Commercial Real Estate Terms Flashcards

Commercial Real Estate Terms Flashcards Request For Proposal (RFP)Written request from the tenant or real estate broker to the landlord for information on leasing the building.Open ListingA 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 Gross LeaseA lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease.Opposite of Net Lease.BettermentAn improvement that increases property value as distinguished from repairs or replacements that simply maintain value.Option to RenewA lease clause that gives the commercial tenant the right to renew the current lease for an additional term subject to clauses and conditions as set out in the lease.DefaultBreaking any section of the terms contained within a lease document. Examples include failure to pay rent, using the premises for purposes not agreed upon in the lease or failure to perform any one of the agreed upon terms.Build-Out PeriodThe period prior to the commencement date that the tenant uses to renovate or build-out the premises; usually free of base rent and operating costs but often including utilities consumed.Capitalization Rate ("Cap" Rate)The rate typically used to calculate or make an estimate on the underlying value of a property based on the Net Income

derived from the property.Formula: Net Income divided by

Cap Rate = Estimated Value.Exclusive ListingA written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.Real PropertyLand and generally whatever is erected or affixed to the land that would be personal property if not attached Build-to-SuitThe construction of an office or industrial building to meet the specific requirements of a large tenant or purchaser.Full Service LeaseA lease that requires the landlord to provide all services for the tenant's occupancy throughout the lease term. The cost associated with providing such services are included in the base rent.

Net Operating Income (NOI)The net proceeds of income after first deducting all reasonable operating expenses and all vacancy allowance, but before the payment of any debt service or return on an investment or income producing property.PlannersIndividuals employed by municipalities and other levels of government who are trained in urban planning and advice governments with respect to zoning and planning matters.Base RentThe amount of rent to be paid by the tenant excluding operating costs maintenance, insurance, hydro etc. Base rent is synonymous with minimum, net or basic rent.Option to PurchaseA lease clause that gives a tenant the right to purchase the building if certain previously agreed to conditions within the lease agreement are met.Common Area Maintenance (CAM)The amount of additional rent charged to the tenant to maintain the common areas of an industrial, commercial or office building or property. These charges are shared by the tenants on a pro-rata basis (ie. Landscaping, parking lot repairs, common area lighting, etc...) AssignmentAn agreement conveying the leasehold interests, including the financial responsibilities, from one tenant to another tenant.

Net RentNet rent is often equated with triple net leasing: as most

elements, taxes, common area maintenance and operating costs are subject to escalation and therefore netted out.Thus, a tenant would agree to pay a certain net rental rate plus their portion of taxes, maintenance costs (CAM) and operating.Letter of CreditA commitment by a bank or other person that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.LevyTo impose or assess a tax on a person or property. The amount of taxes to be imposed in a given district.Demising WallsPartitions or walls that separate one tenant's space from the buildings common areas, or from another tenant's space in a commercial, office, or industrial or retail property.CovenantsWording found in deeds that limits/restricts the use to which a property may be put (e.g., no bars).PreleasingThe leasing of a real estate property before construction is completed.Right of First Offer or First Opportunity A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a

portion of the property if the owner decides to sell or lease.Unlike under a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be sold or leased to a third party.

BOMA(Building Owners and Management Association) A nationalassociation developed as a forum for building owners and managers and developers.LienA 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 Expansion OptionA right granted by the landlord to the tenant whereby the tenant has the option(s) to add more space to their existing premises set out in the Agreement to Lease.Option to CancelA lease clause that gives either a tenant or a landlord the right to cancel the remaining term of the lease based previously agreed upon conditions.Right to TerminateA special clause in the lease agreement giving one of the parties (usually the tenant or lessee) the right to cancel the lease.InducementAn concession, allowance or benefit offered by a landlord to a prospective tenant in order to encourage the prospective tenant to sign a lease commitment or renewal.Operating CostsThe actual costs associated with operating a property including taxes, repairs, management, utilities, and insurance; which is proportionately charged back to the tenants.Net AbsorptionThe square feet leased over a period after deducting space vacated in the same area during the same period.Absorption RateThe estimate of the rate at which commercial office, warehouse or industrial space will be leased or occupied in a given market within a specified period.Leasehold ImprovementsImprovements or leaseholds made to the property as required by the tenant and approved by the landlord. These typically include itemssuch as partitioning, door frames, doors, carpet, side lights, electrical, mechanical etc.Build OutThe construction or improvements of the interior of a commercial space, including walls, flooring, plumbing, electrical, paint, etc.Letter of Intent (LOI)An informal offer to lease or purchase. This letter requests certain conditions to be allowed by the parties before entering into any formal agreements.Estoppel CertificateA legal instrument executed by the one taking out the mortgage (i.e., mortgagor). The owner of a property may require an individual leasing a property to sign an estoppel certificate, which verifies the major points (e.g., base rent, lease commencement and expiration) existing lease between the landlord and tenant.