAL DESCRIPTION: A method of geographically identifying a parcel of land that is acceptable in a court of law.

LEGAL OWNER: The term is used to distinguish the legal owner from the equitable owner and not as opposed to an illegal owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than to act as a lien.

LEGAL TITLE: Usually title without ownership rights, such as the title placed in a trustee under a deed of trust, or the title in a vendor under a land contract.

LESSEE: The person who rents or leases a property from another. Also known as a tenant.

LESSOR: The person who rents or leases a property to another. Also known as a landlord.

LETTER OF CREDIT: An engagement, pledge, or commitment by a bank or person, made at the request of a customer, stating that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit.

LETTER OF ATTORNMENT: A letter from a grantor to a tenant stating that a property has been sold and directing rent to be paid to the grantee (e.g. the new owner). See also Attorn.

LETTER OF INTENT: A formal method through which a prospective developer, buyer, or tenant expresses his/her interest in property. Depending on the language, a legal obligation may be created.

LIEN: An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.

LIENHOLDER: A mortgagee or other creditor who has a lien against the property of another.

LIEN WAIVER (WAIVER OF LIENS): Generally, a waiver of mechanic’s lien rights signed by a general contractor and his subcontractors.

LIKE-KIND PROPERTY: A tax term used in certain real property exchanges. Property must be exchanged for like-kind property and the tax consequences postponed pursuant to Section 1031 of the Internal Revenue Code. The term does not refer to the physical similarity of the properties but the purpose and intent of the taxpayer.

LIMITED PARTNERSHIP: A partnership created under state law which consists of one or more general partners who conduct the business and are responsible for any losses, and one or more special or limited partners who contribute capital and are liable only up to the amount contributed.

LISTING AGREEMENT: An agreement between a real estate broker and the property owner which authorizes the broker to assist in the sale or lease of that property in return for a fee, commission or other form of compensation. See also Exclusive Listing Agreement.

LONG TERM LEASE: A lease whose term exceeds ten years, or in some regions five years, from initial signing until the date of expiration or renewal option.

LOT: A parcel of land. A part of a series of parcels which make up a subdivision, the boundaries of which are created by and shown on a plat.

LUMP-SUM CONTRACT: A construction contract requiring the contractor to complete a building for a specified amount, usually established by competitive bidding. The contractor absorbs any loss or retains any profit.

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MARKET ANALYSIS: The process of examining market supply and demand conditions, demographic characteristics, and opportunities; identifying alternative locations/sites that meet specific objectives or satisfy various criteria; and assessing the financial feasibility of those locations/sites to facilitate decision making regarding the commercial potential or suitability of various locations/sites to support a given activity or use.

MARKET AREA: A geographical area in which supply and demand operate to influence the course of industrial and commercial activities, for example, a Metropolitan Statistical Area (MSA).

MARKET FEASIBILITY: Pertaining to the evaluation or selection of a site or an analysis of a site’s highest and best use. Also see feasibility analysis.

MARKET INDICATORS: Statistical measures of construction and real estate activity, including issued permits, indices of building costs, deeds recorded, and homes for sale.

MARKET PRICE: The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same. See also Market Value.

MARKET RENT: The rental income that a property would most probably command on the open market based on current rents paid for on the open market for comparable space. See also Economic Rent.

MARKET STUDY: A forecast of future demand for a type of project along with recommendations as to quantity to be sold or leased and prices to be charged. Also known as Marketability Study.

MARKETABLE TITLE: Title to real property that can be readily marketed (e.g. sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are equally motivated; (2) both parties are well informed or well advised and acting in what they consider their own best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in cash or in financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financial or sales concessions granted by anyone associated with the sale.

MASTER LEASE: A primary lease that controls subsequent leases and which may cover more property than subsequent leases.

MASTER PLAN: (1) A zoning plan for an entire governmental subdivision (e.g. a city). A comprehensive plan to allow a city to grow in an orderly manner, both economically and ecologically. (2) A developer’s plan for a multi-phase office park or mixed-use development that takes into account all proposed or projected uses, improvements, and amenities.

MECHANIC’S LIEN: A claim created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair or improvements to land and which attaches to the land as well as to the improvements.

METES AND BOUNDS: The boundary lines of land described in accordance with their terminal points and angles. Originally, metes referred to distance and bounds referred to direction. Today the words have no individual meaning of practical significance.

METROPOLITAN STATISTICAL AREA (MSA): Generally, the area in and around a major city. The Office of Management and Budget (OMB) defines an MSA as having one of the following characteristics: a city with a population of at least 50,000, or an urbanized area with a population of at least 50,000 with a total metropolitan population of 100,000.

MIXED-USE: Space within a building or project provided for more than one use (e.g. an apartment building with office space, a hotel with office space, or a retail establishment with apartments).

MORTGAGE: The instrument that evidences an interest in real estate and created to provide a pledge as security for the performance or repayment of a loan. The borrower (e.g. mortgager) retains possession and use of the property.

MORTGAGEE: The party that lends the money and receives the mortgage.

MORTGAGOR: The party that borrows the money and gives the mortgage on the property.

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NET ABSORPTION: Net absorption is a measure of the total square feet leased over a period of time taking into consideration office space vacated in the same area during the same period. See also Gross Absorption. Absorption is a measure of the amount of office space leased over a period of time.

NET LEASE: A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, including property taxes, insurance premiums, repairs, utilities, and maintenance. There are also net-net (double net) and net-net-net (triple net) leases, depending upon the degree to which the tenant is responsible for operating costs. See also Gross Lease.

NET RENTABLE AREA: Floor area of a building less any vertical penetrations of the floors. No deductions are made for necessary columns and projections of the building (BOMA Standard).

NON-COMPETE CLAUSE: This clause prevents the landlord from leasing any other premises on the development to a direct competitor of yours or another tenant operating the same type of business. It might be worth considering such a clause to protect your investment for the long term – especially if you are in the service industry and expect a lot of walk-in traffic.

NON-RECOURSE LOAN: A loan that does not allow for a deficiency judgment against a borrower in the event of default. The borrower cannot be held personally liable. The lender’s only available recourse in the event of default is the collateral or property. This is the type of loan you would need if you used your IRA to invest in real estate.

NONJUDICIAL FORECLOSURE SALE: A property sale by a trustee under a deed of trust, or a mortgage under a power of sale of a mortgage.

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OFFICE: Low-rise – Fewer than seven stories high above ground level. Mid-rise – Between seven and twenty-five stories above ground level. High-rise – Higher than twenty-five stories above ground level.

OFFICE PROPERTY: A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern. Properties Classed B and C in the same market typically command lower rents because they are older and in need of modernization. They may not be as efficient or desirable as Class A properties because their design or condition causes functional problems.

OPEN SPACE: The total area of land and/or water not improved by a building, structure, street, road, or parking area, or containing only such improvements as are complementary, necessary, or appropriate to the use and enjoyment of the open area.

OPERATING EXPENSES: The actual cost of operating income-producing property, including management, utilities, and similar day-to-day expenses, taxes, insurance, and reserves for the replacement of items that wear out.

OPERATING EXPENSE STOP: A negotiable amount at which the owner’s contribution to operating expenses stops. It also can be stated as the amount above which the tenant is responsible for its pro rata share of operating expenses.

OPERATING COST ESCALATION: Refers to the clause in a lease agreement used to adjust rents over the term of a lease to account for increased operating costs.

OVERSUPPLY: In reference to commercial real estate, oversupply is a stock or supply of a given commercial property type that is greater than that which can be cleared under prevailing prices levels and market conditions (for example, excess supply). Also, a phase of the real estate market cycle denoting that period of time in which commercial real estate markets become saturated with units due to overbuilding.

OWNERSHIP: Rights to the use, enjoyment, and alienation of property to the exclusion of others.

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PARKING INDEX / PARKING RATIO: Figure representing the number of parking spaces available per 1,000 square feet of gross building area (typically rentable).

PARTIAL TAKING: The taking of part of an owner’s property under the laws of eminent domain. Compensation must be based on damages or benefits to the remaining property as well as the portion taken.

PASS THROUGHS: (1) A method of escalation found in modern leases whereby the tenant directly pays increases in operating expenses of the property. (2) A method of paying interest directly to certificate holders of a mortgage pool. (3) Building and operating expenses that are paid by the tenant under the terms of a lease. PE: Professional Engineer

PERCENTAGE LEASE: A lease, generally on a retail business property, in which the rent is calculated as a percentage of gross or net sales. There is usually a minimum or base rent in the event of poor sales.

PERCENTAGE RENT: The additional rent (over a base amount) that is paid by tenants to owners on tenant sales over a specified dollar amount. It is frequently found in retail leases. Also known as overage rent.

PERFORMANCE BOND: A bond posted by a contractor guaranteeing the owner that the bonding company will complete construction if the contractor defaults.

PHANTOM SPACE: Generally refers to space that is under lease to a tenant but not presently occupied. Usually created when a tenant consolidates or reduces operations in space it leases prior to the end of its lease term. The vacant but leased space may or may not be formally marketed on a sublet basis or counted among a market’s vacancy.

PITI (PRINCIPAL, INTEREST, TAXES, AND INSURANCE): Acronym used to indicate what is typically included in a monthly mortgage payment on real property. Principal, interest, taxes and insurance are the four major portions of a typical monthly payment.

PLAT (PLAT MAP): A map dividing a parcel of land into lots, as in a subdivision.

POWER OF SALE: Clause in a mortgage or deed of trust giving the mortgagee or trustee the power to sell the property in the event of default.

PRECAST CONCRETE: Concrete building components fabricated at a plant site and shipped to the site of construction.

PRELEASE: A signed lease for space in an office building or other projects that has not yet received a Certificate of Occupancy.

PRIME SPACE: First generation (new) space that is currently available for lease but has never before been occupied by a tenant.

PRIME TENANT: The major tenant in a building, shopping center, etc.

PROFFER: (1) A development plan and/or written condition that, when offered by an owner and accepted by the county, becomes a legally binding part of the property in question. (2) To offer or tender, as in the production of a document and offer of the same in evidence.

PUNCH LIST: An itemized list noting incomplete or unsatisfactory construction. Usually prepared by the tenant architect after the contractor has notified the owner that the tenant space is substantially complete.

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QUITCLAIM DEED: A deed operating as a release and, as such, intended to pass to the grantee any title, interest, or claim that the grantor may have in the property but not containing any warranty of valid interest or title in the grantor.

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RAW LAND: Land in its natural state. Land that has not been subdivided into lots, does not have water, sewers, streets, utilities, or other improvements necessary before a structure can be constructed.

REAL ESTATE BROKER: State-licensed agents with expertise in the leasing process.  A good broker will not only help you find a space but also help you in all aspects of the lease transaction. Because most brokers receive a commission or fee from the landlord or seller they represent (via a representation agreement), it’s worth doing your research to find a good one.

REAL PROPERTY / REAL ESTATE: Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other items which would be personal property if not attached. May refer to rights in real property as well as the property itself.

RECAPTURE: That portion of the gain from the sale of real estate that is taxed at ordinary income tax rates. Calculated as the difference between the accelerated depreciation taken and the straight-line depreciation that would have been allowed.

RECOURSE: The right of a lender or holder of a note secured by a mortgage or deed to look to the personal assets of the borrower or endorser for payment, not just to the property.

REHAB / REHABILITATION: A building undergoing extensive renovation in order to cure obsolescence. Some rehab projects are so extensive that tenants may not be in the building during the work period. Synonymous with reconditioning, except when used in connection with urban renewal, at which time it encompasses all types of changes, including structural and even street changes.

RENEWAL OPTION: The right of a tenant to renew (e.g. extend the term of) a lease for a stated period of time and rent at an amount that can be determined.

RENT: Consideration paid for the occupancy and use of real property. A general term covering any consideration (not only money).

RENT COMMENCEMENT DATE: The date on which a tenant begins paying rent. Depending upon the nature of the marketplace, it may coincide with the lease commencement date or it may be several months after. It will never begin before the lease commencement date.

RENT CONCESSION: A period of free rent given to the tenant by the lessor.

RENT ESCALATORS: Items specified in a lease such as base rent, operating expenses, and taxes that may increase by predetermined amounts at stated intervals or by a constant annual percentage. Also, see index lease and expense stop.

RENTABLE SQUARE FEET / RENTABLE AREA: Usable square feet plus a percentage (the core factor) of the common areas on the floor, including hallways, bathrooms, and telephone closets (and sometimes main lobbies). Rentable square footage is the number of square feet on which a tenant’s rent is based.

RENTABLE/USABLE RATIO: The number resulting from dividing the Total Rentable Area in a building by the Usable Area. The inverse of this ratio describes the proportion of space that an occupant can expect to utilize.

RENTAL CONCESSION: See Abatement.

RENT-UP PERIOD: The period of time following construction of a new building when tenants are actively sought and the project is approaching stabilized occupancy.

REO (REAL ESTATE OWNED): All real estate directly owned by a lender, including real estate taken to satisfy a debt. Includes real estate acquired by lenders through foreclosure; or in settlement of any other obligation to the lender.

REPLACEMENT COST: The estimated cost to construct, at current prices, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout.

RIGHT OF FIRST REFUSAL: See First Refusal Right.

RUNNING WITH THE LAND: This term is generally synonymous with and usually used in reference to easements and covenants. It also means passing with the transfer of the land.

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SALE-LEASEBACK: A sale and subsequent lease from the buyer back to the seller. Often, a financing arrangement in which a property owner sells all or part of the property to an investor and then leases it back. Although the lease actually follows the sale, both are agreed to as part of the same transaction.

SECOND MORTGAGE: A mortgage that ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal priority determines the designation first, second, third, etc.

SECONDARY SPACE: Space that has been previously occupied and becomes available for lease. Includes both re-let and sublet space.

SECURITY DEPOSIT: Generally, a deposit of money by a tenant with a landlord to secure the performance of a lease.

SEISEN (SEIZEN): The term originally referred to the completion of feudal investiture by which a tenant was admitted into the field to render services to the lord or proprietor. Today it has come to mean possession under a legal right (usually a fee interest).

SETBACK: A distance from a curb, property line, or structure, within which building is prohibited. Setback requirements are normally provided for by ordinances or building codes. Provision in zoning ordinance regulating the distance from the lot line to the point where improvements may be constructed.

SETBACK ORDINANCE: Part of a zoning ordinance that regulates the distance from the lot line to the point where improvements may be constructed.

SINGLE NET LEASE:

A single net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes.  The landlord is responsible for all other operating expenses of the premises.

SITE ANALYSIS: The study of a specified parcel of land (and the surrounding area) to determine its suitability for a specific use.

SITE DEVELOPMENT: All improvements made to a site before a building may be constructed, such as grading, utility installation, etc.

SITE FACTORS: Site-specific factors, features, conditions, or attributes which are important in the analysis or evaluation of a location/site (including relative location, visibility, aesthetics, landscaping, condition of existing structures, regulatory mechanisms, and lot size).

SITE PLAN: A detailed plan, to scale, depicting development of a parcel of land and containing all information required by the zoning ordinance. See also Master Plan.

SITE SELECTION: The process of determining the best site for a specific use.

SLAB: (1) A concrete floor used as a foundation in homes without a basement. (2) Any concrete floor, even if an upper story.

SPACE PLAN: A graphic representation of a tenant’s office space requirements, showing wall and door locations, room sizes, and some furniture layouts. Also called the Preliminary Plan.

SPECIAL ASSESSMENT: Any special charge levied against real property for public improvements (e.g. sidewalks, sewers, streetlights, etc.) that directly benefit the assessed property.

SPECIFIC PERFORMANCE: A lawsuit in which the court compels one of the parties to perform or carry out the provisions of a contract into which he has entered. Typically used when money damages for breach would not be satisfactory.

SPECULATIVE SPACE: Any space that has not been leased to a tenant prior to commencing construction on a new building.

STEP-UP LEASE (GRADED LEASE): A lease calling for set increases in rent at set intervals.

STRAIGHT LEASE (FLAT LEASE): A lease calling for the same amount of rent to be paid periodically (usually monthly) for the entire term of the lease.

STRIP CENTER: Any shopping area, generally with common parking, comprised of a row of stores.

SUBCONTRACTOR: One who works under a general contractor; often a specialist, such as an electrical contractor, cement contractor, etc.

SUBDIVISION PLAT / SUBDIVISION MAP: A detailed drawing, to scale, depicting division of a parcel of land into two or more lots and containing engineering considerations and other information required. A map is typically submitted by a subdivider to the proper governmental body for approval in order to establish a subdivision. When the map is approved and recorded, it becomes the basis for the legal description of the subdivision.

SUBLEASE: A lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property.

SUB-MARKET: A segment or portion of a larger geographic market defined and identified on the basis of one or more attributes that distinguish it from other sub-markets or locations.

SUBORDINATION AGREEMENT: An agreement by which the priority of a mortgage lender is relinquished in favor of that of a lender who would otherwise be junior in status.

SURETY: One who voluntarily binds himself to be obligated for the debt or obligation of another. A common example is the co-maker of a note. Surety differs from guarantor or insurance carrier, although the terms are commonly (and mistakenly) used interchangeably.

SURFACE RIGHTS: The rights (e.g. easements) to use the surface of land, including the right to drill or mine through the surface when subsurface rights are involved.

SURVEY: The measurement of the boundaries of a parcel of land, its area, and sometimes its topography.

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TAKING: A common synonym for Condemnation or Eminent Domain.

TAX BASE: Assessed valuation of real property, which is multiplied by the tax rate to determine the amount of tax due.

TAX LIEN: (1) A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. (2) A federal income tax lien. May attach to all property of the person owing the taxes.

TAX ROLL: A list containing the descriptions of all parcels in the county, the names of the owners (or those receiving the tax bill), assessed values and tax amounts.

TENANT: (1) A holder of property under a lease or other rental agreement. (2) Originally, one who had the right to possession, irrespective of the title interest.

TENANT AT WILL: One who holds possession of premises by permission of the owner or landlord but without agreement for a fixed term of possession.

TENANT IMPROVEMENTS: Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling and may be paid for by the landlord, the tenant, or shared. See also Leasehold Improvements.

TENANT IMPROVEMENTS ALLOWANCE: A specified amount of money the owner will pay for tenant improvement.

TENANT PAID IMPROVEMENTS (TPTI): The total cost (outlay) of necessary tenant improvements paid by the tenant netted against any allowance provided by the landlord.

TIME IS OF THE ESSENCE: Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.

TITLE: The means whereby one has just and full possession of real property.

TITLE INSURANCE: Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (e.g. chain of title) or to encumbrances.

TITLE SEARCH: A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

TOTAL EFFECTIVE RATE: The rate per square foot paid by the tenant over the entire period analyzed.

TOTAL EFFECTIVE RENT: The total dollar amount (cash flow) that the tenant actually will pay out over the entire period analyzed.

TOTAL INVENTORY: In reference to commercial real estate, it is existing and currently available supply or stock as represented by the total number of units or total amount of space available of a specific commercial property type in a given market at a particular point in time.

TRADE FIXTURES: Personal property used in a business and attached the property, but removable upon sale because it is deemed to be part of the business, not of the real estate.

TRIPLE NET (NNN) LEASE: Rent stipulated in a lease in which the tenant agrees to pay a share of the landlord’s operating expenses including but not limited to insurance, maintenance, common operating expenses, and real estate taxes for the building proportionate to the amount of space it occupies.

TURN KEY PROJECT: A project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant.

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UNDER CONSTRUCTION: Planned buildings for which construction has started but have not yet been granted a Certificate of Occupancy. Planned buildings are not included.

UNDER CONTRACT: A property for which a purchase offer has been accepted by the seller is said to be under contract. Generally, the prospective buyer is given a certain period of time in which to perform feasibility studies and finalize financing arrangements. During the time, the seller cannot entertain offers from other buyers unless the purchase contract is allowed to expire without going to closing.

UNENCUMBERED: Describes title to property that is free of liens and any other encumbrances. Free and clear.

UNIMPROVED LAND: Most commonly refers to land without buildings; it can also mean land in its natural state. See also Raw Land.

USE: Specific purpose for which a parcel of land or a building, or a portion thereof, is designed, arranged, intended, occupied or maintained.

USABLE SQUARE FOOTAGE: This is the square footage rented and used exclusively by the tenant. It includes footage for private rest rooms, storage, and any other areas used only by the tenant.

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VACANCY : The number of units or space (of a specific commercial type) that are vacant and available for occupancy at a particular point in time within a given market (usually expressed as a vacancy rate).

VACANCY FACTOR: The amount of gross revenue lost because of vacant space; an allowance item on pro forma income statements usually calculated as a percentage of gross revenue.

VACANCY RATE: A measurement expressed as a percentage of the total amount of available space compared to the total inventory of space. Computed by multiplying vacant space times 100 and divided by total inventory. May be based on past records of the property or a professional guess if a new project. Surrounding area buildings, if similar, may be used for comparison.

VACANT SPACE: Existing space which is currently being marketed for sale or lease, excluding sublet space.

VARIANCE: A permit that grants a property owner relief from certain provisions of a zoning ordinance when, because of the particular physical surroundings, shape, or topographical condition of the property, compliance would result in a particular hardship or practical difficulty which would deprive the owner of the reasonable use of the land or building involved.

VENDEE: Purchaser or buyer, generally used in real property context.

VENDOR: The person who transfers property by sale. A synonym for seller. Commonly used in land contract sales.

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WARRANTY: A legal binding promise made at the time of a sale whereby the seller gives the buyer certain assurances as to the condition of the property being sold.

WEAR AND TEAR: The deterioration or loss in value caused by the tenant’s normal and reasonable use of the property. In many leases the tenant is not responsible for normal wear and tear.

WEIGHTED AVERAGE RENTAL RATES: Rental rates averaged to the amount of space available in each building per market area.

WORKLETTER: The standard building items that the landlord contributes as part of the tenant improvements, as traditionally listed in an addendum or workletter attached to the lease. Examples of standard building items are: doors, partitions, lights, floor covering, telephone outlets, etc. The Workletter may specify the quantity and quality of the materials to be used and often carries a dollar value.

WORKING DRAWINGS: 
The set of plans for a project that, in combination with a set of specifications, comprise the contract documents indicating the exact manner in which a project should be built. See also Contract Documents.

WORKOUT: The process by which a borrower attempts to negotiate with a lender to restructure the borrower’s non-performing and overdue debt rather than go through foreclosure proceedings.

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ZONING: A method of regulating the use of real estate by dividing a city or other area into zones and designating which uses may be permitted for land in each zone.

ZONING ORDINANCE: The set of laws and regulations, generally at the city or county level, that control the use of land and construction of improvements in a given area or zone.

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