50 Commercial Real Estate Definitions You Should Know

1. Appraisal
A written report by a state-licensed professional that includes an unbiased analysis of the property's value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
2. Assignee
Individual to whom a contract is assigned.
3. Assignor
An individual who transfers a contract to another individual.
4. Broker
An agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.
5. Build Out
The construction or improvements of the interior of a space, including flooring,walls, finished plumbing, electrical work, etc.
6. Build-to-suit
A method of leasing property in which the landlord makes improvements to a space based on the tenant's specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
7. Cancellation Clause
A provision in a contract (e.g., lease) that confers the ability of one in the lease to terminate the party's obligations. The grounds and ability to cancel are usually specified in the lease.
8. Capital Improvement
Any major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof, and renovations of the lobby.
9. Certificate of Occupancy (CO)
The government issues this official form, which states that the building is legally ready to be occupied.
10. Common Area Maintenance (CAM)
This is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements that are made to the property.
11. Concessions
Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, or upgrades (also called "build-outs"), and reduced rent for the initial term of the lease.
12. Contiguous
Touching at some point or along a boundary (most often seen with two or more suites).
13. Contingency
A requirement in a contract that must occur before that contract can be finalized.
14. Deed Restriction
An imposed restriction in a deed that limits the use of the property. For example, a restriction could prohibit the sale of alcoholic beverages.
15. Delivery
Transfer something from one entity to another.
16. Escalation clause
A clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:
• A fixed increase over a definite period (usually 3% annually)
• A cost-of-living increase tied to a government index, such as the tax rate
• An increase directly related to increases in operating the property
17. Exclusive Agency
An agreement in which one broker has exclusive rights to represent the owner or tenant. If another broker is used, both the original and actual broker are entitled to leasing commissions.
18. Fiduciary
A person who represents another on financial/property matters.
19. Fixtures
Personal property so attached the land or building (e.g., improvements) it is considered part of the real property.
20. Grace Period
Additional time allowed to complete an action (e.g., make a payment) before a default or violation occurs.
21. Gross Lease
A lease of property whereby the landlord (i.e., lessor) pays for all property charges usually included in ownership. These charges can include utilities, taxes, and maintenance, among others.
22. Holdover Tenant
A tenant who remains in possession of leased property after the lease term expiration.
23. HVAC
An acronym for "heating-ventilation-air-conditioning" system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.
24. Joint Tenancy
Ownership of real property by two or more individuals, each of whom has an undivided interest with the right of survivorship.
25. Judgement
A formal decision issued by a court relating to the specific claims and rights of the parties to an act or suit.
26. Lease
An agreement by which the owner of a property (the "lessor") grants the right of possession to a tenant (the "lessee") for a specific period of time (the "term") for a predetermined amount of money (the "rent"). A "leasehold estate" is the space occupied by the tenant. Common types of leases include:
• A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.
• A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
• A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net."
LeaseholdThe estate or interest a tenant has as stated in the tenant's lease.
27. Lessee
An individual (i.e., tenant) to whom property is rented under a lease.
28. Lessor
An individual (i.e. landlord) who rents property to a tenant via a lease.
29. Letter of Intent
An informal, usually non-binding, agreement among parties indicating their serious desire to move forward with negotiations.
30. Lien
A legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.
31. Listing
An employment contract between principal and agent that authorizes the agent (such as a broker) to perform services for the principal and his property.
32. Loss Factor
What percentage of the gross area of a space is lost due to walls, elevator, etc. Rule of thumb in Manhattan is approximately 15%.
33. Market Price
The actual selling or leasing price of a property.
34. Market Value
The expected price that a property should bring if exposed for lease in the open market for a reasonable period of time and with market savvy landlords and tenants.
35. Net Lease
Also called triple net lease (NNN). The lessee pays not only a fixed rental charge but also expenses on the rented property, including maintenance.
36. Non-Disturbance Agreement
The tenant signs this to prevent himself from being evicted if the property owner does not pay its mortgage to the bank.
37. Open Listing
A listing given to any broker without liability to compensate any broker except the one who first secures a buyer who is ready, willing, and able to meet the terms of the listing, or secures the acceptance by the landlord of a satisfactory offer; the lease of the property automatically terminates the listing.
38. Option
A right given to purchase or lease a property upon specified terms within a specified time. If the right is not exercised, the option holder is not subject to liability for damages. If the holder of the option exercises it, the grantor of option must perform the option's requirements.
39. Percentage Lease
A lease of property in which the rent is based upon the percentage of the sales volume made on the specific premises. There is usually a clause for a minimum rent as well.
40. Principal
The employer (e.g., landlord) of an agent or broker. This is the agent's or broker's client.
41. Revocation
An act of rescinding power previously authorized.
42. Sale-leaseback
A transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.
43. Sublease
A lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.
44. Tenant Improvements (T.I.’s)
Work done on the interior of a space, can be paid for by landlord, tenant, or some combination of both, depending on the terms of the lease.
45. Tie-in Arrangement
A contract where one transaction depends upon another transaction.
46. Triple Net Lease (NNN)
A lease requiring tenants to pay all utilities, insurance, taxes, and maintenance costs.
47. Variance
Government authorization to use or develop a property in a manner which is not permitted by the applicable zoning regulations.
48. Work Letter
An amount of money that a landlord agrees to spend on the construction of the interior of a space per the lease, usually negotiated.
49. Zone
An area, delineated by a governmental authority, which is authorized for and limited to specific uses.
50. Zoning Ordinance
A law by a local governmental authority (e.g., city or county) that sets the parameters for which the property may be put to use.