Glossary of Terms
Disclaimer: This glossary of common terms used in the retail real estate industry is intended only for educational purposes. Neither the list of terms in this glossary nor the definitions of specific terms are intended to be exhaustive or constitute legal advice. Instead, this glossary provides general definitions of terms commonly used in the retail real estate industry. If you have any specific questions regarding any of these terms or the concepts discussed in the definition, please seek legal advice.
Abandonment: In most states, refers to the tenant’s having permanently vacated its premises, with no intent to return to occupancy, coupled with the tenant’s rejection of further performance under the lease. Also see “vacate.”
Abated Rent: Term used by landlords to refer to certain elements of rent under the lease that the tenant is excused from paying often at the beginning of the term, for specified months, in specified situations and also in connection with casualty damage. Also see “free rent.”
Abatement: Right of a tenant to not pay all or portions of its rent under certain circumstances (e.g., during repair periods following casualty damage).
Absolute Net: Non-legal term often used by landlords to emphasize that, other than express obligations of the landlord under the lease, the tenant is responsible for all costs, expenses, repairs and maintenance of the real property. See “true triple net.”
Abstract: In the context of commercial leasing, typically refers to a lease summary often prepared by landlords and tenants to provide a quick reference to key business provisions.
Actual Damages: Legal term used to refer to damages that are, in fact, incurred by the party claiming damages and that arise directly from the breach, default or indemnified liability. For example, if a landlord’s maintenance worker backed a snow plow into a tenant’s storefront, the tenant’s actual damages would be the costs to repair the store front and any damage to the improvements or merchandise caused by the snow plow. Compare to “consequential damages” and “punitive damages.”
Addendum: Supplemental document to a contract or lease, often physically attached to the contract or lease, typically executed contemporaneously with the contract or lease, as opposed to amendments, which are typically executed later. Also see “rider.”
Additional Insured: Insurance term referring to parties, other than the party obtaining the insurance (i.e., the insured party), who will also be covered by a commercial general liability insurance policy. Commercial leases typically require that the tenant name the landlord, landlord’s lender and other parties designated by landlord as additional insureds on the tenant’s CGL policy.
Administrative Fee: Fee charged by the landlord in connection with administering CAM charges or other matters under a lease, often a percentage of the underlying CAM charge or other charge.
Ad Valorem (Taxes): Method of taxation by local or state governments that uses the value of the property taxed to determine the amount of the tax payable.
Affiliate: Non-legal term used to refer to one business entity that is related in some manner to another business entity.
Allowance: An amount provided by landlord to tenant under a lease to reimburse tenant for specified costs, usually related to the tenant’s initial build out of its improvements in the premises.
Amendment: A modification to a contract or lease that is typically a separate document and executed after the original contract or lease, as opposed to an addendum or rider, which are typically executed contemporaneously with the contract or lease. Also see “addendum” and “rider.”
Americans with Disabilities Act (ADA): A federal law passed in 1991 that includes accessibility requirements for public accommodations such as office buildings, shopping centers, restaurants and retail stores. Note that many states have additional accessibility requirements that supplement the ADA requirements.
Amortize: To spread an amount over a set period of time such that the monthly payments of either principal, or principal plus interest, are the same for each payment.
Anchor Tenant: A key (usually larger) tenant for a project. In a large shopping center, anchor tenants are traditionally the major department stores. In a strip center, anchor tenant might be a grocery store, general merchandise discount store (e.g., Walmart or Target) or a theater. Often tied to co-tenancy requirements and how pass through charges are allocated.
Ancillary: Document or agreement that serves as a supplement or addition to another document or agreement. For example, a work letter is often an ancillary part of a lease.
Annualization: In the context of calculating percentage rent, refers to calculating gross sales for a partial year based on the average monthly gross sales over the initial 12 or final 12 months of the lease term, as applicable. Used to account for the underpayment or overpayment of percentage rent that might otherwise result for retail tenants that have seasonally weighted sales.
Anticipatory Breach: Legal doctrine allowing a claim that the other party to the lease is in default, even though an actual breach or default has not yet occurred. An anticipatory breach claim typically arises where one of the parties to the lease has made a clear statement to the other party that it does not intend to perform some or all of its obligations under the lease.
Appraisal: Report prepared by an appraiser that opines as to the market value or market rental rate for a specific property.
Appreciation: Increase in value of an asset over time.
Appurtenant: A right that is outside the real property itself but considered part of the property and transferred along with the property, such as an access easement.
Arbitration: An alternative dispute resolution process where the parties agree to use one or more arbitrators (i.e., private judges) to rule on a dispute. Used to avoid the costs and delays typically associated with litigation.
Arm’s Length Transaction: A transaction carried out under the free market conditions in which each party acts in its own self-interest. Also refers to a transaction between two related or affiliated parties conducted as if they were unrelated, so there is no question of conflict of interest.
Artificial Breakpoint: A negotiated gross sales breakpoint for payment of percentage rent that is an amount other than the natural breakpoint. An artificial breakpoint can be higher or lower than the natural breakpoint depending on the circumstances and relative bargaining power of the landlord and tenant. Also referred to as “unnatural breakpoint.” See “breakpoint” and “natural breakpoint.”
“As-Built” Documents: Annotated or revised version of construction documents prepared by either the architect or contractor upon completion of the improvements to reflect any revisions made during construction.
“As Is” Condition: Phrase used in a lease or purchase agreement to mean that a property is being delivered to another party in its current condition, without improvements and without any representations or warranties regarding the condition of the property. Most commercial leases include language that provides that, other than any express representations, warranties or covenants in the lease, the premises will be delivered to the tenant in “as is” condition.
Assessed Value: Value a taxing authority places on a piece of real property for purposes of determining real property taxes payable with respect to that parcel.
Assessment: In the context of real property taxes, refers to a tax imposed on a parcel of property that is in addition to the base real property tax rate that applies to all properties in the applicable jurisdiction.
Assignment: Transfer by a party (e.g., a tenant) of all of the rights under a contract (e.g., lease) to a third party, typically coupled with an assumption of the liabilities under the contract by the party receiving the assignment. See “assumption.”
Association for Cooperative Operations, Research and Development (ACORD): Nonprofit standards developer for the insurance industry that publishes and maintains standardized forms for certain aspects of the insurance industry. Many forms currently used by the insurance industry in the United States have been developed and published by ACORD.
Assumption: The agreement by a party (typically a party receiving an assignment of rights under a lease or contract) to assume and agree to perform all of the remaining obligations under that lease or contract. See “assignment.”
Attornment: Tenant acknowledgement that there has been a change in the person or entity that is the landlord under the lease, including the tenant’s commitment to perform its remaining obligations under the lease as if such new person or entity were the original landlord.
Base Rent: The core rent component to be paid by the tenant, separate from pass through “triple net” charges accounting for the tenant’s proportionate share of operating expenses, real estate taxes and insurance costs. Also see “minimum rent.”
Base Year & Base Year Stop: The reference year or amount used in a modified net lease, where the current level of pass-through charges (e.g., operating expenses, real estate taxes and insurance costs) are included within the initial base or minimum rent amount, with the tenant then being responsible for its proportionate share of increases in those pass-through charges above the level of those same charges in the base year or over the specified amount. Commonly used in office leases. Also see “expense stop.”
Basic Lease Provisions: Often the initial section or article in a commercial lease that contains the key business terms in a consolidated form (e.g., term, rent, permitted use, special rights, etc.). Also called a “data sheet,” or “fundamental lease provisions.”
Big Box: Retail industry term used to refer to larger retailers that typically operate out of high ceiling, open plan, square or rectangular buildings, such as a Home Depot, Best Buy or Staples.
Blanket Coverage: Insurance coverage (liability or property damage), where the same policy provides coverage for multiple locations.
Boiler Insurance: Insurance coverage for the costs of repairs and replacements to boilers and other mechanical, electrical and plumbing equipment. Boiler insurance has evolved into “mechanical breakdown insurance.”
BOMA (Building Owners and Managers Association: A professional organization for property owners that publishes standards that are often used to determine the leasable or rentable area in retail and other commercial buildings.
Bond: Written obligation or guaranty to pay a sum of money upon the occurrence of a specified triggering event. In the real estate context, bonds typically refer to a third-party insurer or bonding company guarantying the performance of a contractor, up to an agreed contractual limit, in return for a specified premium for that bond. Also see “performance bond” and “payment bond.”
Bonus Value: Positive differential between the rent a sublandlord is able to obtain from a subtenant, compared to the rent that the sublandlord (as tenant) is required to pay for that same space to the landlord. Bonus value can also refer to the current aggregate value to a tenant, in the context of a condemnation, of the tenant leasing its premises at below market rates.
Breach: A party’s violation of one of its obligations under the lease. Sometimes used interchangeably with the term default; at other times used to refer to the initial infraction by a party that if left uncured will ripen into a default.
Breakpoint: Used in connection with percentage rent to designate the threshold dollar amount of the tenant’s sales over which the tenant is required to pay a percentage of those sales to landlord as percentage rent. Also see “natural breakpoint” and “artificial breakpoint.”
Broker: Licensed real estate professional who assists buyers, sellers, landlords and/or tenants in the financing, sale and leasing of real property.
Building Standard: Term used by some office and commercial landlords in their form lease to refer to a set grade of materials to be used in the building.
Build to Suit Lease: A commercial lease where the landlord builds a building or customized premises to the tenant’s specifications.
Business Interruption (Loss) Insurance: Insurance carried by the tenant to cover costs and losses (including required rental payments) if the tenant’s business is disrupted by casualty damage and related repairs and reconstruction. Also see “rental loss insurance.”
Capital Improvement: New permanent structural change or the restoration or replacement of a part of a property that enhances the property’s value, increases its useful life or adapts the property to a new use.
Capitalization Rate (Cap Rate): An income property’s yield determined by the ratio of the Net Operating Income (NOI) to the asset value of the property. For example, if the NOI of a property is $50,000 per year and the property is valued at $500,000, then the cap rate would be $50,000/$500,000 or 10%.
Casualty Damage: Damage to real property improvements and personal property caused by fire, flood, storms and other similar events.
CC&Rs (Covenants, Conditions and Restrictions CC&Rs: An agreement, typically recorded in the official land records, that governs certain aspects of how a group of adjoining parcels that are part of a unified development will be operated. CC&Rs often include access, parking, drainage and utility easements, allocates the costs of repairs and maintenance of the shared common areas along with restrictions on the use and operation of each property which can include architectural standards and restrictions on certain types of uses. Also see “REA (Reciprocal Easement Agreement).”
Certificate of Occupancy (CO): Certificate issued by a governmental entity (typically a building department), memorializing that a premises or building has passed all governmental inspections required for use and occupancy.
Co-Insurance: When risk is split and spread among multiple insurance policies. This issue generally arises in the context of a commercial lease where alandlord wants the tenant’s commercial general liability policy to be deemed primary, rather than as co-insurance in tandem with any commercial general liability policy(ies) carried by the landlord that might overlap coverage with the tenant’s policy. Can also refer to an insurance policy where the insurance company and the insured party share the risk with the insured paying a share of the payment made against a claim.
Co-Loss Payee: Insurance term that refers to a party, other than the insured party, that is entitled to payments under a property insurance policy. In commercial leases, landlords often try to require the tenant to name the landlord as a loss payee or co-loss payee with respect to the tenant’s property insurance policy that covers the value of the tenant’s improvements to its premises.
Cold Shell: Commercial real estate term generally used to refer to a premises that will be delivered to a tenant with the floors, walls and ceilings in place, but without any HVAC installed. Note that this term is not precise and can cover a broad range of conditions. Also see “dark shell” and “vanilla shell.”
Commencement Date: Typically refers to the date on which the term of a lease commences. Also see “rent commencement date.”
Commercial General Liability (CGL) Insurance: Insurance coverage that protects a business from claims for death, injury or property damage resulting from or caused by the insured’s business operations, products or from incidents that occur on the insured party’s property or premises.
Common Area Maintenance (CAM) Charges: Costs and expenses of operating, repairing and maintaining the landlord’s shopping center or project, that will be passed through the tenants, typically on a pro rata basis. Often synonymous with “operating expenses.” Also see “operating expenses.”
Common Areas: Areas of a multi-tenant project that are for the shared use of all, or specified groups of tenants, such as parking lots, exterior circulation, interior malls and lobbies, project stairwells and elevators, and shared infrastructure areas (e.g., trash enclosures).
Comparables (“Comps”): Term used by appraisers to refer to other properties that have recently sold or been leased that are similar in nature to the property being appraised (i.e., comparable properties).
Concessions: Term used by some landlords to refer to incentives given to the tenant under the lease such as a tenant improvement allowance or abated rent.
Condemnation: This term has two distinct meanings in the real estate industry. The most common refers to when a governmental entity or certain private entities (e.g., utilities) acquire real property by force of law using eminent domain authority. Also see “eminent domain.” The second, less frequently used, meaning refers to when a governmental entity (e.g., building department) designates a building or structure as unsafe or uninhabitable.
Condition: In a lease or other contract, an event that must take place for a party to be obligated to perform or the happening of which excuses a party from its obligation to perform. For example, the landlord’s delivery of possession to the tenant may be a condition to the tenant’s obligation to pay rent.
Condition Precedent: In a contract, an event that must take place prior to a party’s being obligated to perform. For example, in some retail leases, obtaining a building permit for the tenant improvements can be a condition precedent to the tenant’s obligations under the lease.
Conforming Lease: When a landlord and a tenant agree to have a new lease be consistent with the lease form negotiated by the parties in a prior lease transaction.
Consequential Damages: Legal term used to refer to the damages that arise indirectly from the breach, default or indemnified liability. For example, if a landlord’s maintenance worker backed a snow plow into a tenant’s storefront, the tenant’s consequential damages would include the lost profits incurred by the tenant for the period when it was closed for repairs. Compare to “actual damages” and “punitive damages.”
Contiguous Space: Refers to space that abuts or is otherwise adjacent to a premises (e.g., across a common hallway).
Contingency: Typically refers to the right of a party to terminate the lease in a non-default setting if certain events do not occur (e.g. construction by landlord of the shopping center or tenant’s obtaining of a building permit or liquor license). Contingencies typically have a set timeframe for satisfaction or waiver.
Contingency Fees: Fee charged based on obtaining a result. Typically this issue arises in connection with auditors that are compensated based on a percentage of the savings or recovery they are able to produce through their audit.
Contractor: While this term can be used to refer to any party or entity that performs work or services pursuant to a written agreement, in the context of commercial leasing this term generally refers to business in the building and related trades.
Core: When used in reference to a building, refers to the prime infrastructure of the building where the elevators, bathrooms and vertical shafts are typically located.
Co-Tenancy: When a tenant’s rights or obligations under the lease are tied to other tenants within the development being in place and/or open. For example, a retail tenant’s obligation to initially open for business might only arise if other specified tenants (e.g., certain nearby anchor tenants) and/or a minimum percentage of the other retail space in the development is also open for business. Co-tenancy provisions typically involve the tenant’s initial opening obligation or the tenant’s ongoing operating covenants.
Counterparts: Where the parties to a lease or contract sign identical, but different originals.
Covenant: Generally refers to a contractual obligation of a party (e.g., a tenant’s lease obligation to pay rent is a covenant). Covenants may or may not also constitute a condition. Most commercial landlords will include a lease provision that specifies that the tenant’s obligation to pay rent is an “independent covenant” and is not conditioned upon the landlord’s performance of any of its obligations under the lease. Also see “condition.”
Covenant of Good Faith and Fair Dealing: A general assumption of contract law, implied to one degree or another under the law of many states, that parties to a lease or other contract will act in good faith and deal fairly with each other.
CPI (Consumer Price Index): A government maintained index that is intended to measure the rate of inflation. Note that the CPI consists of a number of sub-indexes that are categorized by region and categories of items measured.
Credit Enhancement: Methods of providing a landlord or lender with additional security to ensure the performance of a borrower or tenant, as applicable. Typically seen in situations where a borrower or tenant does not have sufficient creditworthiness to enter into the transaction without additional security. Common examples of credit enhancements in the context of a commercial lease include prepaid rent, guaranties, security deposits and letters of credit.
Cross Default: Where a tenant has multiple leases with the same landlord or property management group and the tenant’s default under one lease is considered a default under all of the leases.
Cumulative Cap: A cap or maximum increase in the annual increase of an expense (e.g., CAM charges) charged to the tenant where any unused increases effectively “roll over” so the landlord may recover any unused increases from prior years in a year where the annual increase is below the cap. For example, if a lease includes a 5% cumulative annual cap on increases in CAM charges and CAM expenses increase by 2% in year 2 over year 1 but then increase by 9% in year 3, the tenant would pay a 8% increase in year 3 since the landlord can recover then unused 3% increase from year 2 as well as the 5% cap for year 3. But if the cap were noncumulative, the tenant would pay only a 5% increase in year 3 because the landlord would not be entitled to recover the unused increase from year 2.
Cure Period: The period of time a party is allowed to cure a breach before it ripens into a default. The cure period can run from the original breach or from when the breaching party receives notice from the non-breaching party. Some states have statutory cure periods. Also see “grace period.”
Dark Shell: Commercial real estate term generally used to refer to premises that will be delivered to a tenant with the floors, walls and ceilings in place, but without any electrical service and typically without any HVAC installed. Note that this term is not precise and can cover a broad range of conditions. Also see “cold shell” and “vanilla shell.”
Data Sheet: See “basic lease provisions.”
Deal Sheet: Document prepared by the landlord and/or tenant that sets forth the basic business terms of the lease (e.g., space, term, rent, use, etc.). May or may not be signed by the parties, but in either instance typically will include language noting the nonbinding nature of the document. Also see “letter of intent” and “memorandum of understanding.”
Declaratory Action: Lawsuit brought seeking a binding interpretation from a court of a disputed contract provision. Often used by landlords and tenants to resolve disputes involving ambiguous lease terms.
Deductible: A term used in the context of insurance policies to refer tothe amount that the insured party is required to pay towards a loss before the insurance coverage kicks in.
Deed of Trust: A financing document, typically recorded in the public records, that memorializes a lender’s lien on real property securing a debt or other obligation of the property owner. The lender’s requirement of a deed of trust versus a mortgage will depend upon the state in which the property is located (e.g., California is a deed of trust state and Minnesota is a mortgage state). Functionally very similar to a “mortgage.”
Default: A party’s violation of one of its obligations under the lease that is not cured within the required period. Commercial leases will often use a defined term (e.g., “Event of Default”) to refer to a breach or default that has ripened to the point that the other party is entitled to seek a remedy for that default.
Delivery: Typically refers to the act of the landlord providing the tenant with actual possession of the premises.
Demise: Antiquated real estate term used to refer to the grant or conveyance of a property right.
Demising Wall: A wall that separates the premises from adjacent space.
Depreciation: Accounting term that refers to the amount of a capital expenditure that is permitted to be written off as an expense each year to reflect the reduced worth of the item over time. For example, a $20,000 HVAC unit that had a 10-year useful life might be depreciated at the rate of $2,000 per year.
Design/Build: A design and construction delivery method where an owner or tenant that is contracting for improvements hires one entity that handles both the design and construction of the improvements.
Discount Rate: Reference rate established by the Federal Reserve Bank that is often used in the calculation of NPV (net present value). The discount rate represents an assumed current interest rate adjusted to account for anticipated future inflation.
Distraint: Refers to a landlord seizing the personal property of a tenant to hold as security for amounts owed by the tenant under the lease.
Easement: Right to use all or a portion of the property of another for a specific purpose (e.g., access, parking, encroachment, etc.). Easements are typically memorialized in written documents recorded in official land records.
Effective Date: Refers to the date on which the lease is effective. The effective date can be a set date (not necessarily the date a lease is fully-executed) or can be tied to the date that a specified event occurs.
Effective Rent: Sometimes referred to as net effective rent, a business term used by landlords to refer to the amount of monthly rent from a tenant that remains after deducting taxes, insurance and operating expenses for the property along with any amortized tenant enticements (e.g., tenant improvement allowance or free rent).
Eminent Domain: Right of governmental entities and certain other private entities (e.g., utilities) to acquire real property by force, provided that the acquisition is authorized by law, for a public purpose and the party(ies) from who property is taken are provided with just compensation for the taking. Also see “condemnation” and “taking.”
Encumbrances: A right, lien or claim that is typically included in the recorded property records and burdens a piece of real property, such as an easement or mortgage/deed of trust.
Endorsements: Riders to an insurance policy (casualty, property, title, etc.) that expand the coverage provided by the basic policy.
Entitlements: Governmental approvals and permits necessary to construct a project, tenant improvements and/or to operate a business. Entitlements can include items such as a conditional use permit, business license, liquor license, variance or development agreement.
Equitable Relief: Nonmonetary relief granted by the court, typically consisting of the court ordering a party to take an action or refrain from an action when the court deems that available legal remedies are inadequate to do proper justice.
Escalation Provision: Refers to a lease provision that specifies how the rent will increase during the lease, e.g., specified (scheduled) rent amounts by year, set percentage annual increase, CPI adjustments, and periodic adjustments to fair market rent.
Estoppel Certificate: A document signed by the tenant stating certain facts about the lease (e.g., commencement date, expiration date, extension options, any current claims, breaches or defaults, etc.). In essence, an estoppel certificate is required of a tenant as a factual snapshot of the current state of affairs under a commercial lease that a purchaser or lender of landlord can rely on.
Eviction: The legal process of extinguishing the tenant’s right to possession and the forced removal of the tenant and its personal property from the premises. Also see “ejectment” and “unlawful detainer.”
Exclusive Use Rights: Limitation on the ability of other occupants in a shopping center to operate for certain uses, typically for the benefit of a tenant that is operating for the restricted use.
Execution: Refers to a party having signed (with witness and/or notary acknowledgment in some instances) a legal document.
Expense Stop: Lease clause, often found in a modified net lease, that limits some or all pass through charges (e.g., operating expenses, real estate taxes and insurance costs).
Extension Option: The right of a tenant to increase the term of the lease, typically for a specified additional period of time, at the end of the then current lease term. For most purposes, an “extension” is synonymous with a “renewal,” but in some circumstances, in some states, there are important distinctions between the two. From a tenant’s perspective, it is best to always characterize such options as “extensions” rather than “renewals.”
FASB (Financial Accounting Standards Board): A private accounting industry regulatory group that establishes accounting standards (i.e., GAAP (generally accepted accounting practices) for use. Provisions in leases pertaining to the landlord’s or tenant’s obligations to maintain books and records will often reference GAAP as the required standard for such books and records.
Financing Statement: A UCC document used to perfect a security interest/lien in personal property, similar to what a mortgage or deed of trust is for real property
Fixtures: Equipment and similar items that are so integrated into a building or the land and necessary for the general operation of the property that such items are deemed to be converted from personal property to real property (e.g., toilets, primary HVAC units, base building lighting, etc.). See also “trade fixtures.”
Force Majeure: Typically refers to acts of God, wars, strikes, severe weather and other conditions beyond a party’s reasonable control that prevent the party from performing some or all of its lease obligations. The force majeure provisions in most commercial leases specifically exclude application of force majeure to the tenant’s monetary obligations.
Free Rent: A somewhat misleading term used by landlords to refer to periods during the lease term (often at the beginning of the term) when the tenant is not required to pay base rent and/or pass through charges. Also see “abated rent.”
General Contractor (GC): Contractor engaged by a property owner or tenant to perform improvements, The GC typically will subcontract portions of the work out to other contractors, but remains responsible for all of the work, including work performed by the subcontractors. Synonymous with “prime contractor.”
Go Dark Clause: A provision in a commercial lease that specifies the tenant’s rights (if any) and landlord’s remedies, should the tenant cease doing business (i.e., “go dark”) in its premises.
Good Guy Guaranty: A guaranty, where the guarantor’s obligations to cover the tenant’s liabilities under the lease are limited to the period when the tenant is in possession of its premises. The purpose of such a guaranty is to create an incentive for a defaulting tenant not to enter into a drawn out fight over eviction. This type of guaranty is typically seen in states where eviction can be an expensive and lengthy process (e.g., New York).
Grace Period: A period following the required date of performance, during which the party required to perform can perform without penalty.
Gross Leasable Area (GLA): A term of art used to refer to the square footage of a premises, building or project. GLA is typically measured from the exterior face of exterior walls and from the center line of any shared walls. How GLA is actually measured will typically be defined in the lease (often based on BOMA standards). Note GLA is typically larger than the actual useable area, as the GLA includes items such as structural elements, shafts, stairs and in the context of some commercial properties (e.g., multi-tenant office buildings) can include a “load” factor that accounts for an allocation of shared use spaces (e.g., lobbies, bathrooms).
Gross Lease: Lease where the tenant pays a gross rent that includes all (or most) expenses (e.g., real estate taxes, insurance costs and operating expenses) for the property. Note that even under a gross rent commercial lease, the tenant still often pays extra for telecommunications services or utilities.
Gross Negligence: An exacerbated level of negligence, typically involving blatant indifference or reckless disregard. Also see “negligence.”
Gross Rent: Rent that is inclusive of all (or most) expenses (e.g., real estate taxes, insurance costs and operating expenses) for the property.
Gross Sales: Term used in connection with percentage rent provisions defined as the sales made by a tenant from its premises. “Gross sales” is a bit of misnomer, as most percentage rent leases include a fairly detailed list of items that the tenant can exclude from “gross sales” (e.g., credit card fees, sales taxes). Also see “net sales.”
Gross Up: Right of a landlord to adjust certain variable operating expenses upward when a building is occupied less than a specified percentage level (e.g. 95%) to the amount such expenses would have been at if the building were occupied at the threshold level.
Ground Lease: Lease, typically long term, of land where the tenant pays for and constructs the improvements. Often used in connection with outlot parcels in shopping centers that are used for banks or standalone restaurants or for single tenant parcels (e.g., drugstores with a drive through) .
Guarantor: Party that agrees to guaranty the contractual obligations of another, typically pursuant to a separate document executed by the guarantor. In commercial leases, guarantors typically are a parent entity of the tenant and/or individual owners of the tenant entity.
Guaranty: Document executed by a guarantor, where the guarantor agrees to pay or perform the obligations of one of the parties to a contract. Guaranties can be complete and unconditional or may have monetary caps, time limits or other significant limitations.
Hard Costs: Costs for construction materials and fixtures (sometimes including trade fixtures) and the labor expense to install those items. Also see “soft costs.”
Highest and Best Use: Term often used by real estate appraisers to refer to the economically optimal use of a piece of real estate based on the then current zoning.
Hold Harmless: Contractual agreement of one party (typically the tenant) to reimburse or hold another (e.g., landlord) free from responsibility (i.e., assume the risk) for liability or damage that might arise out of specified events (e.g., occurrences within the premises ). Often used interchangeably with the term “indemnify,” although some states draw legal distinctions between the two terms. Frequently used by cautious lawyers in combination with the words “indemnify,” “defend” and “protect” (e.g., “Tenant agrees to indemnify, protect, defend and hold Landlord harmless from . . .”).
Holdover: Period following the expiration or termination of a lease, where the tenant remains in possession of the premises.
HVAC: An acronym for heating, ventilation and air conditioning.
Indemnity: An obligation of one party to indemnify another for specified events. Commercial leases often contain indemnity provisions requiring a tenant to indemnify the landlord from losses and damages arising from events that occur on the premises, tenant’s negligence or willful misconduct and/or tenant’s breach of the lease.
Inducements: Term used by some brokers and landlords to refer to items or concessions offered to tenants to entice them into a lease (e.g., tenant improvement allowance, free rent period). Also refers to tax credits or other benefits offered by a government agency to encourage businesses to operate in a particular area.
Injunction: Order from a court for a party to either take a specific action or desist from an activity. Injunctions can be temporary or permanent.
In-line Store: Refers to smaller retailers that typically are grouped together with other similarly sized retailers in a line, forming a strip of retailers. In-line stores are typical shoe box shaped in plan, with the narrow portion being the storefront and the longer dimension being the store depth.
Insolvency: General inability of an individual or entity to satisfy its debts on an ongoing basis.
International Council of Shopping Centers (ICSC): A shopping center industry group for shopping center owners, developers, managers, brokers, investors, lenders, retailers and others in the shopping center industry with a mission that includes promoting the role of shopping centers, collecting and disseminating industry information, and providing educational and networking opportunities.
Invitee: A party that is on property either at the invitation (express or implied) of another or to conduct (or try to conduct) business with a party. For example, a retailer’s customers would typically be deemed to be invitees of that tenant.
Judgment: Written decision by a court or arbitrator at the end of a legal dispute. Judgments often award monetary damages, but can also include orders by the court for a party to take a specific action or consist of the court’s interpretation of a disputed lease term.
Landlord: A person or entity that owns real property that is leased to others. Synonymous with “lessor.”
Landlord’s Lien: Contractual or statutory lien for the benefit of a landlord against the tenant’s personal property at the premises to secure the tenant’s obligations to the landlord under the lease. Many commercial tenants will require the landlord to waive any landlord lien rights.
Latent Defect: Hidden defect in property that is not apparent without specialized inspection. For example, mold or insect infestation within the walls that is not discoverable without removal of the sheet rock would likely constitute a latent defect. Also see “patent defect“
Lease Year: 12-month accounting period specified in a lease. Lease years often correlate with the sequential 12-month periods during the term (with the first lease adjusted to include any initial partial calendar month). Landlords occasionally specify that the lease year correlates with thecalendar year or with the landlord’s fiscal year.
Leasehold Estate: Legal term referring to the tenant’s real property interest in the premises that is created by the lease.
Leasehold Financing: Financing obtained by a tenant that is secured by a mortgage against the tenant’s leasehold interest in the premises
Leasehold Improvements: Improvements to the base building made by or on behalf of a tenant, typically including the tenant’s furniture, trade fixtures, decorations and signage. Also see “tenant improvements.”
Leasehold Mortgage: Mortgage granted by a tenant to a lender, secured by the tenant’s leasehold estate in the premises under the lease.
LEED (Leadership in Energy and Environmental Design): Rating systems for the design, construction, operation, and maintenance of buildings developed by the U.S. Green Building Council (USGBC) (a private organization), intended to help building owners and operators construct and operate properties in an environmentally-responsible and resources-efficient manner. LEED certifications have four levels (i.e., LEED Certified, Silver, Gold and Platinum), based on a point system.
Legal Description: The technical description of a piece of real property. Commercial properties are typically described by either a reference to a lot and block in a subdivision or by a “metes and bounds” description, which consists of a surveyor’s precise description of the boundary lines of the property.
Lessee: Synonymous with “tenant.”
Lessor: Synonymous with “landlord.”
Letter of Credit (LOC): An instrument for a specified amount of dollars, typically issued by a financial institution, that allows the beneficiary (e.g., landlord), upon the occurrence of specified conditions (e.g., tenant default), to present the LOC to the financial institution and receive payment of up to the face amount of the LOC. LOC’s are sometimes used in leases as credit enhancement instead of a cash security deposit and/or guaranty.
Letter of Intent (LOI): A document that sets forth the basic business terms of the lease (e.g., space, term, rent, use, etc.). LOIs may or may not be signed by the parties, but in either instance typically will include language noting the nonbinding nature of the document. Also see “deal sheet” and “memorandum of understanding.”
License: In the context of use of real estate, this term has two different meanings. One refers to permission to use the land of another, typically revocable in nature. The second use of the term refers to a governmental approval of some type related to a business (e.g., liquor license, business license). Also see “permits.”
Lien: A general term used to refer to a monetary claim against real property. Liens can fall into several different categories including financing related liens (e.g., mortgages and deeds of trust), tax liens, judgment liens and mechanics liens.
Load Factor: Method of allocating shared common area space in multi-tenant office buildings (e.g., hallways, utility closets, restrooms, elevator lobbies) among the tenants benefiting from such spaces on an proportional basis.
Margin Tax (Texas): A franchise (or income) tax imposed under Texas law on an the gross income of entities that afford limited liability protections to their owners (i.e, corporations, limited partnerships and limited liability companies). It is not a real estate tax or a rent tax but landlords often seek to pass it through to tenants.
Master Lease: Typically refers to a lease agreement between a landlord (as master or ground tenant) and the fee owner of property, in situations where the landlord does not own the property on which the shopping center is located. In those situations, although the agreement between the landlord and tenant is referenced as a “lease,” if there is a master lease in place, then the tenant’s lease is actually a sublease. Master leases that involve shopping centers often provide the landlord with significant autonomy over the shopping center, such that from the tenant’s perspective it makes limited difference in the landlord is the fee owner or the ground tenant.
Mechanical Breakdown Insurance: See “boiler insurance.”
Mechanical Systems: The HVAC and other equipment and systems in a building, other than plumbing and electrical systems. In most instances, HVAC systems is synonymous with the mechanical systems.
Mechanics Lien: Statutory lien granted to a party providing labor or materials to improve real property, to ensure that such party has legal recourse against the improved real property if the party is not paid for its contribution of labor and/or materials. Note that there are significant variations in mechanics lien statutes from state to state.
Memorandum of Lease: Short summary of a lease signed by the landlord and tenant and then recorded in the public records to provide official notice to the public of the existence of the lease. Some states require recorded notice of commercial leases of more than a specified term (e.g., 1 year).
Memorandum of Understanding: Document prepared by the landlord and/or tenant that sets forth the basic business terms of the lease (e.g., space, term, rent, use, etc.). May or may not be signed by the parties, but in either instance typically will include language noting the nonbinding nature of the document. Also see “deal sheet” and “letter of intent.”
Merchants Association: An association that retail tenants in a shopping center are required to join that often entails a required financial contribution and participation in common marketing activities. In many more modern leases, replaced with required contributions to marketing or promotion funds controlled by the landlord.
Metes and Bounds: Description of a parcel of land using a surveyor’s carefully measured distances, angles, and directions, which results in a “legal description” of the land.
Minimum Rent: Term often used in retail and commercial leases to refer to the core rent component to be paid by the tenant, separate from pass-through “triple net” charges accounting for the tenant’s proportionate share of operating expenses, real estate taxes and insurance cost. Also see “base rent.”
Mitigation: In the context of commercial leases, this term typically refers to the obligation (if any) of a party to take steps to reduce its damages following a default by the other party. Most commonly this issue arises with respect to the obligation of a landlord to take steps to reduce damages (e.g., find a new tenant for the space) arising from a default by a tenant.
Mixed Use: Generally refers to a project that has a variety of uses (e.g., retail, office, hotel or residential) all in the same integrated project.
Modified Gross Lease: Industry term used to refer to a lease with the tenant responsible for paying some portion of the property’s operating expenses but less than a full pro rata share of all expenses.
Modified Net Lease: Industry term used to refer to a lease with a rent structure that is a modified version of a triple net lease. Often used to refer to a lease where the pass-through charges for the initial year of the lease are included in the base or minimum rent, with the tenant then responsible for its proportionate share of the increases in the pass-through charges after a specified base year or specified level (i.e., expense stop) or where the tenant pays its proportionate share of some pass-through costs (e.g., taxes) but does not pay other costs (e.g., operating expenses).
Mom-and-Pop Store: Refers to a retail operation that is typically a one off store or smaller group of stores, but not a chain.
Mortgage: See “deed of trust.”
Mortgagee: Lender in a mortgage transaction.
Mortgagor: Borrower/property owner in a mortgage transaction.
Most Favored Nations: In the context of a lease, a clause where a landlord agrees to give a tenant the best terms it gives to any other tenant. For example, in the context of a CAM provision, a landlord might agree that a tenant will not be required to pay more per square foot than any other tenant in the shopping center.
Natural Breakpoint: Breakpoint where the percentage rent rate times the breakpoint equals the amount of base or minimum rent due from the tenant for the applicable year. See also “breakpoint” and “artificial breakpoint.”
Negligence: Conduct (action or inaction) by a person or entity that that falls below the applicable legally established standards of behavior for the protection of third parties against the unreasonable risk of harm, where the negligent party has a legal duty of care to such third party. Also see “gross negligence.”
Net Effective Rent: Accounting term used by a landlord to refer to the amount of rent that they will receive from a tenant after subtracting out transaction costs (e.g., broker’s fees, tenant improvement allowance, landlord constructed improvements) and the expenses to the landlord of the property (e.g., operating expenses, insurance costs and real estate taxes) from the total rent paid by the tenant to the landlord.
Net Lease: Non-legal industry term used to refer to a commercial lease where the tenant is required to pay a base or minimum rent, along with the tenant’s proportionate share of the costs of insurance, property taxes and repairs/maintenance. Also see “triple net lease.”
Net Operating Income (NOI): Amount by which operating revenues for a property exceeds operating expenses in a year or other accounting period.
Net Present Value (NPV): Present value of payment or series of payments to be made in the future that takes into account both inflation and the interest that could be earned on the payment if it were made at the time of the NPV calculation rather than in the future.
Non-Disturbance Agreement (NDA): An agreement, typically between a tenant and the landlord’s lender, where the lender’s interest in the property is senior in priority to the lease, where the lender agrees not to terminate the tenant’s lease if the lender forecloses on the property. Note that the acronym NDA is also sometime used to refer to a nondisclosure agreement.
NRTA (National Retail Tenants Association): A real estate industry professional organization designed to provide educational and networking opportunities to help its members increase productivity and/or decrease costs.
Offset: The right (contractual or equitable) for a tenant to deduct costs owed to it by the landlord from rental payments due from the tenant to landlord.
Opening Covenant: Affirmative obligation of the tenant under the lease to initially open for business at its premises by a specified date. Opening covenants are typical in many retail leases, but less common in other commercial leases.
Operating Covenant: Affirmative obligation of the tenant under the lease to be open and operating in its premises during specified days and hours.
Operating Expenses: A common term used in commercial leases to refer to the costs and expenses of operating, repairing and maintaining the landlord’s shopping center or project, that will be passed through the tenants of the shopping center or project, typically on a pro rata basis. The precise definition of operating expenses can vary broadly from lease to lease, as well as the list of items that are excluded. Frequently, a much negotiated provision in the lease. While often synonymous with “CAM charges,” the term “operating expenses” may be more expansive, as it can cover costs and expenses of the shopping center or project that are not directly related to the common areas. Also see “common area maintenance (CAM) charges.”
Options: The right, but not obligation, for one of the parties to the lease to elect to make a change to the then existing leases. Options often appear in leases for the tenant’s benefit, including rights to renew/extend the lease term, expansion or contraction rights, or kick-out clauses.
Outparcel: Refers to a specific separate legal parcel of land within a shopping center on which a separate single or multi-tenant building can be constructed. Typically located on the periphery of a shopping center.
Outside Delivery Date: The latest date that the landlord can deliver the premises to tenant before the lease either automatically terminates due to the landlord’s failure to deliver possession or after which the tenant and/or landlord may terminate the lease.
Partial Taking: Where some, but not all, of a piece of real property is acquired by an entity with the eminent domain authority. For example, if a city elected to widen a street, that city might acquire an additional strip of abutting land from the property owner.
Pass Through Charges: A non-legal term used to refer to the various charges incurred by a landlord that are then charged to the tenant (typically based on the tenant’s proportionate share of the shopping center or building) that are in addition to the base or minimum rent.
Patent Defect: An easily observable defect in real property, such as a broken window, cracks in the floor slab, leaky plumbing fixture, etc. Also see “latent defect.”
Payment Bond: Bond that insures a property owner that a contractor or tenant will pay for all costs of materials, labor and other services arising from a construction project.
Percentage Rent: Form of rent often found in retail leases, requiring the tenant to pay to the landlord a specified percentage of the tenant’s sales from its premises, to the extent that such sales exceed a certain threshold (i.e., breakpoint). Percentage rent is typically in addition to base or minimum rent, although certain retail leases ( e.g., temporary spaces, kiosks, carts) may provide for straight percentage rent, without any base or minimum rent.
Performance Bond: Bond that insures a landowner that a contractor will perform its construction work in accordance with its written contract.
Permits: In the context of a lease, formal governmental approvals to construct improvements (e.g., building permits) or operate a particular business activity (e.g., liquor permit or license).
Personal Property: A legal term used to refer to property that is not considered real property (i.e., rights in land and related improvements). Personal property can consist of tangible objects (e.g., furniture, trade fixtures, inventory) or intangible rights (e.g., patent and trademark rights).
Phase I Environmental Site Assessment: A report prepared for real property which identifies the potential of existing environmental contamination liabilities. A Phase I ESA includes review of available information from databases and files maintained by environmental agencies, review of historical photos and records, viewing the property and surrounding properties, and interviewing past and present owners and occupants. Although a Phase I ESA may include a review of available environmental sampling data, it does not include any soil, groundwater or other sampling.
Phase II Environment Site Assessment: Unlike a Phase I ESA, a Phase II ESA involves the collection of samples of soil, groundwater and indoor air or building materials to analyze for various contaminants. A Phase II investigation is often undertaken after a Phase I ESA determines a likelihood of site contamination.
Plans: In the context of design and construction refers to graphic documents that illustrate proposed improvements. In combination, the plans and specifications are often referred to as the construction documents.
Preliminary Report: Report prepared by a title insurance company that describes the state of title of a piece of property and lists encumbrances, as of a certain date. Also see “title commitment.”
Premium: In the context of insurance, the periodic payment made by the insured party to obtain the insurance coverage.
Prime Contractor: Contractor engaged by a property owner or tenant to perform improvements. The prime contractor typically will subcontract portions of the work out to other contractors, but the general contractor remains responsible for all of the work, including work performed by the subcontractors. Synonymous with “general contractor.”
Prime Rate: Interest rate that the Federal Reserve Bank charges to commercial banks for money borrowed by those banks from the Federal Reserve Bank.
Pro Rata Share: As used in commercial leases, each tenant’s pro rata share is determined by the rentable square footage of the premises typically divided by either: (i) the total rentable square footage of the project (better for tenant), or (ii) the total rentable square footage of the project that is leased and occupied (better for landlord). Also referred to as “proportionate share.”
Promotion Fund: A fund to which retail leases often require tenants to contribute to in order to advertise and promote the shopping center to customers. See also “merchants association.”
Property Insurance: Coverage that provides the insured party protection against most risks to property (real and/or personal), such as fire, theft and some weather damage. Property insurance policies generally fall into two categories: (a) open perils, which provides coverage for all perils except specifically excluded perils, and (b) named perils, which only provides coverage for the specific perils set forth in the insurance policy.
Punch List: Non-legal term of art in the construction industry that refers to the list prepared upon the substantial completion of a construction project by the beneficiary of the construction (e.g., owner or tenant) of the incomplete or defective items of construction that need to be corrected. Typically, punch list items are considered to be minor defects in the construction that do not prevent use or occupancy.
Punitive Damages: Legal term used to refer to the damages that a court or jury can impose in addition to actual and consequential damages, in situations where the party causing the damages is viewed as deserving of additional sanctions or where the court wants to send a firm message to others to dissuade similar misdeeds. Punitive damages are rarely available in connection with a contract claim, such as a breach of lease. Compare to “actual damages” and “consequential damages.”
REA (Reciprocal Easement Agreement): Where a shopping center or development is comprised of several parcels of land, particularly if the various parcels are under different ownership, an REA is a document that memorializes the cross easements among the properties, typically consisting of access, parking and utility easements, and often include mechanisms for allocation the costs of repairs and maintenance of the shared easement facilities. Also see “CC&Rs (Covenants, Conditions and Restrictions).”
REIT (Real Estate Investment Trust): Corporation or trust that uses the pooled capital of many investors to purchase and manage income producing property (equity REIT) and/or mortgage loans (mortgage REIT). Interests in a REIT are considered securities (like stock) and can be privately or publicly traded.
Real Estate Taxes / Real Property Taxes: Taxes payable by a property owner, typically to a city or county, where the amount of the tax is based on a specified percentage of the assessed value of the real property.
Recapture: Right of a landlord to terminate the lease early upon the occurrence of specified events. For example, some landlords retain the right to terminate the lease early if the tenant requests the landlord’s consent to an assignment or sublease.
Receiver: Third party that is typically appointed by a court upon the request of a creditor(s) to run and manage a business or property pending resolution of litigation, a foreclosure or a bankruptcy action.
Reconciliation Statement: Final accounting made after the end of the fiscal year to determine the difference, if any, between estimated payments (e.g., operating expenses, percentage rent) made during the year and the actual amounts owed.
Recording: In the context of real property, the process of having a legal document pertaining to specified real property memorialized in the public land records.
Release: Agreement by one party not to bring a claim against another party for a specified risk. For example, a tenant might be required in its lease to release the landlord from any liability for damage caused by burst pipes. Also see “hold harmless.”
Reletting: Typically used in the context of a tenant default, refers to the landlord leasing a tenant’s premises to a new tenant, following the original tenant’s default.
Relocation: Unilateral right of a landlord to force the tenant to move from its premises to a different space in a shopping center or building.
Remediation: Often used in connection with hazardous materials, referring to actions that are taken (or required to be taken) to mitigate the hazardous materials. Can cover a broad range of actions from monitoring to containment to full clean up.
Renewal Option: See “extension option.”
Rent Acceleration: Right of a landlord, following a default by tenant, to require that all the required rent for the remainder of the term be made in one, immediate payment. Many states have limitations on a landlord’s ability to obtain rent acceleration damages, which often include a requirement to reduce the accelerated amount to its net present value and/or the requirement to offset the then fair market rental value of the premises.
Rent Commencement Date: Date on which some or all of the tenant’s rental obligations commence. Typically this term is used in a lease where there is a gap between the start date for the lease term (i.e., commencement date) and the date on which the tenant’s rental obligations begin.
Rent Tax: Tax imposed by a state or municipality on the rental income received by the landlord. Currently only used in limited areas (e.g., Florida). Where rental tax is charged, the tenant is typically obligated to reimburse landlord for the rental tax.
Rentable Square Feet (RSF): Term of art used to refer to the number of square feet that will be used in a lease to determine the tenant’s rent (if rent is negotiated on a per square foot basis) and proportionate share. Rentable square footage typically includes unusable areas (e.g., columns, shafts, the thickness of exterior walls, etc.) and in some situations (especially in office leases) will include an allocation of a proportionate share of certain common facilities (e.g., common bathrooms, service corridors, loading facilities). Similar to “gross leasable area.” Also see “useable square feet.”
Rental Loss Insurance: Type of coverage obtained by landlords (typically in connection with the landlord’s property insurance) that covers rental payments that would have otherwise been required under the various tenant’s leases that are abated as the result of casualty damage to the property. Also see “business interruption insurance.”
Rider: Supplemental document to a contract or lease, often physically attached to the contract or lease, that is typically executed contemporaneously with the contract or lease, as opposed to amendments, which are typically executed after the contract or lease is already in place. Also see “addendum” and “amendment.”
Right of First Offer: Right of a party to make an offer to the owner or landlord of a property prior to that property being offered to a third party for sale or lease. Also see “right of first refusal.”
Right of First Refusal: Right of a party to match an offer that a seller or landlord receives from a third party for the purchase or lease of real property. Also see “right of first offer.”
Self-Help: Statutory, common law, or contractual right of a tenant or landlord to make repairs or take other actions on behalf of the other party, should the other party fail to fulfill its obligations under the lease to make such repairs or take such actions.
Self-Insurance: When a party itself covers the risks that would otherwise be required to be covered by a third party insurance policy. Also see “self-retention.”
Self-Retention: Similar to self-insurance, but with self-retention the party that is covering risks that would otherwise be required to be covered by third party insurance establishes a reserve of funds that can be used to cover potential expenses for losses. Also see “self-insurance.”
SNDA (Subordination, Non-Disturbance and Attornment Agreement): Agreement, typically between a tenant and the landlord’s lender, in which the tenant agrees to make its interest under the lease junior to the interest of the lender in the property, in exchange for the lender’s agreement that, should it foreclose on the property due to a default of the landlord, the tenant’s leasehold interest will not be disturbed or terminated.
Soft Costs: Typically refers to the costs in the design and construction process other than the costs for the construction materials, equipment, fixtures and the labor expense to install those items. Common soft costs include design and engineering fees as well as the costs for permits and testing. Also see “hard costs.”
Specific Performance: Equitable remedy under a contract or lease, where the court orders the other party to perform a nonmonetary obligation as required under the agreement. Typically a difficult remedy to obtain, as one of the key prerequisites to obtaining this relief is that the damage to the party entitled to the performance cannot be compensated for its damages monetarily.
Specifications: Used in the context of design and construction, refers to the narrative documents that describe the type, quality and other characteristics of the improvements. Specifications can consists of notes that appear on plans and/or a separate written document that supplements the graphic plans. In combination, the plans and specifications are often referred to as the construction documents. Also see “construction documents.”
Subcontractor: Refers to a contractor that performs work for another contractor (i.e., the general/prime contractor or for another subcontractor) on a project, rather than performing such work directly for the owner.
Sublease: Agreement between a tenant (as sublandlord) and a third party (as subtenant) for the use some or all of the tenant’s premises for all or a portion of the remainder of the lease term. A subtenant is not in contract with the landlord and the subtenant typically pays its rent under the sublease to the sublandlord, and the sublandlord continues to pay rent under the lease to the landlord. If the lease is terminated, absent an agreement to the contrary between the subtenant and landlord, the sublease automatically terminates.
Submeter: Utility meter (e.g., electric, water), that is installed on the customer side of the utility provider’s meter for the property to help monitor and allocate utility costs among various tenants in multi-tenant facilities.
Subordinate: To agree to take a lesser priority or interest in a property to another, otherwise junior, interest holder. Most commercial leases require the tenant to subordinate to the mortgages or deeds of trust of future lenders of the landlord, typically coupled with the assurance that the tenant’s interest will be recognized and not disturbed should there be a foreclosure of the lender’s interest.
Subordination: Act of allowing an interest that would otherwise be of lesser priority become higher priority. For example, a tenant under a lease that predates a mortgage or deed of trust can agree to subordinate the lease (i.e., make the lease junior in interest) to the mortgage or deed of trust.
Subrogation: Legal doctrine where one party takes over the rights and remedies (i.e., steps into the shoes) of another party. In commercial leases, this term typically arises in connection with insurance and refers to an insurance company’s right to pursue the claims of the party it has paid insurance proceeds to related to the event which led to the insured damage.
Surrender: In the context of a commercial lease, the act of a tenant vacating its premises and returning possession and control of the space back to the landlord.
Survey: A measured drawing prepared by a surveyor or design professional, that depicts the physical location of boundary lines, setbacks, easements and/or existing improvements located on the property. Surveys vary in detail from a simple boundary survey, which plots the perimeter of a piece of land, to an ALTA survey, which will include significant detail and be certified by the surveyor.
Temporary Taking: Where an entity with eminent domain authority acquires some or all of a property for a set period of time only. For example, a state highway department might acquire a portion of a shopping center parking lot for a period of a few months or years to facilitate a road construction project.
Tenant: Person or entity that leases real property from the owner of the property. Synonymous with “lessee.”
Tenant Improvements: Refers to improvements to the base building made by or on behalf of a tenant, typically including the tenant’s furniture, trade fixtures, decorations and signage. Also see “leasehold improvements.”
Tenant Improvement (TI) Allowance: Amount provided by the landlord to tenant under the lease to reimburse the tenant for costs related to the tenant’s initial build out of its improvements in the premises.
Term: In the context of a commercial lease, the period of time when the tenant is provided possession and control of the premises under the lease.
Title Commitment: Report prepared by a title insurance company that describes the state of title of a piece of property and lists all encumbrances, as of a certain date, subject to which the title company is willing to issue a title insurance policy. Also see “preliminary report.”
Title Insurance: Insurance policy that protects a party’s interest in a property (fee ownership, leasehold estate, easement, mortgage/deed of trust) from adverse claims against title that are based on a document or interest that predates the effective date of the policy and that was not disclosed in the policy.
Trade Fixtures: Items such as equipment and furnishings that may be attached to the building, that are used for a tenant’s specific use, rather than general operation of a building (e.g., kitchen equipment in a restaurant). Also see “fixtures.”
Triple Net Lease: Non-legal industry term used to refer to a commercial lease where the tenant is required to pay a base or minimum rent, along with the tenant’s proportionate share of the costs of insurance, property taxes and repairs/maintenance. Also see “net lease.”
True Triple Net: Non-legal term that is often used by landlords to emphasize that, other than express obligations of the landlord under the lease, the tenant is responsible for all costs, expenses, maintenance, repairs and maintenance of the operation. Also see “absolute net.”
Turnkey: Refers to space that is delivered to the tenant with all improvements in place and ready for occupancy and operations by the tenant. In essence, the landlord agrees to provide the specified level of improvements for the premises and then all that is required of the tenant is to “turn the key” to the front door.
Underwriting: Process of a landlord or lender conducting due diligence to determine the credit risks of a proposed loan or lease, as applicable, along with the creditworthiness of the proposed borrower or tenant, as applicable.
Unencumbered: Title to real property that is not subject to any other claims to title (e.g., no leases or mortgages).
USF (Useable Square Feet): Term of art used to refer to the amount of actual useable space within a premises. This will always be less than the gross square footage (i.e., includes area covered by walls, columns, shafts, etc.) and rentable square feet (RSF) (i.e., may include a load factor allocating a portion of the common areas to the square footage of the premises).
Vacate: When a tenant moves out of its premises. Vacation typically includes the tenant’s removal of some or all of the its trade fixtures and other personal property. Also see “abandonment.”
Vanilla Shell: Commercial real estate term generally used to refer to a premises that will be delivered to a tenant with the floors, walls, ceilings (including interior wall surfaces) in place, along with the base plumbing, mechanical (i.e., HVAC) and electrical service installed. Note that this term is not precise and can cover a broad range of conditions. Also see “cold shell” and “dark shell.”
Variance: A site specific exception to zoning code requirements granted by a municipality (e.g., the municipality agreeing to allow a building to exceed the height limit under the zoning code).
Venue: Legal term used to refer to specific jurisdiction or location (e.g., St. Louis, Missouri) where litigation or arbitration will be conducted.
Work Letter: Typically refers to an exhibit to a commercial lease that sets forth the landlord’s and tenant’s respective obligations regarding improvements to the premises, along with procedural requirements for any work to be performed by the tenant.