Real estate glossary and commercial real estate terms for learning commercial real estate and negotiating commercial leases through Leasing REality.
Abatement: The reduction or elimination of a portion of rent during the lease term. Commonly referred to as “free rent,” “rent abatement” or a “rent concession.” An abatement may be offered outright, or alternatively, upon a specified event (e.g., when granted by a landlord in the event a tenant does not receive an essential building service after a pre-specified term of days).
Abatement Recapture or Concession Recapture: A provision contained in a lease which conditions tenant’s receipt of free or abated rent, a tenant improvement allowance, any cash or other bonus, inducement or consideration for tenant’s entering into the lease upon tenant’s full and faithful performance of all of the terms, covenants and conditions of the lease. Generally, upon the occurrence of an uncured default by a tenant, any such abatement or concession will (1) be deemed of no further force or effect and (2) the unamortized amount (calculated on a straight line basis over the initial lease term) of any rent or other consideration will be immediately due and payable by tenant to landlord.
Absorption: The amount of inventory of leasable space that became leased during a particular time period in a specific market, typically reported as the absorption rate.
Absorption Rate: Absorption rate is the rate at which available properties are leased in a particular market during a specified time period, usually expressed as a percentage of total square footage.
Accelerated Rent Provision: A lease clause requiring immediate payment (i.e., the “acceleration”) of all sums due for the balance of the lease term subsequent to an uncured tenant default or early lease termination event. Given that many landlords are of the mindset that (a) all rent is technically due for an entire calendar year or lease term as of the lease commencement date and (b) the payment of fixed or base rent in monthly installments is merely for a tenant’s convenience, to a landlord having rent acceleration in its lease is imperative. Conversely, to a tenant, it is equally imperative to insert language to the effect that “tenant shall only pay fixed or base rent as it becomes due on a monthly basis” when an acceleration event would otherwise occur.
ACM: See “Asbestos Containing Material(s)” below.
ACP-5: A certificate indicating the presence (or lack thereof) of asbestos containing material in compliance with applicable law. According to the NYC Department of Environmental Protection website, it is a “not an asbestos project” notification form. To a tenant, in an ideal world the landlord will make a representation with the lease that landlord shall “deliver the premises free and clear of any hazardous materials along with an ACP-5 certificate (or the equivalent in other jurisdictions) indicating that the premises are asbestos free.” For landlord advocates, consideration should be made to having your lease contain language specifying that if any asbestos containing material – which is currently in compliance with applicable law – is disturbed by the performance of tenant’s work, then the tenant will be responsible for the remediation associated with the removal of such asbestos. For more information, please refer to http://www.nyc.gov/html/dep/pdf/cda/atru_guidance_document.pdf.
ACP-7: According to the NYC Department of Environmental Protection website, it is an “Asbestos Inspection Report” Asbestos Project Notification. For more information, please refer to http://www.nyc.gov/html/dep/pdf/cda/atru_guidance_document.pdf.
Ad Valorem: Latin for “according to value,” it is a tax based upon the assessed value of real estate or personal property.
ADA Compliant: Meaning that a commercial property complies with Americans with Disabilities Act (ADA), which according to the United States Department of Labor website, is a federal law prohibiting discrimination against individuals with disabilities in employment, transportation, public accommodation, communications, and governmental activities.
Additional Rent: All sums due to a landlord pursuant to a lease other than base or fixed rent, which may include, among a plethora of items, real estate taxes, common area expenses, operating cost escalations, sub-metered charges and attorneys’ fees payable to a landlord.
Add-On Factor: Sometimes referred to as a “Loss Factor,” or “Rentable/Useable (R/U) Factor,” an add-on factor represents tenant’s proportionate share of non-usable square footage in the common areas of the building (such as lobbies, hallways, shafts, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). It is expressed as a percentage which is multiplied by the usable square footage to determine the rentable square footage upon which a tenant will pay rent. Note that add-on or loss factors can vary wildly by market and by landlord.
AIA Contracts | AIA Construction Contracts | AIA Architectural Contracts: Contract documents created by the American Institute of Architects (AIA) that serve as the models used in the design and construction industries.
Air Rights: Unused development rights for real property (a.k.a. a piece of land); air rights are often referred to as the empty space above a piece of real property. See Development Rights.
Alteration | Alterations: Work performed or to be performed to space in a building; alterations are generally considered to interior non-structural work (e.g., work performed on a “system” such that for plumbing, electrical or HVAC), cosmetic in nature (e.g., work such as painting or carpeting), or structural in nature (e.g., erecting or demolishing load bearing walls).
Americans With Disabilities Act: According to the United States Department of Labor website, is a federal law prohibiting discrimination against individuals with disabilities in employment, transportation, public accommodation, communications, and governmental activities.
Amortization | Amortization Schedule: Amortization is the process of spreading out the deduction – often on a straight line basis – of capital expenses, loans, free rent concessions or even tenant improvement allowances granted by a landlord to a tenant over a period of time. Amortization can also be described as a reduction of a debt by regularly scheduled payments of interest and principal over a designated period of time. An amortization table or schedule illustrates such payments (or deductions) and the remaining balance due after each payment is made.
Amperage (Amp or Amps): The simplest definition is that found in the Cambridge Dictionary (i.e., the strength of electrical current needed to make a piece of electrical equipment work). Tenants will often (or should) ask a landlord to represent that the building’s feeders, risers and wiring currently existing in the building are available, suitable and safe for tenant’s intended purpose and that electric current of up to a specified amount of watts (e.g., six (6) watts) per usable square foot amperage (demand load) of electricity (exclusive of HVAC) will be available to the space it is leasing.
Anchor Tenant: The major or principal tenant serving as the primary draw to a shopping center or building.
Annual Percentage Rate: The yearly cost of credit, including the interest and fees, expressed as an interest rate.
Antenna Rights: A (non-exclusive) right of a tenant, at its sole cost and expense, to install, service, maintain, and replace during the term of its lease an antenna (often limited to 18 to 24 inches in diameter) for their use and not for use by any other party. Subject to a plethora of restrictions, the antenna is generally located on a setback or on the roof of a building, in a location to be determined by the landlord in its sole discretion.
Architectural Fees | Architect Fees: The cost of the services of an architect to a landlord or tenant, usually expressed as either a percentage of the total contract amount or based on the square footage of the space. The fee will vary according to the services provided and the complexity of the project. For work or other alterations to be performed by a tenant, most leases provide that the cost for the review of an architect’s construction documents by a landlord’s own architect and/or engineer shall be paid for by the tenant.
Asbestos Containing Material(s) (a.k.a. “ACM” or “Asbestos”): A strong and fireproof silicate-mineral fiber that becomes brittle (“friable”) with age, and pollutes air and water as extremely fine particles that as a consequence of prolonged exposure to it, can cause serious illnesses (e.g., asbestosis and cancer (such as mesothelioma)). Asbestos can be found in a myriad of items, including but not limited to, certain types of acoustic ceiling tiles, insulation, patching compounds, roofing shingles, texture paints, and vinyl flooring.
ASHRAE Comfort Chart: A standard often requested by tenants in a lease requiring that HVAC shall be provided to a tenant’s space at minimum specified standards to maintain year round comfort. The American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) is a global society advancing human well-being through sustainable technology for the built environment focusing on building systems, energy efficiency, indoor air quality, refrigeration and sustainability.
“As Is” or “As-Is” Condition: The existing condition of the premises with all faults and defects and without repair by landlord. To a landlord, ideally, its incoming tenant will (a) represent that the premises and all systems affecting the same have been inspected by tenant and its engineers (or that that the tenant has waived such inspection or will conduct said inspections by the lease commencement date) and (b) accept the premises in its “as is” broom clean condition on the lease commencement date without representation or warranty, express or implied, in fact or by law, by landlord and without recourse to landlord as to the nature, condition or usability of the premises.
Assessment: Assessment in real estate is the setting of a value on property, usually for the purpose of calculating real property taxes. A special assessment is a charge levied against a property to meet the cost of certain public projects such as for water or sewers lines, streets, sidewalks or business improvement districts.
Assignment and Subletting: A provision in the lease detailing the rights of, and procedures for, allowing (or not allowing) a tenant to assign its lease (whereby tenant’s entire interest in the lease and the premises to which it relates is transferred to another party), or to sublet all or a portion of the premises to another party (whereby a tenant transfers less than its entire interest in the lease and the premises). Aside from the financial terms of the lease, from both a landlord’s (control) and tenant’s (flexibility) perspective, this clause is arguably the most important lease clause to negotiate.
Assignment | Assign: A transfer by a tenant of its entire interest in the lease and the premises to another party.
Attorn | Attornment: The agreement and acknowledgment to “become the tenant” of a new landlord for the building (e.g., in the case of the current landlord’s mortgage being foreclosed) or to the owner of the same property (e.g., in the case of a subtenant). For example, a well-crafted subletting clause should provide that “every subletting hereunder is subject to the express condition, and by accepting a sublease hereunder each subtenant shall be conclusively deemed to have agreed, that if this Lease should be terminated prior to the Expiration Date or if Owner should succeed to Tenant’s estate in the Demised Premises, then at Owner’s election such subtenant shall either surrender the Demised Premises to Owner within thirty (30) days of Owner’s request therefore, or shall attorn to and recognize Owner as such subtenant’s Owner under such sublease, and such subtenant shall promptly execute and deliver any instrument Owner may reasonably request to evidence such attornment.” See “SNDA” and “Subordination, Non-Disturbance and Attornment Agreement.”
Audit Rights: Often subject to a myriad of restrictions, audit 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 (e.g., the right of a tenant to review the real estate tax or operating expense escalation (or other escalation or pass-through) charge, along with the procedures and conditions associated therewith, and the right of a landlord to audit the books and records of a retail tenant required to pay “percentage rent” to such landlord).
Base Rent: Base Rent is the minimum or base amount of rent payment as set out in a lease and is often referred to as “fixed rent.” Generally stated, base rent does not include “additional rent” (e.g., any other item of rent payable to a landlord such as percentage rent, rent escalations, a rent pass-through for taxes, insurance or operating costs, for reimbursement by tenant for electric, or water charges measured by a sub-meter).
Base Year: A base year is the year used in a lease for comparison in the measure of a business activity (the “breakpoint” for percentage rent payable to a landlord in some retail leases) or economic index (the fiscal or calendar base year for operating cost or real estate tax escalations (e.g., in NYC, the “fiscal year beginning July 1, 20__ and ending June 30, 20__”)). It is also referred to as a “Base Tax Year” or “Base Operating Year.”
Below Grade: Any structure or part of a structure that is below the surface of the ground that surrounds it.
Broker(s): Licensed professionals who represent buyers, sellers, landlords, and tenants in arranging real estate transactions for a commission or fee.
Brokerage Agreement: The agreement detailing the relationship between a landlord and a broker (or a tenant and broker) and the myriad of terms and conditions relating to if, when, how, by whom and at what rates a fee shall be paid to a brokerage company for the services conducted by it on a real estate transaction such as an executed lease or a closed sale of real property.
Brokerage Commission: The fee paid to a brokerage company for the services conducted by it on a real estate transaction such as an executed lease or a closed sale of real property.
Broom Clean: The absolute minimal condition a space should either be delivered to a tenant at possession or returned to a landlord at lease termination, (e.g., all carpets and floors broom swept and/or vacuumed, and all personal property (which has not been included in the lease to remain in the premises), trash and other debris removed. See “Industrial Clean.”
Builder’s Risk Insurance: The working definition often used by many for defining builder’s risk insurance is coverage to protect an individual and/or entity’s insurable interest in fixtures, materials, and/or equipment used in the construction or renovation of a building or structure in the event those items sustain any loss or damage from a covered cause under the policy (e.g., fire, lightning, wind, theft or other destruction including vandalism).
Building Classifications: The highest-quality office spaces on the market are considered Class A. Generally speaking, these spaces are newly constructed (or recently retrofitted) and have been outfitted with top-of-the-line fixtures, amenities and systems. Class B properties are considered “average” as far as office spaces go. These buildings usually don’t have the same high-quality fixtures, architectural details and impressive lobbies as Class A spaces (or are located in a less desirable location than an “A” building) but are generally nice buildings with fully functional facilities and high end amenities.
Building Code: A building code is a set of laws enacted by federal, state, or local governmental or quasi-governmental agencies specifying the minimum standards that must be met in the construction and maintenance of space within a building and the building itself.
Building Standard: A particular style and level of quality (and quantity in certain instances) of building materials, finishes, and accessories (e.g., paint, carpet, fixtures, lighting, flooring, doors, etc.) used by a landlord in a specific commercial building.
Build-Out: Improvements made to the interior of the leased premises according to a tenant or landlord’s building specificationss.
Burndown of Security Deposit or Letter of Credit: A provision in a lease permitting the amount of the required security deposit to decrease over time subject to specified benchmarks and conditions (e.g., “provided that this Lease is in full force and effect and Tenant shall not be in monetary or material nonmonetary default of this Lease (beyond the expiration of any applicable notice and cure period), then Tenant may provide to Owner (and Owner shall promptly thereafter execute and deliver to Tenant, if necessary) such instruments and authorizations as may be reasonably required by the issuer of the Letter of Credit to reduce the face amount thereof by $250,000.00 to $500,000.00 as of the first (1st) day subsequent to the fifth anniversary of the Rent Commencement Date”). It is also known as a “Security Deposit Reduction.”
Business Improvement District (“BID”): Although located throughout many United States cities, as described on the NYC.GOV website, a 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 (a.k.a. “Cap Rate”): The rate of return on a real estate investment property based upon the income that the property is expected to produce. A capitalization rate can also be defined as the ratio of net operating income to property asset value or purchase price. By way of example, if a building has a net operating income of $400,000.00 and the building is being marketed for sale at a “4% cap rate”, the desired sales price for the building would be $10,000,000.00 (i.e., $400,000 NOI/.04 = $10,000,000.00).
Carrying Charges (for Landlord): Expenses incurred as a result of property ownership, including maintenance costs, real estate taxes, insurance and mortgage payments.
Cash Security Deposit: At its simplest level, it is cash security given at lease execution to a landlord from a tenant as “collateral” to ensure tenant’s performance of its monetary and non-monetary covenants under the lease. If the tenant is in default (beyond the expiration of any applicable notice and cure period described in the lease), generally stated, the landlord can “draw” on the security deposit in order to “cure the default.”
Caveat Emptor: Latin for “let the buyer beware.” In the context of real estate, it stands for the principle that the buyer (or tenant) bears the burden to inspect property before purchasing (or leasing) at his or her own risk. See “As Is.”
Certificate of Occupancy: A certificate of occupancy is a document issued by a local government agency or building department after inspection verifying a building’s or leased premises’ compliance with applicable building codes and other laws, indicating such space to be in a condition suitable for a tenant’s and/or a building’s permitted use and occupancy.
Cleaning Specifications: Generally, an exhibit that is referred to in the body of a lease and attached to such lease detailing what cleaning services are to be provided to a tenant by its landlord at no cost. In a well-crafted lease, language is often included detailing a number of items that the tenant will either pay the landlord for if so requested and/or be required to perform themselves (e.g., kitchens, private bathrooms or showers, server rooms and glass surfaces).
Collateral Assignment of Lease: A document required by a franchisor to be included as an integral part of a lease, wherein among other things: (1) the landlord must notify franchisor in writing of any default by tenant under the lease as and when such defaults occur; (2) that if tenant defaults on its obligations under the lease or under its franchise agreement, beyond applicable notice and cure periods, the franchisor shall have the right to take possession of the tenant’s space and thereafter tenant shall have no further right pursuant to the lease; (3) that if franchisor exercises its rights under the Collateral Assignment, landlord shall take all action necessary to retake the premises (such action including termination, eviction and legal action); (4) that franchisor shall have no obligation under the Collateral Assignment until the premises are lawfully tendered to it; (5) that if the franchisor takes possession of the premises and assumes the lease as tenant thereunder, the landlord shall be required to recognize the franchisor as tenant under the lease; (6) that the landlord agrees that the franchisor may further assign the lease to any person or entity who as part of such assignment such person or entity shall agree to assume tenant’s obligations under the lease; (7) that upon such assignment, franchisor shall have no further liability or obligation under the lease; and (8) that upon termination or expiration of the franchise agreement or the lease, franchisor shall have the right to enter the premises to make all necessary modifications or alterations to the premises for the removal of all articles which display franchisor’s proprietary marks (including all signs, advertising materials, stationery and forms).
Other examples of when a collateral assignment of lease is used include when a business is sold to a buyer with partial “seller financing” or on bank loans on income-producing property. In either scenario, the “Assignee,” as “Lender,” has agreed to make a loan to the “Borrower” (the “Loan”), evidenced by a promissory note (the “Note”) and other related loan documents, and to secure the Loan, the Borrower has agreed to assign to Assignee, and Assignee has agreed to take from Borrower, an assignment of the lease for collateral purposes, on the terms and conditions set forth in the collateral assignment of lease.
Cold Shell: Also known as a “dark shell” or “gray shell.” Although definitions differ regionally and nationally, at its most basic meaning, it is a space or building delivered to a tenant with an unfinished interior void of basic essential systems and utility lines (e.g. HVAC, plumbing and electrical conduit), and in many cases flooring (with only a dirt floor delivered at possession in the case of newly constructed retail spaces) and walls (other than exterior walls). See “Warm Shell” and “Vanilla Box.”
Common Area: Those areas of a building and its property that are available for non-exclusive use by all tenants or groups of tenants and their invitees, such as lobbies, corridors, parking lots and other building amenities (e.g., a gym, walkways surrounding the parking lot, patios and gardens).
Common Area Maintenance (CAM): Charges paid by the tenant in addition to base rent or fixed rent for the upkeep of the common areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants are typically charged for their share of, among other operating costs of a landlord, such items as parking lot and building maintenance, lighting, snow removal, property taxes, insurance, and utilities.
Comparables | Comparable Space: Space in a tenant’s building or within a pre-established radius of such building with characteristics similar to the existing space (including, without limitation, in terms of: (1) finishes, (2) the amount of overall windows, (3) bullpen space, (4) windowed offices, (5) usable square feet, and (6) if in a high rise building, the location of the space in terms of the view (and if another building, in terms of amenities and location on an “avenue” or “side street”), and if a retail space, in a still visible and well trafficked location.
Comparison Year: With respect to real estate tax, operating expense or other escalations, a “comparison year” is any tax year subsequent to the base year (e.g., Base Tax Year or Base Operating Year) for any part or all of which there is additional rent payable in addition to the base or fixed rent provided for under the lease.
Compatible Labor: Contractors who can work side by side, on the same project, or in the same building without causing union issues, strikes, work stoppages, picketing or riots.
Compliance with Law: The obligation to conform to a rule, specification, policy, standard, regulation, ordinance, code, or law.
Community Board: Although they are not necessarily prevalent regionally or nationally, in New York City, they are, in theory, boards designed to improve the quality of life of those living and working in New York City in designated districts. In Manhattan alone, as of November 1, 2016, there are twelve (12) community boards. In the context of a lease for a liquor store, bar, restaurant, or other establishment who desires to serve alcoholic beverages, the approval of the community board in the district to conduct such use is mandatory. Tenant advocates should strongly consider, when negotiating the letter of intent, a contingency to secure community board as well as liquor license approval. For example, in New York State, approval from the New York State Liquor Authority (“NYSLA”) is required. See “Liquor License Contingency.”
Concessions | Tenant Concessions: Incentives used by landlords in the form of free rent, tenant improvement allowances, cash, above-building-standard finishes, buy-outs of a tenant’s lease in another building, and other incentives used to induce prospective tenants to either relocate to or remain in its building.
Condemnation: The legal process under eminent domain by which privately held property is taken by the government for public use, without the owner’s consent, but upon the payment of compensation for the appraised value of the property. Also see “Eminent Domain.”
Condenser Water: A provision requiring a tenant to purchase, and for a landlord to furnish, condenser water to a tenant’s space in sufficient (or maximum) capacity to operate the existing (or to be installed by tenant) water cooled supplemental air conditioning system servicing the space. Also see “Tap-In Fee.”
Conditional Limitation: A “pro-landlord” provision contained in a lease allowing a landlord the right to terminate a tenant’s lease if certain conditions are not met (e.g., if tenant has defaulted in the payment of its fixed rent more than twice in any consecutive 12 month period, upon the occurrence of a 3rd default within said period, the landlord shall be able to terminate the lease on five days’ prior notice).
Condition of Premises: The condition that: (1) a landlord shall deliver the premises to its tenant on the possession and/or lease commencement date (e.g., broom clean, vacant with landlord’s work completed, and all systems servicing the premises in working order); or (2) tenant shall deliver the premises to its landlord on the lease expiration or earlier termination date of the lease (e.g., all systems in working order and the premises and the condition thereof as of the lease commencement date, reasonable wear, tear and casualty excepted). Also see “As-Is”, “Removal Obligations”, “Restoration Obligations” and “Specialty Alterations.”
Condominium: A building or complex of buildings containing a number of individually owned units. In a commercial lease, landlord advocates should consider adding a provision to the lease that if, in the future, the building becomes subjected to condominium ownership, then the lease and all rights of tenant thereunder shall be subject and subordinate in all respects to any condominium declaration and any other documents (and upon landlord’s request but at no cost to tenant, it shall enter into an amendment of the lease to conform to the formation of such condominium provided that no such amendment shall increase tenant’s obligations or liabilities under the lease, nor abrogate any of tenant’s rights under the lease.).
Conduit: A structure or tube, generally contained underground or within a building, with one or more ducts, through which cables, wiring, equipment, and/or facilities can be placed and/or run. Rigid conduit is generally required by landlords over “flexible” conduit.
Consent: See “Deemed Consent” and “Landlord’s Consent.”
Construction Bond(s): See “Payment Bond”, “Performance Bond” and “Payment and Performance Bond.”
Construction Contract(s): A formal written agreement between a contractor and an landlord or tenant for the construction, alteration, repair, modification or build-out of a building, office, retail, or industrial space.
Construction Drawing(s): The detailed visual representation of the intended dimension, design, and location of a construction project.
Construction Escrow Agreement: When used in conjunction with a lease, it is an agreement where a landlord and tenant agree that the tenant will deposit, with an escrow agent, a sum of monies to be used as partial (or full) payment for the construction of Tenant’s Work, with the funds on deposit distributed periodically in payment of supplies and labor upon the presentation of documentation specified thereunder to the escrow agent (such as each request for disbursement being accompanied by: (i) invoices for the work performed to date, (ii) a letter signed by an authorized officer of the tenant stating that the work has been performed and that the amount billed is as provided for in the tenant’s construction contract with the contractor submitting the bill, (iii) certification by tenant’s architect that said work has been substantially completed in accordance with the plans approved by tenant and all contracts between tenant and the contractor, (iv) a full (or partial) lien waiver signed by the contractor(s) of tenant (and the subcontractors of contractor) who have performed the work for which a distribution from the escrow is being requested and (v) a certificate of tenant certifying that there has been no material adverse financial change since the preceding advance of funds from the escrow (which is often accompanied by a last lien and judgment search as well). Final draws are often conditioned upon the receipt by the escrow agent, (in addition to any and all other documents required above) of (x) full and final unconditional lien waivers from its contractor and all subcontractors, (y) a free and clear last lien and owner’s search against the building and the tenant, indicating that no liens, claims or encumbrances existed on the premises (other than landlord’s mortgage (if any) and permitted encumbrances in favor of landlord, with the cost of such report being tenant’s sole responsibility and (z) a final or temporary commercial certificate of occupancy for the building (which in case of a temporary certificate, tenant shall thereafter remain obligated to diligently pursue and secure the permanent certificate of occupancy for the build out of the premises).
Construction Completion & Payment Guaranty: A guaranty by an individual and/or entity to complete any work commenced on a construction contract and to pay for all amounts due under such contract. The inclusion of (and performance under if required) such a construction and payment guaranty within a “good guy” or a straight guaranty can be a pre-condition to the termination of such guaranty.
Construction Management: Services described in a construction management agreement specifying that the construction manager will provide management of all trades and sub-contractors until the completion of any and all work on a construction project (all, generally stated, in accordance with any construction specifications, budgets and any change orders subsequent to the execution of the construction management agreement). Language is often included requiring such management to be performed on an “open-book basis” (i.e., with full transparency as to actual costs incurred), using the total cost of such construction plus a construction management fee calculated in the range of three percent (3%) to five percent (5%) of such hard construction costs.
Consumer Price Index (“CPI”): A tool to measure inflation by examining the change in prices of a fixed basket of consumer goods and services such as housing, food, transportation, and medical care over a period of time. It is sometimes called a cost-of-living index.
Contiguous Space: Space that is adjacent to another space and such contiguous spaces being either: (1) next to each other on the same floor or (2) on the floor which is either directly below or above the other.
Contingency: Dependence on a future event, circumstance, or fulfillment of a condition that may occur but is not certain to occur. In the context of leasing, common contingencies are those related to securing: (1) approval of a certain governmental or quasi-governmental board or authority (e.g., community board or state liquor authority) or (2) a permit or variance for a particular use (e.g., a physical cultural establishment for a fitness center).
Cooperative (Co-Op): 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.
Co-Brokerage Agreement: In the context of a commercial lease (or the sale and purchase of real estate), an agreement wherein two (or more) real estate brokerage firms generally agree in writing to the following: (1) which broker is the listing agent of the premises on behalf of the landlord (or seller), (2) that the listing agent and co-broker are the sole brokers who brought about the leasing (or sale) of the premises, (3) the listing agent and co-broker are the sole brokers entitled to receive a commission and the method under which they will be paid (and the splitting of such commission) in accordance with the terms and conditions of the co-brokerage agreement.
Co-Tenancy Requirements (Clause): A provision generally found in a retail lease which states that tenant shall not be obligated to initially open for business during a “blackout” period and if tenant does not open, the term of the lease and tenant’s rental obligations shall not begin until the earlier of tenant’s opening or the end of the blackout period. Such blackout period could be at any time when less than sixty-five percent (65%) of the gross leasable area of the retail tenants, excluding tenant’s square footage and the square footage of any restaurant or purveyor of food, is occupied and open for business. The tenant may elect to open during a blackout period but will not be required to pay landlord rent and other charges until the day after the end of the blackout period. If the lease provides for a period of time prior to the commencement date for tenant to perform its fixturization and other construction work, then tenant need not accept delivery by landlord of the demised premises when the end of the fixturization period will occur within the blackout period. The tenant shall have the option to terminate the lease at any time during the blackout period as well.
Covenant: An agreement to do, or refrain from doing, a specific thing, such as to pay rent, to make repairs, to not compete with.
Dark Shell: See “Cold Shell.”
Deed in Lieu of Foreclosure: 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.
Deed of Trust: 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.
Deemed Consent: A provision stating that the landlord’s consent shall be deemed to have been granted if, within a pre-determined time period, the landlord fails to respond to a tenant’s consent request relating to a matter in which the tenant must first seek the landlord’s consent (e.g., to an assignment or sublet or to perform alterations to a tenant’s space).
Default: Failure to fulfill a legal obligation or condition in a timely manner such as paying rent, performing repairs, or complying with (or being in violation of) any other obligation under the lease.
Default Remedies: The remedies provided to a party in the event that the other party to the lease defaults on their obligations under the lease. Such remedies should be explicitly stated in the lease.
Demolition (Clause) | Demolition Work: A clause reserving the right for a landlord to terminate an existing lease, upon relatively short notice to the tenant (such as 6 to 9 months), so that a demolition of the building, material improvement, or substantial renovation can be undertaken. More often than not, a demolition clause appears in a lease for the first time, with no prior mention of its inclusion in a letter of intent between a landlord and tenant.
Desk Sharing (Provision): A lease provision giving a tenant flexibility to grow into a space or downsize by having the ability to sublease or license a portion of its offices or other space without being required to go through the process and cost of obtaining the landlord’s consent, provided that certain conditions were met. Such a provision is sometimes referred to as a “permitted occupant-desk sharing” provision.
Disbursement Request: A request for disbursement from a Tenant Improvement (TI) allowance signed by the president, CFO, or controller or other officer of a tenant together with such documentation as: (a) a statement that the amount requested in the disbursement request does not exceed the actual TI allowance; (b) copies of all contracts, work, purchase and change orders associated with the disbursement request; (c) copies of documentation such as bills and invoices are delivered indicating that all applicable work for which payment is sought has been completed, the applicable materials furnished, or the applicable services performed along with partial or full lien waivers from all contractors and subcontractors; and (d) a certificate from the tenant’s licensed architect or the person requesting the disbursement stating that in their reasonable opinion, all work for which the disbursement request is being made has in fact been completed and performed in a good and workmanlike manner substantially in accordance with the plans and specifications approved by landlord.
Due Diligence: The process of verifying facts about the other parties and the subject property in a commercial lease transaction. This will often include reviewing all financial records and other material information pertaining to the property, consequently allowing the reviewing party to assess the strengths and weaknesses of the other party and any risks involved. Essentially, due diligence refers to the level of care and procedures that should be exercised by a reasonable person before entering into an agreement or financial transaction with another party.
Early Access: A provision in a lease allowing the tenant access to the space prior to receiving possession, without the payment of rent, during the latter part of landlord’s construction in order to install its wiring and cabling, take measurements, install and/or store its work stations or furniture and to possibly begin a tenant’s alterations.
Easement: 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.
Effective Rent: 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. Stated differently, it can be considered the fixed rent stated in a lease less concessions granted by a landlord (e.g., free rent and certain cash allowances) plus escalations such as those for operating expenses and real estate taxes.
Electrical Capacity: A representation by a landlord that the premises contain a specified electrical capacity per square foot (i.e. the number of watts per square foot amperage, exclusive of HVAC).
Eminent Domain: The power of the federal, state, or local government or its agent to take private property for public use granted there is payment of just compensation to the owner of the taken private property.
Escalation Clause: A lease provision, generally considered to be payable as “additional rent.” Examples include (1) an operating expense, real estate tax or utility cost escalation, (2) an annual percentage increase in the base rent in lieu of an operating cost escalation, (3) a percentage increase in the consumer price index (CPI), and/or (4) a porters wage escalation. Typically, escalation clauses will take effect on the occurrence of a particular event (such as the annual anniversary of the base tax year established within a lease). That all said, escalation clauses can be structured in many different ways based on the different factors at play in each lease.
Escrow | Escrow Agreement: 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. Once this happens (or does not happen), the agreement will specify exactly what the party in possession of the asset is to do with the “escrowed asset.” This may include returning the asset to the party who placed it in escrow or transferring the asset to a third-party.
Escrow Disbursements: In the context of a real estate transaction, escrowed funds may be released (subject to the terms and conditions of the escrow agreement) for the payment of expenses relating to a real estate transaction. These expenses can include real estate taxes, insurance and other property expenses becoming due under a lease.
Estoppel Certificate: Generally stated, a document utilized by a landlord at such time as the landlord is attempting to enter into another agreement with a third party, such as a mortgage on or a sale of the landlord’s commercial, industrial or multi-family property. Language should be contained in a lease requiring tenants to execute and return from time to time when requested by landlord, a prospective purchaser or mortgagee, or the holder of any deed to secure debt or mortgage covering the building, the premises, or any interest of landlord therein, a certificate signed by the tenant confirming and containing such certifications and representations within no more ten (10) days following receipt of said certificate from landlord. The certificate is a method for the landlord and third-party to ensure that all tenants in the subject premises confirm the details of their current lease with the landlord, that the lease is in full force and effect, that the landlord is not in default under the lease, and has no claim against the landlord for any security deposit or prepaid rent.
Exclusive Agency Listing: Generally stated, an exclusive agency agreement is a contractual arrangement wherein a real estate brokerage firm is hired as the exclusive agent for a specified period of time to listing (or find) a specific space or piece of real property for a landlord or tenant, as the case may be.
Exclusive Right to Purchase Agreement: 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: An agreement granting a party the exclusive right to sell a particular property.
Exclusive Tenant Representation Agreement: An agreement between a broker and a tenant whereby the broker has the exclusive right to find a space and thereafter negotiate the financial and other pertinent terms to be contained in a lease on behalf of a tenant.
Exclusive Use Clause: A clause typically found in a retail lease wherein a landlord grants an exclusive use to a tenant in a building or shopping center or mall. Essentially, by granting the tenant the right to an exclusive use, the landlord is prohibited from leasing space to a prospective tenant who would engage in the same or similar use. Such clauses are more prominent when leasing in a shopping center or mall. For example, if the tenant is a sporting goods store, no other stores with a similar use are allowed in that particular complex, mall or center.
Exculpation Clause: A provision in a lease where the tenant acknowledges and agrees, for itself and its successors and assigns, that no trustee, director, officer, employee or agent of landlord shall be personally liable for any of the terms, covenants or obligations of landlord under the lease, and that tenant shall look solely to landlord’s interest in the building for the collection of any judgement requiring the payment of money by the landlord. Tenants should attempt to see similar applicable language from their landlord.
Exit Strategy: Strategies negotiated during the letter of intent and/or the lease negotiation stage whereby the tenant negotiates language within a lease regarding the tenant’s ability to “exit” from the lease for a specific reason or myriad of reasons in the future. For example, subject to conditions contained in the lease, the release of a guarantor from a guaranty upon assignment of the lease which has been guaranteed, provided that a replacement guaranty is executed by a principal of the assignee.
Façade: An exterior side of a building that is usually characterized as the front of the building. From an engineering perspective, the façade may have a significant impact on energy efficiency whereas zoning regulation may severely limit or prevent the alteration of historical façades.
Fair Market Value Rent | FMV Rent: The most feasible rent that a property should be rented for, taking into account the properties highest and best use and the rent that comparable properties at that particular time would rent based on relevant market factors. More specifically, FMV Rent can be considered the rent per square foot that a non-sublease tenant would pay on a non-sublease, non-renewal basis, for unencumbered space comparable to the premises in the building and in comparable buildings in the area giving appropriate consideration to market concessions and to all economic terms. Such economic term would include the length of lease term, size and location of premises, brokerage commission being paid or not paid, and whether tenant improvements or allowances are or are not being provided for such comparable space.
Financial Accounting Standards Board (also known as “FASB”): An independent board consisting of accounting professionals who primarily develop standards of financial accounting and reporting. Such standards are known as generally accepted accounting principles (GAAP) and govern the preparation of corporate financial reports financial reports.
Fee Mortgage: An agreement secured by real property whereby a bank or other creditor lends money to an owner of a fee simple interest in real property. Among other things, the real property secured by the fee mortgage is utilized as collateral (and can be foreclosed upon) in the event of the debtor’s uncured default.
Financial Statements and Records: Records that outline the financial activities of a business, an individual, or entity. Such records often include income statements, balance sheets, statements of retained earnings and cash flows, generally maintained according to the generally accepted accounting principles (GAAP).
Fire and Casualty (Clause): A provision in a lease that sets forth the rights and obligations of the tenant and landlord if a fire, casualty or other damage were to occur in the leased premises (and/or the building of which the leased premises are a part of).
Fixed Costs: A cost that remains unchanged over a specified period of time. Such fixed costs can include rent, loan payments and insurance premiums.
Fixed Rent: The cost of rent under a lease remaining “fixed” over a specified time period during a lease term (i.e., January 1, 2018 through and including December 31, 2018).
Floor Area Ratio (“F.A.R.”): At its simplest level, the ratio between the total amount of useable 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.
Food Hall: Although the definition can vary somewhat, a food hall can generally be considered an area of a shopping mall, retail component of a building or a free standing building containing select and/or individual retail vendors and kiosks.
Force Majeure: Getting international on you my friends, a French term meaning “greater force.” Subject to terms and conditions contained in a lease, a force majeure provision acts to remove the liability for natural and unavoidable events that restrict a party or parties from fulfilling their obligations under a lease. Commercial real estate leases typically list such force majeure events as “any prevention, delay or stoppage of work or other obligation to be performed due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes thereof, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the control of either Owner or Tenant.” For example, the occurrence of Hurricane Sandy in 2012 is considered a force majeure event.
Foreign Entity: An entity formed in another state or foreign nation conducting business in another state or jurisdiction.
Franchise Agreement: A contract in which an established entity (known as the franchisor) agrees to among other things to 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.
Franchisee: One who purchases and operates a franchised business. The franchisee is responsible for certain decisions, but other issues such as the look, name, and products sold by the franchise are commonly under the control of the franchisor.
Franchisor: 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.
Free Rent Concession(s): A rent abatement given by the landlord to the tenant, generally at the commencement of a lease term. Such free rent concessions are often dependent on a number of factors including the length of the lease term, the amount of security deposit put down by the tenant, the current market conditions, the other concessions the landlord is granting the tenant, and whether the lease is for office, retail, or industrial use.
Freight Elevator: A service elevator intended for carrying goods and other large items rather than mainly transporting passengers. In a lease, the amount of freight elevator time and the hours of operation the elevator can be operated are often negotiated between the landlord and the tenant.
Fuel Escalation(s): A lease provision whereby the landlord is permitted to pass on a percentage of an increase in the cost of a particular utility expense (i.e. fuel) to their tenant.
Generally Accepted Accounting Principles (GAAP): The common set of standards, rules, procedures, and principles accepted by professionals in the accounting industry. This framework has been adopted by most publicly traded companies in the United States.
Go Dark Provision: Most commonly found in a retail lease, it is a clause that’s grants a tenant the right to cease operations at a leased space while still being obligated to pay rent to its landlord. The key benefits of a tenant being able to go dark center around the financial savings (i.e., such as the need to no longer maintain inventory and employees) resulting from no longer having to operate in the space.
Good Guy Guaranty (“GGG”) | Guarantee: An agreement whereby one or more of the principals of a corporate or LLC tenant will guarantee to the landlord that it will pay all base and additional rent payments provided for under the lease up until the day the space is surrendered to the landlord – whether or not prior to the expiration of the lease term. In a basic GGG, at such time as the space is given to the landlord broom clean and vacant with all rent paid through the date of surrender, an event that the principals unilaterally control – the aforementioned guarantee will no longer be in full force and effect.
Examples of “legal and business steroids” landlords to add to a basic GGG can include: (1) guarantee of non-monetary lease covenants, (2) construction completion and a lien free guarantee, (3) space returned in condition required under the lease, (4) full amount of security deposit remaining intact at time of surrender, (5) 90 to 180 days’ advance written notice of surrender date, (6) reimbursement of landlord’s unamortized costs, such as brokerage commissions, free rent concessions, tenant improvement allowances and landlord’s work and (7) the GGG remaining in effect in the event of an assignment.
Good Working Order: A phrase commonly utilized in contracts relating to the condition that a particular system or item must be in at a certain time (i.e., an HVAC system), generally when a tenant takes possession of a leased space.
Gray Shell: See “Cold Shell.”
Gross Building Area: 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.
Gross Lease: A type of commercial lease in which the landlord pays for the building’s property taxes, insurance, and maintenance and allows the tenant to pay a flat fee in exchange for use of the property. Typically, the property owner will be responsible for any other fees associated with property ownership, such as property taxes and building repair costs.
Ground Lease: At its basic level, an agreement whereby a tenant leases the fee interest (i.e., the land) owned by a landlord permitting the tenant to (1) develop a particular property on the land or (2) lease the land upon which the building the tenant owns is situated on. Also known as a “land lease.” From and after the lease commencement date, ideally the goal of a landlord is to receive a net return from the land leased equal to tenant’s base tent, without deduction for any expense or charge for the premises (except to the agreed upon costs). Furthermore, the tenant shall be required to pay as additional rent all expenses, including any impositions and expenses arising from the leasing, management, operation, maintenance, repair, use, or occupancy of the building (and all construction relating to the building).
“Impositions” shall mean, collectively, all real estate taxes, all special assessments and all other property assessments, including all Business Improvement District (“BID”) charges and assessments, all ad valorem, sales and use taxes, all occupancy taxes and all similar taxes payable by tenants, all personal property and other taxes on the personal property, all water, sewer, and other utility charges imposed by any Governmental Authority, all fines, fees, charges, penalties, and interest imposed by any Governmental Authority or utility relating to or arising out of tenant’s use and occupancy of the demised premises, and all other governmental charges and taxes.
Guarantor: A person or entity that agrees to be responsible for another’s debt or performance under an agreement (such as a lease).
Hard Costs: The readily quantifiable costs of a construction project that become part of the improvements made such as land, a building, inventory, systems, equipment, or machines. These hard costs contrast with less readily quantifiable costs such as accounting, banking, financing, architectural or legal costs and involve the actual physical construction of a development and could include grading, excavation of a site, the materials used, landscaping, and carpentry. Also see “Soft Costs.”
Hazardous Material(s): Means any hazardous or toxic substance, material, or waste which is or becomes regulated by any local governmental authority or the United States Government.
Highest and Best Use: 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.”
Holdover (Tenant/Tenancy/Right(s)/Clause): When a tenant continues to occupy the premises beyond the term of the relevant lease. Example of a “Holdover Damages” Provision: “If the tenant holds over its possession after the expiration or earlier termination of the original term or any extended term, such holding over shall not be deemed to extend the term or renew the lease, but such holding over thereafter shall continue upon the covenants and conditions set forth in the lease, except that the charge for use and occupancy of such holding over for each calendar month or part thereof (even if such part shall be a small fraction of a calendar month) shall be the sum of 1/12 of the highest annual rent rate set forth in the lease, times 200% [to 300%], plus all other additional rent due under the lease.” Many landlords also add consequential damages language to their holdover clause.
Hours of Operation: The hours in which an entity conducts, or is required to conduct, its business operations. An entity’s hours of operation may vary depending on location, day of the week, as well as the type of business conducted.
HVAC Maintenance: A provision contained in a lease requiring a tenant to not only to repair, maintain, and replace (if necessary) the HVAC system or air conditioning unit servicing the premises, but to maintain a service contract as well on such system.
HVAC Major Components: (a) Compressors, evaporators, condenser fan motors, shafts and bearings, replacement of evaporator coils, and replacement of condenser coils; and (b) any required replacement, as reasonably determined by [tenant’s][landlord’s] air-conditioning engineer and/or air-conditioning service contractor, of the HVAC System, including, without limitation, such major parts and components.
HVAC (System): Acronym for heating, ventilation, and air conditioning system.
Improvements: Any permanent structure or work, such as planting trees or building a wall, that has the effect of increasing the value of the property itself.
Indemnity | Indemnification: A contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party. Therefore, in the context of a commercial lease, one party may have the obligation to indemnify the landlord for any damage that results to the premises during the term of the lease.
Industrial Clean: In addition to the basic requirements of “broom clean” condition, generally stated, it is the comprehensive cleaning (and in most cases disinfecting) of any and all surfaces contained in a space. Also see “Broom Clean.”
Industrial and Commercial Abatement Program (ICAP): 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.
Interest On Late Payment: Interest charged on a payment made after the date in which the original rent payment was due under a particular contract (e.g., a lease).
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Key Money: The sum of money paid to (1) an existing tenant by a person or entity in consideration of and in exchange for an assignment of a lease or (2) a landlord by a prospective tenant, generally for a fully furnished or “turnkey” restaurant space.
Kiosk (Provisions): A provision in a retail lease allowing a landlord to lease or license space in the common area a building or mall to tenants who want to sell easy to carry items and merchandise.
Land Lease: See “Ground Lease.”
Landlord Approval | Landlord Consent: A situation in which a tenant must get the permission of landlord before proceeding with its course of action. Generally, situations that require the landlord’s approval include an assignment of the lease, a sublet of all or a portion of the space or prior to a tenant being allowed to make alterations to the premises.
Landlord’s Statement: An instrument or instruments prepared by a landlord comparing an economic item such as taxes or operating costs for the Base Tax Year or Base Operating Year with taxes or operating costs (as the case may be) for the Comparison Year in question, setting forth the additional rent due from a tenant for such Comparison Year pursuant to the provisions of the lease. The Landlord’s Statement, from a tenant’s perspective: (a) should be accompanied by documentation in support of such additional rent calculation (e.g., a copy of the applicable tax bill or statement from the local tax authority) and (b) is also referred to as an “Owner’s Statement.”
Landlord Work Letter | Landlord Work Section | Landlord Work: A lease provision wherein the landlord agrees to perform work – generally prior to the lease commencement date – to a tenant’s space at the landlord’s sole cost and expense.
Landmark: An officially recognized historic building. Such buildings are often designated by a particular commission or governmental or quasi-governmental entity.
Latent Defect: Considered by some to be a hidden defect in a leased space, a latent defect is generally considered to be a defect that, notwithstanding a tenant’s due diligence and inspection conducted prior to the execution of a lease, was not discovered.
Late Payment: A payment made after the date in which the original payment was due, i.e., a late rent payment on a commercial lease.
Lease Commencement Date: Is the date in which the lease term commences. In many cases, the lease will not commence until such time as the landlord substantially completes its work to be performed to the premises.
Lease Effective Date: The date a fully executed lease is returned to tenant or its representative by owner or its representative.
Lease Renewal Option: A clause which gives the tenant (and in some cases its related entity and a permitted assignee) the option to extend the lease for a specified term on prior written notice to a landlord. Many landlords will require that the notice be given at least nine (9) to twelve (12) months prior to the expiration of the initial lease term.
Leaseback (Rights/Provision): A landlord’s right to lease back a tenant’s space if and when a tenant wishes to assign its lease or sublease its space.
Leasehold Improvements: Improvements or alterations to the leased space (such as carpeting, painting, installing light fixtures, upgrading electric, installing a new HVAC system or building additional offices and/or a private bathroom).
Leasehold Mortgage: Unlike a typical mortgage, a leasehold mortgage is secured by a lease of property rather than by ownership of property. These types of loans are common for ground lessees under a long term ground lease to finance their improvements to the building they lease or are building on the land they have leased.
Legal Compliance | Compliance with Law Provisions: A provision within a lease wherein a tenant is required to (1) give to its landlord prompt notice of any written notice it receives from any governmental agency of the violation of any and all present and future laws, orders and regulations of all Federal, state, municipal and local governments, departments, commissions and boards or any direction of any public officer pursuant to law, with respect to the building or the premises and (2) promptly comply with all legal requirements affecting the premises other than with respect to structural repairs (except such structural repairs as would not have been applicable but for tenant’s particular use or manner of use of the premises which is contrary to the use permitted in the lease.
Letter of Attornment: A written agreement where existing tenants recognize a new property owner as their landlord for the property they are renting.
Letter of Credit (“LOC”): The requirement of a tenant, in lieu of making a cash security deposit, to maintain in effect at all times during the lease term (as well as any renewals or extensions thereof and for a period of up to ninety (90) days thereafter), an irrevocable, self-renewing letter of credit. The letter of credit shall: (i) be clean, unconditional and non-negotiable, except by the landlord; (ii) be for an initial term of not less than one (1) year; (iii) provide that the landlord shall be entitled to draw upon the letter of credit upon presentation of a sight draft stating that an uncured event of default has occurred under the Lease; and (iv) provide that the letter of credit shall be deemed automatically renewed, without amendment, for consecutive periods of one (1) year, each year during the term of this Lease, and for a ninety (90) day period thereafter (as well as any renewals or extensions thereof) unless the bank shall notify landlord on not less than thirty (30) days preceding the then expiration date of the letter of credit, that the bank elects not to renew such letter of credit, in which event the owner shall have the right, by sight draft presented to the bank, to receive the monies represented by the then existing letter of credit and to hold and apply such proceeds in accordance with the provisions of this lease. In the event that the landlord uses, applies or retains any portion of the proceeds of the letter of credit, the tenant shall be required to restore the amount so applied or retained.
Letter of Intent (“LOI”): A non-binding term sheet which outlines the basic terms of a lease transaction between a tenant and a landlord. Although non-binding, the LOI sets the playing field for the preparation and subsequent negotiation of a lease.
Lien Waiver: A document executed by a contractor or subcontractor notifying not only the party making payment to the contractor or subcontractor but also the property owner, bank, insurance companies, and other interested parties that full or partial payment has been made to those providing services to a construction project (and as a consequence thereof, the property has been relieved of any threat of a lien against it for the dollar amount paid and/or percentage of work completed indicated within the full or partial lien waiver).
Lien: A legal claim on real property granting the holder of the lien a specified amount of money upon the sale of a property as a means of ensuring the payment of a debt, with the property acting as collateral against the amount owed.
License Agreement: 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. License agreements can be exclusive or non- exclusive.
Liquor License Contingency: An “escape clause” in a lease that allows a tenant to terminate its lease in the event that a tenants liquor license application is rejected by the state liquor authority.
Listing Agreement: 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.
Load Factor: A percentage calculation showing the difference between the rentable and useable square footages for space(s) within a building. Accordingly, usable square footage of a building is all the square footage behind the front doors of the tenant’s space, whereas rentable square footage is the usable square footage plus the common areas and other “lost” areas in a building (such as hallways, lobbies, elevators, stairwells, shafts and restrooms of the building.
Load Letter: In the context of a commercial lease, a letter from a licensed electrical engineer or similar professional confirming the electrical load consumption required based on a particular tenant’s equipment to be utilized with the premises.
Local Law 11: The Façade Inspection Safety Program (FISP) requiring building owners possessing buildings with six or more stories to have their exterior walls and appurtenances inspected periodically by a licensed architect or professional engineer.
Loss Factor: Is the “loss” due to the percentage of the space in a building “lost” to the common areas of the building and the proportional share of common areas attributed to a specific space. Among many things, “common area” includes the building lobby, stairways, management office, the bathrooms, hallways and elevator shafts among other things. Loss factors are greater for space on divided, multi-tenant floors than full floor spaces due to there being more common area on a divided floor, and are generally non-negotiable. Also known as an “add-on” factor. Note that “add-on” or “loss” factors can vary wildly by market and by landlord.
Master Lease | Over Lease: The primary lease that all other leases (e.g. a sublease) are subordinate to.
Material Inducement: Based on a representation by the tenant to perform or refrain from performing a certain action, the landlord is induced to enter (and would not have entered but for that inducement) into a lease agreement as a consequence thereof.
Material Interruption Abatement: Language that provides the tenant some type of damages, usually in the form of a rent abatement, in the event there is an interruption that materially hinders or prevents the tenant from operating its business in the space beyond a pre-established amount of days.
Measurement: The amount of usable and/or rentable square footage of a space. There are a plethora of standards to employ in measuring space (e.g., Building Owners and Managers Association (BOMA) standards), but generally stated, they should take into account such concepts as usable area, floor rentable area, building common area, gross rentable area, pro rata common area of a building, and load factors.
Memorandum Confirming Term: A document signed by both tenant and landlord setting forth the commencement date, expiration date and rent commencement date, along with the base rent schedule in most instances. In addition, it generally includes that all space and improvements have been completed and furnished in accordance with the provisions of the lease, and that tenant has accepted and is in full and complete possession of the premises.
Meter Installation: Installation of a meter in landlord’s building that monitors tenant’s use of fuel, electricity and water. The landlord will then charge the tenant according to tenant’s use. In many instances, the landlord will tack on administrative fees for measuring meter which more often than not is a means for the landlord to acquire a profit from administering the meter.
Mixed Use (Building/Property): Real estate used for residential and commercial uses (as opposed to just one of the uses).
Net Absorption: The change in occupied space between the current measurement period and a prior measurement period.
Net Effective Rent: The amount a landlord effectively receives from a tenant after taking into account all concessions granted to the tenant.
Net Lease: A lease in which the tenant pays all costs associated with operating the property in addition to the rent.
Net Rentable Area: Is the actual square-footage of a building that can be leased to a tenant. It is determined by subtracting any unusable square footage of the building from the overall square footage of the space. Examples of unusable square footage would be an elevator shaft.
Non-Disclosure Agreement (“NDA”): In the context of a commercial lease, an agreement wherein landlord and tenant agree to keep information contained in the lease (e.g., rent concessions and tenant improvement allowances) or shared with one another (e.g., a tenant’s financial statements) confidential.
Noise and Vibration(s): A provision found in a lease pertaining to the tenant’s creation of noise and vibrations in the premises and the amount of noise and vibrations permitted in the rented premises.
Non-Compete Clause: Sometimes referred to as an exclusive use clause, it is a clause that prevents a landlord from leasing space in the premises to a competitor of the tenant, or it can prevent the tenant from opening a similar type of business in the building, complex, shopping center (or within a certain perimeter of the premises (e.g., 3 miles in a suburban setting or a 8 block radius in an urban setting)).
Occupancy Rate: The percentage of space in a building that is occupied in relation to all leasable space in such building.
Operating Expense Escalation (Clause) | Operating Cost Escalation | Operating Expense(s): A provision within a lease which provides that as the building operating expenses increase above what they were in the base year of lease, the tenant agrees to pay its pro rata share of those increased expenses. Fortunately for landords, a well-crafted operating expense definition within a commercial lease is quite broad, and consequently, the definition includes a number of expense items ordinarily considered to (1) be of a capital nature and/or (2) contain built in profit components for the landlord. From a tenant’s perspective, suffice to say that when negotiating the operating expense clause, many tenant advocates will take a fine sharpened “surgical machete” to the operating expense definition.
Outdoor Seating Provision: Provision in a lease regulating the outdoor seating of the tenant. It may require the tenant to obtain permits or licenses from the local municipality and adhere to any specific laws/regulations set forth by any regulating authority. It also may stipulate when and how the area may be used for seating.
Outside Date Language: A provision granting the tenant a rent abatement and/or the option to terminate the lease if the landlord does not deliver the space to the tenant as required under the lease by a set date. If a landlord is willing to provide such language, it must protect itself by adding that such rights shall be subject to force majuere and tenant delay.
Partial Lien Waiver: A document executed by a contractor or subcontractor notifying not only the party making payment to the contractor or subcontractor but also to the property owner, bank, insurance companies, and other interested parties that partial payment has been made to those providing services to a construction project (and as a consequence thereof, the property has been relieved of any threat of a lien against it for the dollar amount paid and/or percentage of work completed indicated within the partial lien waiver).
Partial Sublet Clause: A provision contained in a lease permitting a tenant to sublease part of its space to a subtenant.
Pass-Throughs: Tenant’s proportionate percentage of building operating expenses.
Payment Bonds: A contract bond which guarantees, in the event the contractor on a project defaults on its obligations under the construction contract, that subcontractors, labor, and material suppliers will receive payment (in essence guaranteeing the completion).
Payment and Performance Bond: A bond that essentially guarantees that: (1) material suppliers and workers on a project will be paid (i.e., the payment bond); and (2) the work specified in a contract is done according to the specifications, conditions, and terms of the contract.
Percentage Lease: Commonly executed in retail leases, it is a lease where the tenant pays base rent along with a percentage of its gross sales (generally subject to certain carve outs and over and above a pre-determined monetary threshold).
Percentage Rent: Commonly found in leases for retail tenants, it is a provision found in a lease that states if a tenant achieves a certain amount of gross sales in a given time period, the tenant will pay a certain percentage to landlord as additional rent.
Performance Bond: In short, a performance bond guarantees that all work provided for in a construction contract is in fact completed pursuant to the terms and specifications of the AIA or other contract. For example, many landlords will reduce the perceived risk on a tenant’s construction project by requiring its tenant to secure a performance bond, which essentially guarantees that work commenced on such contract will in fact be completed.
Permitted Occupant or Desk Sharing (Provision): A provision which allows a tenant to sublease or license out offices or desk space within its space, subject to specified terms and conditions, without the necessity of having to go through the process and cost associated with securing the landlord’s consent.
Personal Guarantee | Personal Guaranty | Straight Personal Guarantee | Straight Personal Guaranty: An agreement in which an individual agrees to be personally liable for the obligations of a party (i.e., the tenant) to a lease.
Physical Culture Establishment(s) (“PCE”): Generally stated, a health club or other establishment where a tenant’s customers exercise.
Pop-Up Store: Temporary retail spaces that are leased anywhere from one day to a few months. Many pop-up shops are seasonal or are used to test out products.
Porter’s Wage Escalation: A provision that passes on the porter’s salary increases on to the tenant over a pre-determined base year.
Power of Attorney: A legal document giving someone the authority to act on another’s behalf in a specific instance or for all legal and financial matters. A document used to appoint someone to make decisions on your behalf.
Profit Sharing (Rights): The right of a landlord to split (i.e., generally 50/50) the proceeds from a sublet or an assignment with its tenant over and above the rent provided for within a lease, after deduction for costs incurred in connection with the sublet or assignment.
Punch List: In the context of substantially completing a landlord’s work to a tenant’s space, it is landlord’s agreement to repair and/or complete at its sole expense, minor items (after tenant has taken possession of the premises), within a period of up to thirty (30) days after tenant has provided landlord with a list of such punch list items.
Quiet Enjoyment: A covenant by a landlord promising that the tenant will be able to enjoy the premises it has leased peacefully, subject to the tenant paying its rent and/or not being in default of the lease beyond the expiration of any applicable notice and cure period.
Real Estate Tax (Escalations): Provision in lease agreements where tenant agrees to pay its pro-rata share of any increase in real estate taxes on the leased property over and above a pre-established base tax year.
Recapture | Right of Recapture: The right of a landlord to take back the tenant’s space and terminate the lease if and when a tenant asks for the landlord’s consent to an assignment or sublease.
Recourse: At its most basic level, the legal right to demand compensation for a breach of contract.
Relevant Market Factors: Used to determine the fair market value rent when a tenant’s renewal option is exercised. Stated differently, it’s the procedure used to determine the fixed annual rent that a willing (and non-sublessee) lessee would pay and a willing lessor would accept for the renewal premises during the renewal period, taking into account all relevant factors including, without limitation, reference to the market for comparable space in the building and in comparable buildings in the same vicinity as the premises that a willing landlord would offer and a willing tenant would accept in an arm’s length transaction for a lease of such portion of the building (i) commencing on the first day of the extended term, (ii) providing for then market tenant improvement allowances, rental abatements, lease takeovers and/or assumptions, moving expenses and other forms of lease concessions, and (iii) reset of the base tax year.
Relocation | Space Relocation: A lease clause in which a landlord has the authority, upon notice to tenant, to require a tenant to move out of its current location and into a new location. Generally, the new premises would be in the same building (or another building within the same complex) and substantially the same in size, dimensions and configuration as the original premises. A tenant normally is granted certain conditions in the lease as to when and how they can be relocated by the landlord (e.g. timing, location, reimbursement of costs and comparable size and finishes of the relocation space).
Rent Acceleration: A provision in a lease that generally provides that upon tenant’s uncured default under the lease, landlord has the right to demand the immediate payment of the entire balance of the unpaid rent for the remainder of the lease term.
Rent Commencement Date: The date in which tenant shall begin paying rent to landlord during the lease term.
Rent Concession(s) | Rental Relief | Rent Reduction | Rental Concession | Rent Abatement: A reduction in the amount of rent (e.g. full rent, half rent, etc.) that tenant owes to landlord for a defined period of time. The period often commences at the beginning of the term, but sometimes is spread out over the course of the lease term or towards the end of lease term.
Rent Escalation: An increase in the amount of rent that tenant is required to pay to landlord, which increase shall occur at fixed intervals throughout the duration of a lease term. The increase can be set in amount (e.g. three percent (3%) per annum), or alternatively, pursuant to an increase to such items (over and above a pre-negotiated base year) as real estate taxes, common area maintenance, operating expenses, fuel, electric or CPI.
Rentable Square Feet (“RSF”) | Rentable Square Footage: The usable (and technically actual) square footage of a particular space, with an “add-on” to such square footage for the pro-rata percentage of the building’s shared space (e.g., non-usable square footage in the common areas of the building (such as lobbies, hallways, shafts, stairwells, elevators and restrooms) or space occupied by structural components (such as support poles and interior walls). Generally stated, a tenant’s base rent is calculated on the RSF and not the USF of the space. Note that the “jump” in the rentable square footage of a particular space over and above the usable square footage is referred to as a “loss factor,” “load factor,” “common area factor,” or “add-on factor” and depending on the market, the nature of the building and the landlord, such factor can vary wildly (e.g., 15% to 40%).
Request For Proposal(s) (“RFP”): Although the context can vary, examples of an RFP include a (1) tenant’s request to a landlord to provide the terms in which the landlord would be willing to rent the space to the tenant for (with this request being the initial step in the negotiating of the terms in the lease) or (2) landlord’s or tenant’s request to a contractor for a detailed bid for the cost of construction for a particular space based off of architectural plans submitted to the contractor.
Removal and Restoration Obligations: A provision in a lease which provides that all fixtures, partitions and like installations installed in a tenant’s space by a tenant, or a landlord on behalf of a tenant, shall thereafter become the landlord’s property and will remain upon the premises after the tenant vacates at the conclusion of the lease term. This will generally hold true unless landlord, by notice to a tenant prior to the termination of the lease, elects to relinquish its rights and have the fixture/partition/installation removed by the tenant prior to the lease’s expiration and at the tenant’s expense. If the aforesaid items are not removed by the tenant and its landlord has no desire to retain such items, at the election of the landlord, such alterations or any other property in question can be removed from the premises by the landlord at the tenant’s sole cost and expense. During the lease negotiation stage, a tenant can negotiate exceptions to the above language for its benefit at the end of the lease term (e.g., a tenant’s initial alterations (excluding those of a “specialty” nature such as internal staircases) do not need to be removed at lease expiration).
Right of First Offer (“ROFO”): In the context of a commercial lease, a right which is generally pre-negotiated by a tenant (or its broker) during the letter of intent stage, wherein the landlord (provided that the tenant is not then in default of any of the provisions or covenants of the lease among other conditions) agrees to give the tenant ten (10) to fifteen (15) days prior written notice of any contiguous space that may or shall become available in the building. The provision will spell out, among other things, the time period in which the tenant must or accept the offer and the terms and conditions which will apply to the additional space becoming available (e.g., pre-established or FMV rent, tenant improvement allowances, free rent concessions, landlord work, and base years for escalation). The ROFO can also provide a tenant the right to purchase the building from the landlord.
Right of First Refusal (“ROFR or “RFR”): In the context of a commercial lease, a right which is generally pre-negotiated by a tenant (or its broker) during the letter of intent stage, wherein the landlord (provided that the tenant is not then in default of any of the provisions or covenants of the lease among other conditions) agrees to give the tenant ten (10) to fifteen (15) days prior written notice of when the landlord has received a reasonably acceptable offer to lease space in or to purchase the building. Given that the landlord, prior to accepting the third party’s offer, must tender such offer to its tenant upon the same terms and conditions contained in such offer, the ROFR right can have a somewhat “chilling impact” when marketing the space or property, and as such, landlords generally prefer to grant a tenant a ROFO to that of a ROFR.
Riser: Vertical piping used for the delivery of electricity, water, gas or other power upward in a commercial or residential building.
Roof Licensing: The licensing of an unused portion of the roof of a building to a tenant or a third party for profit (e.g., to a cellular provider for its antennae).
Roof Provision: A provision within a lease where the landlord details what access, if any, a particular tenant has to the roof of the building, and if access is permitted, when such access is allowed and what equipment, if any, may be installed (e.g., compressors to an HVAC system or an antennae) and under what conditions and requirements it must be installed and maintained (and potentially removed).
Sale-Leaseback: 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.
Scaffolding Provision: A clause within a lease granting a landlord the right to install scaffolding and/or a sidewalk bridge on or adjacent to a building, generally without abatement of any kind to a tenant’s rent or constituting an eviction of any kind or nature. Consequently, sophisticated tenant advocates will negotiate language providing that a tenant will, among other things, be entitled to (1) a partial rent abatement if the sidewalk bridge and/or scaffolding remains in place for greater than a specified time period, (2) install signage on the scaffolding and/or bridge(s), often at landlord’s cost and (3) restrict the landlord from installing such sidewalk bridge and/or scaffolding during certain periods (e.g., the first six (6) months subsequent to the opening of a retail store).
Security Deposit Reduction: A provision in a lease permitting the amount of the required security deposit to decrease over time subject to specified benchmarks and conditions (e.g., “provided that this Lease is in full force and effect and Tenant shall not be in monetary or material nonmonetary default of this Lease (beyond the expiration of any applicable notice and cure period), then Tenant may provide to Owner, and Owner shall promptly thereafter execute and deliver to Tenant, if necessary, such instruments and authorizations as may be reasonably required by the issuer of the Letter of Credit to reduce the face amount thereof by $250,000.00 to $500,000.00 as of the first (1st) day subsequent to the fifth anniversary of the Rent Commencement Date”). This is also known as a “Burndown of Security Deposit or Burndown of Letter of Credit.”
Shell Space: A space premises that is unfinished, generally only having the structural portions complete, and as such will require the construction of improvements by the tenant prior to the tenant being able to operate its business in within the space.
Shopping Center Provisions: Provisions of a lease that are included as a result of the demised premises being a part of a shopping center. Such provisions are generally included by a landlord to maintain control of the tenant mix of the shopping center and/or to control how a tenant may operate its business in the demised premises. Tenants may also want to include certain provisions such as (1) an exclusive use provision to prevent other tenants in the shopping center from directly competing with tenant, (2) reserved or allocated parking spots, and/or (3) a right to terminate the lease or to receive a rent abatement if the anchor tenant for the shopping center is no longer operational.
Sidewalk Provision: A provision that may be included in a restaurant or other retail lease granting the tenant permission, subject to certain conditions and restrictions, to operate its business on the adjacent sidewalk (to have seating on the sidewalk or conduct sales on the sidewalk adjacent to the premises). The conditions and restrictions generally includes that tenant must comply with all applicable legal requirements with regards to using the sidewalk.
Signage (Clause): A clause that outlines the rights of a tenant in regards to the ability to place signs on its premises, the building and/or the property. Typically, tenants are permitted to place signage in the interior of its space on the door of or entrance to its premises. Subject to the terms and conditions of the lease and provided that all signs comply with all reasonable design, safety and construction considerations of landlord and applicable legal requirements, it is important for retail tenants to proactively negotiate exterior signage (and awning, if applicable) rights.
Soft Cost(s): Although associated with the use of a space and/or the building itself, a soft cost is an expense not considered to be a direct “hard” construction costs. Examples of soft costs include architectural, design and legal fees, permits, real estate commissions, movable furniture and furnishings, computer data equipment, telephone systems and advertising, insurance and moving costs. Also see “Hard Costs.”
Space Plan or Design Plan: A plan which lays out, hopefully in an optimum nature, how the interior of the demised premises is going to be laid out before constructing the build-out. It is imperative that a tenant makes sure that the space is the right fit for them before even entertain taking a certain space. Also see “Test Fit.”
Specialty Alteration(s): Alterations or improvements that go beyond “ordinary” alterations, such as raised floors, vaults, filing systems, internal staircases, dumbwaiters, pneumatic tubes, vertical and horizontal transportation systems and any alterations which are essentially structural in nature or penetrate any floor slab in the premises. In addition, they could also be deemed to include any textured mirrored and/or decorative walls ceilings or floors (and to some landlords, kitchens, private bathrooms and/or showers). Also see “Alterations.”
Stacking Plan: A two (2) dimensional representation of a building that detailing not only the space available on each floor of the building, but just as importantly, all occupied space in a building and the lease expiration date for such spaces.
Storefront: The “ face” of a store on the ground floor of a commercial building.
Sublet | Subletting | Subleasing | Sublease: An agreement wherein a tenant leases all or a part of its space during the term of its lease to a third party. In the event of a sublease, the tenant is referred to as the “sublandlord” or “sublessor” and the person or entity subletting the space is called the “subtenant” or “sublessee.” A lease should always include conditions and restrictions with regards to a tenant’s right to sublease its space, generally requiring with limited exceptions, the landlord’s consent to any sublet. Also see “Partial Sublet(s).”
Submeter | Submetered | Submeters: Where the owner of a building purchases electric current or water for the entire building and charges the tenant, based on landlord’s actual cost or quite often on a cost standard higher than landlord’s actual cost, for its consumption by way of readings measured by a “submeter.” Also see “Submeter Administrative Fees” and “Submeter Installation.”
Submeter Administrative Fees: The fee a landlord charges a tenant to read and/or maintain a submeter(s) installed in the tenant’s demised premises (which fee in most leases is generally above the landlord’s actual cost to do so). From a landlord’s perspective, the use of submeters as a means of measuring a tenant’s electric or water consumption can act as a profit center. By way of example, in many commercial leases, it is not uncommon to find a five percent (5%) to fifteen percent (15%) surcharge added to the cost of a tenant’s electric or water bill to cover not only the cost to the landlord of having the meter read by a third-party, but also to cover what landlords like to refer to as their “administrative fees.” If a tenant is confronted with an excessive administrative fee, that tenant should do its best to have it either eliminated or reduced to no greater than a five percent (5%).
In addition, a tenant should negotiate that the rate on which the 5% administrative fee is added on to should be based upon the landlord’s actual cost of purchasing electricity as opposed to a rate that contains a built-in profit center for the landlord.
Submeter Installation: When a submeter is installed in a demised premises to measure a tenant’s individual electric or water usage. If a submeter needs to be installed in a tenant’s space, landlords should attempt to have the submeter(s) installed at tenant’s cost.
Subordination and Non-Disturbance Attornment Agreement (“SNDA”) | Subordination and Attornment: In its simplest form, a SNDA (better known to some as a “subordination and non-disturbance attornment” agreement) is a document wherein the lender will agree that the tenant’s occupancy will remain undisturbed (and as such its lease not terminated), notwithstanding the foreclosure of the landlord’s mortgage or termination of the landlord’s ground lease.
Subordination | Subordination Clause(s): A clause which states that when a landlord’s mortgage is foreclosed on by its lender or a ground lease against the building is terminated by a ground lessor due to a landlord’s uncured default, in such an event, the lender or the ground lessor would have the option to recognize the tenant’s lease and have the tenant attorn to it, or alternatively, terminate such lease. Also see “Attorn” and “Subordination and Non-Disturbance Agreement (“SNDA” or “NDA”).”
Substantial Completion | Substantially Complete: In a commercial lease, it is the stage of construction when the work agreed to be performed has in fact been completed to the point that, notwithstanding the fact that minor or insubstantial details of construction, demolition, mechanical adjustment, decorative items and/or other “punch list” items remain to be performed, such unperformed work will not materially adversely interfere with tenant’s use and occupancy of the demised premises for the operation of tenant’s business therein. In many jurisdictions, the issuance of a temporary certificate of occupancy will be required as a condition of substantial completion. Also see “Punch List.”
Substitute Space: The alternative space a landlord provides a tenant when relocating a tenant’s space during the term of the lease. If the landlord has the right to relocate a tenant based on a relocation clause in the lease, tenants should negotiate to also include in the lease certain minimum requirements for the substitute space (such as reimbursement of costs associated with the relocation, whether or not the rent will increase if the space is larger than the tenant’s original space, the minimum size of (and required finishes to) the substitute space and what location within the building or shopping center the substitute space can be. Also see “Relocation | Space Relocation.”
Sunrise Provision: A provision of a lease which only becomes effective after a specified period of time or as of a certain date. An example of a provision considered to be a “sunset provision” is an early termination clause wherein the party with the right to terminate the lease before the end of the full term can only do so an agreed upon number of years after the commencement date.
When negotiating, agreeing to a “sunrise provision” is often used as a middle ground compromise between a landlord and a tenant when the landlord is requiring that a particular provision be included within a lease when a tenant wants that clause deleted from the lease.
Sunset Provision: A provision of a lease which, after a specified period of time or as of a certain date, is no longer considered in full force and effect. An example of a provision considered to be a “sunset provision” is when a tenant has to pay back the unamortized portion of any free rent and/or brokerage commissions only if the tenant is in default of the lease during the first three (3) to five (5) years of the lease term.
When negotiating, agreeing to a “sunset provision” is often used as a middle ground compromise between a landlord and a tenant when the landlord is requiring that a certain provision be included within a lease when a tenant wants that clause deleted from the lease.
Supplemental HVAC | Supplemental Air Conditioning: Generally installed by a tenant (or a landlord on behalf of the tenant) at the tenant’s sole cost and expense. Generally installed in conference rooms, server rooms and partner offices.
Tap In Fee: For its supplemental air-conditioning system, the charge to a tenant for the right to tie into a building’s condenser water loop. Generally between $1,500 to $5,000.00 in some markets. Sophisticated tenant advocates will attempt to negotiate for no tap-in fee, a reduced rate and/or payment of the fee in monthly installments over a one (1) to two (2) year period.
Temporary Certificate of Occupancy: A document issued by the local building department that temporarily enables legal occupancy or partial occupancy of a building or space before the construction or renovation project is fully completed, provided that the designated portion to be occupied is sufficiently completed so that is may be safely use for the purpose intended.
Tenant Change Order | Change Order(s): A request by a tenant for a “change” to be made at some point between the completion of the construction documents, the commencement of the work and the ultimate completion of that work. Reasons for change orders can include, but not be limited to, conditions discovered in the field during construction that a landlord or tenant has to deviate from the original construction plan, or it can simply be a case of the tenant changing its mind and deciding that it desires to have a piece of work performed to its space that it otherwise did not contemplate at the time it approved of the construction documents.
Tenant Delay(s): An act by the tenant that prevents the landlord from completing a requirement (e.g., completion of landlord’s work) or providing its consent under the lease. As a consequence of a tenant delay, it may extend the time a landlord has to complete its work, excuse its breach and/or allow the lease commencement date to be accelerated.
Tenant Extra Work (Clause): If a landlord is going to be building out a space for a tenant and the tenant ultimately decides that it wants work to be performed by its landlord over and above that to be performed in the work letter by the landlord, many tenants will choose that they might as well have the landlord perform such extra work as opposed to going out and hiring a separate contractor to do so. In such cases, most landlords will consider that tenant extra work to be subject to the same rules and conditions that the landlord establishes for change orders.
Tenant Improvement Allowance | Tenant Improvements: The agreed upon amount, often expressed as a specified sum or amount per square foot, that a landlord is willing to (1) spend on the build-out of a tenant’s space or (2) contribute financially to a tenant for the tenant’s construction of its space.
Tenant Work Or Tenant Alteration (Clause): The myriad of rules, terms and conditions under which a tenant may perform alterations within its space. Examples include but are not limited to (1) securing landlord’s consent to the work being performed, the contractors performing the work, the construction documents prepared and the type of work that ordinarily cannot be performed (e.g., structural), (2) a tenant providing its landlord with (i) building permits, proper certificates of insurance prior to the commencement of any work, and potentially a performance and payment bond or other financial comfort to ensure that the work commenced will in fact be completed and paid for by the tenant, (ii) lien waivers and (iii) proper sign-offs for the work performed from all governmental or quasi-government authorities having jurisdiction over the work.
Termination (Right(s)): The right by either a tenant or a landlord to bring the lease term and contractual relationship between a landlord and a tenant to an end prior to the pre-established lease expiration date.
Time of the Essence: A phrase in a contract essentially meaning that performance by one party at or within the period specified in the contract is necessary to enable that party to require performance by the other party, so that failure to act within the time required constitutes a breach of the contract.
Trade Fixture(s): Personal property and equipment of the tenant used in connection with the conduct of its business (which may or may not be attached to the leased property) but which are generally removable by the tenant at the end of the tenancy.
Triple Net Lease (“NNN”): A lease wherein, from and after the lease commencement date, the landlord shall receive a net return from the premises (or the entire building) equal to the base rent, without deduction for any expense or charge for the premises or the building (except as may otherwise expressly be provided for (if at all) in the lease). Furthermore, the tenant will be required to all expenses, of every kind and nature, relating to or arising from the premises or building, including real estate taxes and expenses arising from the leasing, management, operation, maintenance, repair, use, or occupancy of the premises or building (and all construction relating to thereto), except as otherwise expressly provided for in the lease.
Turnkey | Turn Key | Turn Key (Project/Build-out): When the contribution by a landlord covers the entire cost of the build-out, that is generally referred to as landlord delivering the premises to a tenant “turnkey.” A space can be delivered “turnkey” when the landlord builds out a space according to agreed upon specifications, at its sole cost and expense, such that the tenant can figuratively move into the space with nothing more than its files, computers, furniture and toothbrush.
Unamortized Cost: The actual cost of an asset or concession less the depreciation or amortization of such item, generally on a straight line basis (e.g., landlord’s work and/or a brokerage commission, free rent concession, tenant improvement allowance or professional fees incurred in connection with a lease).
Unamortized Cost Reimbursement: In the context of a commercial lease, the unamortized amount to be reimbursed by a landlord or tenant upon the occurrence of a certain event (e.g., upon the surrender of the space by a tenant prior to lease expiration or upon the exercise by landlord of an early termination right).
Usage Restrictions/Use Restrictions/Tenant Use Restriction(s): Restrictions imposed by a landlord on a tenant which limit the permitted use of a building, shopping center and/or premises. Example: a prohibition against the use (and leasing of) a building to a (1) federal, state or local governmental division, department or agency, (2) a wet use of any kind or (3) a nightclub or cabaret.
Use (Clause): A provision in a lease specifying the permitted use allowed for a tenant’s particular space. Tenant advocates prefer the permitted use to be as broad as possible, whereas conversely, due to their need and desire to have as much control as possible over their tenant mix and profits, landlord prefer a tenant’s permitted use to be as narrow as possible.
Useable Square Feet (“USF”) | Useable Square Footage: The actual wall to wall space within the premises or a building. For example, if a rectangular space contains fifty (50) 2’ x 2’ ceiling tiles going one way and twenty (20) 2’ x 2’ ceiling tiles going the other way, the useable square footage of the space would be considered to be one thousand (1,000) USF.
Utility: The services required to operate a business in a space such as electricity, water, air conditioning, heat, etc. Utilities can either be obtained directly from public utility companies or supplied by the landlord via a sub-meter.
Union Contractors Versus Non-Union Contractors: Given the building boom across many parts of the United States, and the never ending quest of developers to control costs and increase profits, battles continue to rage between the use of union workers and non-union workers. Politics aside, at the forefront of the dilemma when choosing which group to employ are (1) safety, training and skill set concerns on the one-hand and (2) on the other hand, the differential in costs between union and non-union workers (with estimates ranging from 10% to 15% higher pricing for union workers to as much as 25% to 30% higher).
Vacancy Rate: The percentage of vacant space in a building due to non-occupancy of an available, rentable unit or space.
Vanilla Box: A plain “vanilla shell” or “vanilla box” is generally considered to be a space with a sparsely furnished interior (e.g., with basic plumbing, heating, HVAC, electrical outlets, a concrete floor, sheet rocked walls and in most cases a restroom or rooms).
Warm Shell: An empty building or space that usually has minimally finished interior including walls, ceiling, and flooring, with basic services connected such as plumbing, heating, air conditioning, restrooms and lighting.
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