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Commercial Real Estate Glossary

Sometimes, understanding is only a good definition away.

Common (and not so common) CRE terms.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Abatement

Free rent or a right to early occupancy that may occur outside (or in addition to) the lease term.

Above building standard

A higher grade of finishes or design needed to meet a tenant’s requirements.

Architectural drawing

A general term referring to the drawings and renderings used to plan a space and bid and manage the construction of necessary tenant improvements.

As-Built Plan

A floorplan or rendering showing how a space is currently configured or “built out.” The As-Built is the starting point for any tenant considering occupying a given space.

As is

The space is taken as it currently exists, including any physical defects (e.g., no tenant improvements are made).

Attorn

To agree to recognize a new owner of a property and to pay rent to them.

B

Base lease

A lease stating the minimum requirements applicable to all tenants of a property.

Base rent

The minimum rent in a lease with provisions generally made for increasing the rental rate over the term of the lease.

Base year

The year of a lease used as a baseline standard for implementing increases and decreases in rent.

Building core

The central part of a building that services the needs of all tenants. Often includes shared restrooms, elevators, utility rooms, stairwells, etc.

Building standard

The construction materials and finishes that establish the landlord’s quality standards regarding tenant improvements within the building. Examples include the type, style and quality of doors, lighting, wall coverings, floor coverings, etc.

Build-to-suit

A landlord builds a space to the tenant’s specification and the tenant takes possession when the space is completed.

C

Cancellation clause

A provision in a lease that gives one or both parties the right to terminate the lease upon the occurrence of the condition agreed upon.

Certificate of insurance

A certificate issued by an insurance company verifying that an insurance policy is in effect as stated.

Certificate of occupancy

A document from a government agency certifying that a building and/or tenant’s space has been inspected and is in a condition suitable for its intended use.

Change order

An order (authorized by the property owner, architect or engineer) documenting a change to the specifications, pricing or timing previously agreed to in a building contract.

Chattel

Personal property.

Circulation factor

The amount of space needed to have access to workspaces, not accounted for in net square footage. Net square footage x circulation factor = usable square footage.

Commencement date

The date on which a lease agreement between a tenant and landlord begins. Depending on what is agreed to by the tenant and landlord, the commencement date may or may not be the actual date the tenant occupies the space.

Common areas

Areas of a building that are available for use by all tenants and their visitors and not under the control of any one tenant (e.g., shared restrooms, elevator lobbies, parking lots, sidewalks).

Common Area Maintenance (CAM)

The additional rent (on top of base rent) charged to a tenant for maintenance of common areas shared by all tenants of a property. Typically includes snow removal, parking lot sweeping, insurance, property taxes, etc.

Concessions

Cash or cash equivalents offered by a landlord to help persuade a tenant to sign a lease. Some examples include richer tenant improvement allowances, moving expenses and months of “free rent.”

Construction allowance

A fixed amount of money that is contributed by the landlord to fund the completion of tenant improvements, often a key component of the lease negotiation process. See also Tenant improvement (TI) allowance.

Constructive eviction

Any obstruction or disturbance by the landlord that makes it impossible for the tenant to occupy or use a leased space for its intended purpose. When this happens, the tenant is no longer legally obligated to pay the rent stipulated in the lease.

Construction management

The process of overseeing a construction project to ensure that it is completed on time, on budget and to the quality standards specified by the person(s) who commissioned the work. Encompasses everything from requesting the necessary work permits at the beginning of a project to the final walk-through with the tenant and/or landlord after the work is completed.

Contiguous space

Spaces or suites within a building that can be combined and rented by a single tenant. Can be adjoining spaces on the same floor of a building or adjoining floors within the building.

Contract documents or construction documents (CDs)

In the context of leasing, these are the final drawings and detailed specifications that define the construction work that will be performed to prepare a space for occupancy by a tenant. Any requests to that modify or conflict with the CDs typically require a written acknowledgement such as a change order. See also work letter.

Contraction right

A lease clause that gives a tenant the right to reduce the amount of space to which they are contractually obligated, before the expiration of the lease term. Advance written notice is generally required of the tenant, the timing may be restricted (e.g., not before 3 years into a 5-year lease) and there could be a financial penalty to the tenant for exercising such a right.

Contractor

An individual or firm hired to provide construction services. May be a general contractor, who is responsible for managing the project according to the construction documents, or a subcontractor, who performs a specific task (e.g., electrical, plumbing, painting) as directed by the general contractor.

Core factor

Also sometimes known as a rentable/usable (R/U) factor, building factor or efficiency factor, the core factor is the percentage of rentable square feet within a building that is set aside for common areas such as restrooms, hallways, elevator lobbies, etc., that are shared by all tenants. This factor is multiplied by the quantity of usable space rented by a tenant as a way of apportioning the cost and maintenance of these common areas across all building tenants.

D

Death & disability clause

A lease clause that releases a tenant from their obligations in the event of the death or disability of the owner/principal of the tenant company. Most commonly sought by small business owners and sole proprietors.

Default

A failure to perform a legal or contractual duty. For example, failing to pay rent when due or not living up to other terms outlined in a lease agreement.

Demised premises

The area or part of a piece of real estate that has been designated for use by a tenant according to a lease agreement.

Demising walls

The walls that separate tenant spaces from each other and/or from common areas of the building.

Distraint

When a landlord seizes the personal property of a tenant who is in default on a lease.

Dollar stop

A set dollar amount (i.e., limit) that is agreed to by the landlord and tenant over which the tenant will pay a prorated share of increases. Often applies to expenses like property taxes and insurance. Also known as “expense stop.”

E

Effective rent

The actual rental rate a landlord will receive after concessions (e.g., free rent) are deducted from the base rent that will be paid by the tenant. It is most often stated as an average rental rate over the term of the lease.

Efficiency factor

Also known as a rentable/usable (R/U) factor or core factor, the efficiency factor is the percentage of rentable square feet within a building that is set aside for common areas such as restrooms, hallways, elevator lobbies, etc., that are shared by all tenants. This factor is multiplied by the quantity of space rented by a tenant as a way of apportioning the cost and maintenance of these common areas across all building tenants.

Escalation clause

A lease clause that calls for the tenant’s rental rate to increase over time to reflect increased expenses borne by the landlord (e.g., property taxes, operating costs). Often seen in the form of pre-determined periodic rent increases or adjustments that are made relative to a dollar stop figure or a base year.

Estoppel certificate

A clause in a lease certifying that specific facts are true as of the date the lease is signed. For example, a tenant may certify that the lease is in effect and no rent has been prepaid.

Eviction

The forced removal of a tenant from a leased space by legal means.

Expansion right

A lease clause that gives the tenant an opportunity to lease additional space (typically adjacent or on the same floor) before the owner can offer that space to other tenants.

Expense stop

A set dollar amount (i.e., limit) that is agreed to by the landlord and tenant over which the tenant will pay a prorated share of increases. Often applies to property taxes and insurance. Also known as “dollar stop.”

F

Fixture

Personal property attached to real property in such a way that it it becomes part of the real property. To remove a fixture, a tenant may need specific permission in the lease or by separate agreement with the landlord.

Flex space

A building designed and built in such a way to provide tenants with flexibility in how the space is utilized. For example, a flexible combination of office, showroom and warehouse space in one property.

Force majeure

Events outside the control of parties to a lease contract (such as flood, hurricane, fire or war) that may delay or or make impossible the fulfillment of their respective legal obligations under the contract.

G

Graduated lease

A lease that calls for specific increases or decreases in rent at predefined times during the lease term.

Gross lease

A lease that requires the tenant to pay a flat rental rate out of which the landlord agrees to pay all expenses (e.g., insurance, taxes, maintenance, insurance).

Gross rent

The total rent paid by a tenant including their base rent plus all forms of additional rent such as their proportionate share of taxes, insurance, common area maintenance, etc.

H

Hold-over tenant

A tenant maintaining possession of the leased space beyond the expiration date of the lease.

HVAC

Short for “heating, ventilating and air conditioning.”

I

Insured

The persons or entities who will receive the proceeds of an insurance policy in the event of insurable loss.

J

K

L

Landlord’s lien or warrant

A legal right of a landlord to sell a tenant’s personal property at a public sale if/when that tenant is unable to pay rent or fulfill some other obligation of the lease contract.

Lease

A legal agreement under which the owner of a piece of real property (the  landlord or lessor) gives a tenant the right to possess the property for a specified period of time and for a specified rental rate. The lease document reflects the terms negotiated by the lessor and lessee and establishes their legal rights and obligations under the agreement.

Lessee

The tenant in a lease agreement.

Lessor

The landlord in a lease agreement.

Letter of Credit (LOC)

A guarantee from a bank or other entity on behalf of a tenant that assures the landlord that they will be paid or made whole according to the terms of the letter of credit. Sometimes used in place of a cash security deposit on a lease.

Letter of Intent (LOI)

An agreement between a landlord and tenant that binds both parties to continue negotiating in good faith toward the ultimate goal of a lease agreement. An LOI effectively takes a space “off the market” while the negotiations occur. However, an LOI is non-binding in the event satisfactory lease terms cannot be agreed upon. Also known as an Offer to Lease.

Lien Waiver (Waiver of Liens)

A waiver that must be signed by a general contractor and his subcontractors before the general contractor can draw upon the funds agreed to under a construction contract. May also be required of a property owner before they may draw upon funds of a construction loan.

M

Market rent

The rental rates that landlords were willing to accept and tenants were willing to pay in recent transactions for comparable types of space.

Master lease

A lease that controls all subsequent leases. For example, if a tenant chooses to sublease some or all of their space, the secondary lease will be subordinate to the provisions of the master lease.

Month-to-month tenancy

A lease with no pre-defined expiration that may be terminated by either the landlord or tenant at the end of a month (subject to any prior notice requirements). Can be either a written or oral agreement.

N

Net lease

A lease in which the tenant agrees to pay some portion of the operating costs associated with property such as taxes, insurance, utilities, repairs and maintenance. The difference between net, double net (NN) and triple net (NNN) leases revolves around the degree to which the tenant is responsible for these additional operating costs.

Non-compete clause

A lease clause that ensures a tenant that no other tenant of the same or similar type of business will be allowed to occupy the building over the term of the lease.

Normal wear and tear

The deterioration of a property that would be expected through reasonable use by a tenant. Chips, scratches and minor dings in walls and doors may be considered normal wear and tear while broken windows or severely damaged fixtures would likely not.

O

Operating expenses

The costs required to operate a building including taxes, insurance, repairs, maintenance and property management. Most commonly added to the tenant’s net rent as “Tax and CAM” or “Tax and Ops,” the combination of which is the gross rent actually paid by the tenant to occupy the space.

Operating expense escalation

Any method by which the tenant’s rental rate is adjusted over time to offset the landlord’s increasing cost of owning and maintaining the property.

P

Parking ratio

A measure of the amount of parking space available at a property relative to the rentable space of the property. Commonly stated as a number of parking spaces per 1000 square feet of rentable space or, conversely, one parking space per XXXX square feet of rentable space.

Pass-through

Refers to any expenses over and above the base rental rate that are “passed through” from the landlord to the tenant who must pay them. Commonly used in reference to operating expenses like taxes, insurance, repairs and maintenance.

Percentage lease

A lease agreement under which the tenant pays the landlord a percentage of their business income, over and above a fixed minimum rental rate. Most common with retail tenants.

Prime tenant

A tenant who occupies a dominant portion of the space within a given property.

Programming

A space planning process by which the functional needs of a tenant, both current and future, are carefully documented and used to derive a detailed space plan that will determine the physical flow and layout of the space and the corresponding tenant improvements that will be necessary.

Public corridor

A space or hallway that provides access to different tenant’s spaces from the core of the building.

Punch list

A detailed list of incomplete or unsatisfactory items that must be addressed by a construction contractor before the work will be accepted by the tenant or landlord who contracted the work.

Q

Quiet enjoyment

Also referred to as a Warranty of Possession. It is the landlord’s warranty to the tenant that they have the legal right to lease the space to the tenant and that the tenant can expect to occupy the space without fear of eviction by some other party.

R

Recapture

A lease clause that allows the landlord to retake possession of a space, usually by cancellation of the lease in response to the tenant’s inability to meet certain conditions of the lease. For example, a retail tenant’s inability to deliver an agreed upon percentage of profits from the operation of their business.

Recording

The act of entering a record of real estate documents with the applicable government office, such as a county recorder’s office.

Renewal option

A lease clause that gives the tenant the right to extend the term of their lease, usually for an agreed upon length of time and at an agreed upon rental rate.

Rent commencement date

The date on which a tenant begins paying rent, which may or may not coincide with the lease commencement date. In situations where months of “free rent” have been offered to the tenant as a concession, the rent commencement date may be later than the lease commencement date.

Rentable square footage

A term that describes the total volume of space for which the tenant will pay rent. In addition to the usable square footage they actually occupy, tenants are usually required to pay for a pro rata share of common area spaces (restrooms, hallways, elevator lobbies, etc.) that are shared by all tenants. Multiplying the tenant’s usable square feet by the core factor (sometimes called an R/U factor, building factor or efficiency factor) results in the rentable square footage figure.

Rental concession

Any type of incentive or inducement offered by a landlord to encourage a tenant to sign a lease. Common examples include months of free rent, larger tenant improvement allowances and moving allowances.

Right of first refusal

A lease clause that gives a tenant an opportunity to lease additional space before the owner can accept a valid offer for that space from a different tenant. If the tenant declines to exercise their right, the owner is free to enter a lease agreement with the other tenant.

Rules and regulations

Building standards that must be met by tenants as a condition of the lease. Typical examples include the style and placement of signage, use of common areas, noise and odor disruptions, hours of access, etc.

S

Security deposit

A payment required by the landlord and set aside to compensate them should the tenant damage the property or violate the terms of their lease. Most commonly paid up front at the signing of the lease and is often stated as a certain number of months’ rent.

Space Plan

A floorplan or rendering that reflects a tenant’s space requirements including wall placement, doorways and (very often) furniture placement. A Space Plan is required to determine how well a tenant “fits” the space. It drives the creation of the Final Plan and construction documents that will be used to bid and manage the “build out” of any tenant improvements.

Step-Up Lease (Graded Lease)

A lease specifying set increases in rent at set intervals during the term of the lease.

Straight Lease (Flat Lease)

A lease specifying the same, fixed amount of rent that is to be paid periodically during the entire term of the lease. This is typically paid out in monthly installments.

Sublease

When a tenant leases a portion of their space to a third party for all or a part of their lease term. Often called an “assignment” if the entire space is subleased for the remainder of the lease term.

Subordination agreement

In the context of a lease, the tenant agrees that their rights and interests in the space are “subordinate” to restrictions resulting from a mortgage or lien held against the property.

T

Tenant at sufferance

When a tenant remains in possession of a space, beyond the expiration of the lease term but before the landlord has demanded that they vacate the property. During this period, the tenant is still bound by the terms of the lease, including the payment of rent.

Tenant

The lessee; a person or entity that rents real estate from another according to the terms of a lease.

Tenant at will

See tenant at sufferance; the primary difference being that the tenant continues to occupy the space under an agreement with the landlord.

Tenant improvements (TI)

Any construction or improvements necessary to create a space that meets the needs of the tenant who intends to occupy it. The improvements may be made by or for the tenant, depending on the terms of the lease agreement.

Tenant improvement (TI) allowance

A fixed amount of money that is contributed by the landlord to fund the completion of tenant improvements, often a key component of the lease negotiation process.

Termination right

A lease clause that gives a tenant the right to terminate the lease before the expiration of the full lease term. Advance written notice is generally required of the tenant, the timing is typically pre-determined (e.g., not before a certain date in the lease term) and there may be a financial penalty to the tenant for exercising such a right.

Trade fixtures

Items of personal property installed by the tenant in accordance with the terms of a lease and that may be removed by the tenant upon lease expiration. Not considered a true fixture that remains after the tenant vacates.

Triple net (NNN) lease

A lease in which the tenant also pays a share of the costs incurred by the landlord such as property taxes, repairs, maintenance, utilities and insurance. May also be stated as “N” (net) and “NN” (double net), depending on the degree to which the tenant is responsible for operating costs.

Turnkey project

When the landlord takes responsibility (through a general contractor) for preparing the space to the exact specifications of the tenant prior to their move in, thus relieving the tenant from having to manage construction of their own tenant improvements. The name comes from the idea that the tenant can simply “turn the key” in the door lock and start working.

U

Usable square footage

The area contained within the “demising walls” that define the space leased by a tenant. Calculated by multiplying the net square footage by a circulation factor.

V

Vacant space

Space being marketed for lease by tenants, excluding space that may be available for sublease.

W

Warranty of Possession

Often referred to as a Covenant of Quiet Enjoyment, it is the landlord’s warranty to the tenant that they have the legal right to lease the space to the tenant and that the tenant can expect to occupy the space without fear of eviction by some other party.

Working drawings

The final detailed drawings that will instruct the various contractors who are “building out” the tenant improvements defined by the work letter.

Work letter

A highly detailed description of all the “work” that will be done by the contractor to construct the necessary tenant improvements and prepare the space for the tenant’s occupancy. Typically includes details like the style and quality of floorcoverings and wallcoverings, style and type of doors, number of electrical outlets, etc.

X

Y

Z

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