Commercial Property Management Glossary Terms

Abatement: In leasing terms, abatement is often used to describe free rent or early occupancy.

Anchor Tenant: The largest store in a shopping center, which typically draws consumers into all surrounding stores within the shopping center.

“As-Is” Condition: Whatever condition presently exists, the tenant is accepting the building and the lease terms in this condition, including any physical defects.

Assignment: A transfer of the original lease terms by the original tenant (assignor) of his rights to a sub-tenant (assignee) to use the leased property. Assignor continues to hold all liability under original lease terms unless otherwise agreed upon with landlord.

Attorn: The acknowledgement of a new landlord by the tenants. Tenant agrees to pay new landlord rent.

Base Rent: The initial rent amount in a commercial lease, typically the minimum due each month, which may change over the term of the lease depending on the lease terms.

Building Classifications: Building classifications most often describe an office building’s quality. Class A buildings are newer and most desirable. They are the top of the class, these buildings stand out. Class B are older than Class A, but still very well maintained. They cannot demand as high of rent as Class A, but are still desirable. Class C buildings are typically located in less desirable areas, are older in age, but still tend to generate decent rental rates. Class D buildings are least desirable, demand the lowest rental rates and tenants typically pay more for maintenance on the building.

Build-out: Defines the work to be done, per the tenant’s direction, to make a building ready for tenant’s use.

Build-To-Suit: In terms of new construction, the landlord allows tenant to design and construct the space to tenant’s specifications.

Carrying Charges: Costs associated with property ownership, such as taxes, insurance, and maintenance expenses, which are absorbed by the landlord during vacancies.

Common Area: Areas within a building or on a property that are available for common use by all tenants, such as lobbies, corridors, restrooms, kitchens, patio areas, parking lots, etc.

Common Area Expenses (CAE’s): Additional rent charged to the tenant(s), in addition to the Base Rent, to maintain the common areas of the building and/or property shared by the tenants and from which all tenants benefit. Examples include: utilities, landscape maintenance, janitorial services, snow removal, parking lot maintenance, insurance, property taxes, etc.

Comparables: Similar properties to the subject property in questions. Similarities typically include lease rental rates, square footage, construction quality, age, use, and location. Comparable properties are used to determine the fair market lease rate for the subject property.

Consumer Price Index (“CPI”): In leasing terms, the CPI Cost of Living is most commonly used index to adjust base rent. The CPI is produced monthly by the Bureau of Labor Statistics, which measures the average change over time. Typically, rent increases reflect a CPI from the year before.

Contiguous Space: Multiple spaces in the same building and on the same floor which can be combined and rented to a single tenant.

Distraint: Seizing someone’s personal property (in leasing terms this would commonly be the tenant’s personal property) in order to obtain payment of rent money owed to landlord.

Escalation Clause: In terms of a lease, a clause which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc.

Estoppel Certificate: An executed document by the tenant and landlord that details certain statements of facts are correct such as lease terms, rental rate, etc. Third parties such as lenders or purchasers typically use the estoppel.

Face Rental Rate: The “asking” rental rate advertised by the landlord.

First Refusal Right or Right Of First Refusal: A lease clause allowing the tenant the first opportunity to purchase the leased property at the same terms and conditions that the landlord would sell in the open market.

Full Service Rent: A full service lease typically includes all expenses or building operating costs in the rent such as property taxes, insurance, utilities, maintenance, etc. The tenant is usually still responsible for any increase in these expenses over time.

Graduated Lease: A long-term commercial lease in which the rent fluctuates depending on certain contingencies, such as future appraisals, the CPI, or the tenant’s gross income.

Gross Building Area: The total floor area of a building, which measures from the outer walls.

Gross Lease: A commercial lease where landlord pays for property taxes, insurance and maintenance. A gross lease can be modified to include some payments to tenant including utilities.

Holdover Tenant: A tenant remaining in possession of the leased property after the expiration of a lease. If the landlord continues to accept rent payments after the expiration of the lease, the holdover tenant continues to legally occupy the property and the lease typically rolls in to a month-to-month contract with the original lease terms still in effect.

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

Lease: A contract whereby the owner of real property (landlord/lessor) gives the right of possession to another (tenant/lessee) for a specified period of time or term and for a specified consideration, typically rent.

Lease Agreement: The legally binding document between a Landlord and a Tenant in which there is mutual agreement to the terms of the lease.

Leasehold Improvements: Improvements made to the leased premises, which are typically part of the negotiations between the landlord and tenant. The landlord or tenant or both can perform these improvements, whatever is mutually agreed upon.

Letter Of Intent: A letter stating the proposed terms for a lease agreement. This letter can be binding or non-binding.

Long Term Lease: Typically, a lease whose term is at least three years.

Market Rent: The rental rate that a property would demand in the open market with a landlord and a tenant ready and willing to enter into a lease agreement with no outside influences in effect (aka arms length transaction).

Mixed-Use: Space(s) within a building that have more than one type of commercial us. An good example is a commercial store front in a downtown area with apartments above.

Net Lease: A lease in the tenant pays for certain costs operating expenses associated with the property. These costs may include property taxes, insurance, repairs, utilities, and maintenance. There are also Double Net Triple Net leases. The difference between the three is the degree to which the tenant is responsible for operating expenses.

Non-Compete Clause: A clause in a commercial lease specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in the building.

Operating Expenses: The actual costs/expenses associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance.

Pass Throughs: Tennat’s share of operating expenses, which are paid in addition to the base rent.

Percentage Lease: A commercial lease in which the landlord is paid a percentage of the tenant’s gross sales as a component of rent.

Preleased: A space that has been leased before the completion of construction or remodel.

Renewal Option: A clause allowing the tenant to extend the lease upon expiriation.

Rent: Compensation or fee paid for the occupancy and use of any rental property.

Rental Concession: Concessions a landlord may offer to a tenant in order to secure their tenancy. Some examples include rental abatement, lower than market rent for a period of time, and moving allowances.

Security Deposit: A deposit of money by a tenant to secure performance of a lease. Most states have a maximum amount allowed by law.

Step-Up Lease (Graded Lease): A commercial lease stating increases in rent at certain intervals during the term of the lease.

Straight Lease (Flat Lease): A commercial lease stating a fixed amount of rent to be paid periodically during the entire term of the lease

Strip Center: Any shopping area, generally with common parking, comprised of a row of connected stores.

Tenant (Lessee): The party who rents real estate from a landlord and holds an estate by virtue of a lease.

Tenant Improvements: Improvements made to the leased premises by a tenant and with permission of the landlord.

Vacancy Rate: The total amount of vacant space compared to the total space. This is calculated by multiplying the vacant space times 100 and then dividing it by the total.

Vacant Space: Refers to existing tenant space currently being advertised for lease.