Final Assessment: Commercial Real Estate Terminology

AIA contracts are documents that govern labor and union issues.

Air rights are unused development rights for real property; often referred to as the empty space above a piece of real property.

Annual percentage rate (APR) is the yearly cost of credit, including the interest and fees, expressed as an interest rate.

Assessment in real estate is the setting of a value on property, usually for the purpose of calculating real property taxes.

Air rights are those rights granted to a tenant and landlord in a lease to object to and/or review calculations provided by the other party.

Any structure or part of a structure that is below the surface of the ground that surrounds it is known as above grade.

As described on the NYC.GOV website, a business improvement district (“BID”) is a “public/private partnership in which property and business owners elect to make a collective contribution to the maintenance, development, and promotion of their commercial district. BIDs have helped revitalize neighborhoods and catalyze economic development throughout New York City. BIDs deliver supplemental services such as sanitation and maintenance, public safety and hospitality, marketing and promotions, capital improvements, beautification, district representation, and business development.”

Capitalization rate (also referred to as cap rate) is the rate of return on a real estate investment property based upon the income that the property is expected to produce.

Collateral assignment of lease is when the tenant assigns its lease back to the landlord.

A cooperative (also referred to as co-op) is a legal entity, usually a corporation, which owns real estate, usually in the form of a residential building. Individuals who buy “into a co-op” are not actually purchasing real property. Instead, they are essentially becoming: (1) a shareholder in a corporation that owns real property, as evidence by shares of stock allocable to the unit purchased, and (2) a tenant of such corporation, as evidence by a proprietary lease for the unit purchased.

A deed in lieu of foreclosure is a deed by which a borrower voluntarily gives title to real property to the bank (i.e. the mortgagee) in exchange for the borrower (i.e. mortgagor) being released of all obligations under the mortgage, generally in order to avoid foreclosure.

A deed of trust is a document by which real property is pledged to secure a loan and held by a trustee; used in certain states in place of a mortgage.

An easement is a non-possessory right to use and/or enter onto the real property of another. This may include the right to cross over to access another property or use the property for a particular purpose.

An easement is the cash remaining after the landlord pays all expenses for operating a particular property as well as costs for tenant work in order to prepare the property for occupancy.

An escrow agreement is an agreement in which one party to a transaction will place an asset in the care of a third party, often an attorney or banking institution, unless and until a particular event occurs or a condition is satisfied.

Escrow disbursements, in the context of a real estate transaction, are escrowed funds that may be released for the payment of expenses relating to a real estate transaction.

Exclusive right to purchase agreement is an agreement granting a party the exclusive right to purchase a particular property from the other party to the agreement.

Exclusive right to sell agreement is an agreement whereby an owner can only sell, but not lease, their property.

Façade is the exterior side of a building that is usually characterized as the front of the building.

Floor area ratio (“F.A.R.”), at its simplest level, is the ratio between the total amount of usable floor area that a particular building has (or is permitted to build upon), when compared to the total area of the lot which the building stands on.

A domestic entity is an entity formed in another state or foreign nation conducting business in another state or jurisdiction.

Franchise agreement is a contract in which an established entity (known as the franchisor) agrees to, among other things, permit another party (known as the franchisee) to utilize its brand while providing the requisite support for and to the franchisee so that the franchisee can operate the franchised business of the particular brand in exchange for a fee and share of income. The franchise agreement will specify the duties of each party as well as the compensation to be paid to each.

A franchisee is an individual or entity that purchases and operates a franchised business. The look, name, and products sold by the franchise are commonly under the control of the franchisee.

Franchisor is an entity that allows a franchisee to operate a location/franchise of their business. The franchisor is the party that owns the franchise company and its intellectual property but grants the franchisee the right to operate a franchise location.

Gross building area is the total area of a building with a finished interior, including but not limited to below grade living space as well as interior stairways, hallways, storage rooms and laundry rooms.

Industrial and Commercial Abatement Program (ICAP) is a New York City program that provides property tax abatements for up to 25 years for those building or conducting physical improvements, modernizations, or expansions on commercial buildings.

License agreement is an agreement where an owner of real property grants an individual or an entity the right to use real property for a specific purpose. Unlike a lease, a license does not transfer an interest in the real property for a pre-established period of time.

Listing agreement is a contract in which a real estate broker is hired to represent an owner of real estate in their efforts to sell or lease real estate or a particular space in a building.

Net absorption is the amount of tension between the broker and the tenant during the leasing process.

A power of attorney grants the attorney of the tenant the right to enter the premises being leased by the tenant at any time, without permission.

Recourse, at its most basic level, is the legal right to demand compensation for a breach of contract.

Sale-leaseback is a real estate sales transaction in which the owner of a property sells the property to a buyer, and after the closing of title to the property, the seller then leases back all or a portion of such property from the purchaser.

A stacking plan is a two dimensional representation of a building that details the space available on each floor of the building, all occupied space in a building and the lease expiration date for such spaces.

Vacancy rate is the percentage of vacant space in a building due to non-occupancy of an available, rentable unit or space.

The Appraisal Institute defines highest and best use as follows: “The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternatively, the probable use of land or improved property – specific with respect to the user and timing of the use – that is adequately supported and results in the highest present value.”