Glossary 

“We are pleased to provide the following terms to give you a better understanding of the terminology used in commercial real estate. Should you need further explanation regarding any of these terms, please don’t hesitate to email me with your questions.”   

Dede Malmo 
MalmoMemphis Real Estate   

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z 

abatement:  Commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term.

absorption:  The rate, expressed as a percentage, whereby available space in the marketplace is leased during a predetermined period of time.

absorption rate:  The net change in space available for lease between two dates, typically expressed as a percentage of the total square footage.

ad valorem: (According to value) which refers to the value of property used in the computation of taxes.

as-is:  The existing condition of real estate, prior to any improvements contemplated under a lease.

assignment:  The transfer of leasehold interest in a property to a second party.

attorn:  To transfer to another or to agree to recognize a new owner of a property and to pay them rent. (top)  

BOCA:  Building Officials Conference of America, an organization that writes the guidelines for basic community building codes.

BOMA:  Building Owners and Managers Association, an organization that established widely accepted methods of computing square footage in buildings.

base rent:  The minimum monthly rent, usually computed on a per-square-foot-per-year basis, due under the lease.

building standard:  A list of materials and finishes used in the build-out, repair or restoration of a tenant’s leased area.

build-out:  Refers to the interior construction of a tenant’s space whether new construction or the reconfiguration of existing space.

build-to-suit:  A customized design and build approach to a tenant’s space usually resulting in a single occupant building which is then leased or sold to the tenant. (top)  

certificate of occupancy:  Presented by city building department to the landlord or tenant after completion of tenant improvements and satisfactory inspections by city building department inspectors.

commercial property:  Other than residential.  Owned or leased property such as office, research, retail and industrial properties.

commission:  The fee paid to a real estate broker as procuring cause and/or his or her services rendered in a real estate transaction.

common area maintenance (CAM):  An additional, annual charge oftened assess to tenants for maintenance of the property’s “common area” such as its hallways and bathrooms.

CPI (Consumer Price Index):  A measure of inflation as determined by the U.S. federal government by using a “basket of goods.”  Used in leases as an impartial benchmark for the calculation of escalations.

construction documents:  The complete set of drawings, specifications, bidding instructions, construction agreement, etc. used in the construction industry.

demising wall:  The wall that separates a tenant’s area from another tenant’s area or building common areas.

DBA:  The abbreviation for “doing business as.”

deal:  The state of agreement both parties are looking for. (top)  

eminent domain:  The right of a government entity to take (condemn) property with just compensation for the public good.

escalation:  The mechanism in a lease that increases the rent annually.

estoppel certificate:  A statement concerning the status of an agreement, usually a lease, and the performance of obligations under the agreement.  A third party such as a lender relies on the statement for such things as making a loan on property. (top)  

fair market value (FMV):  The price that the market would bring, over a reasonable period of time, for a property for sale or for lease.

flex space:  A building providing use flexibility between office and other uses such as manufacturing, laboratory, warehouse, etc.  Usually provides high bays and relocation flexibility for overhead doors and other entrances.

force majeure:  (An uncontrollable force)  An event outside the reasonable control of the parties to a contract such as an “Act of God,” war, riots or strikes that would prevent the parties from complying with the provisions of an agreement. (top)  

go-dark:  The condition that results from a tenant closing its business even though a lease is still in effect.

gross lease:  Commonly specifies one rental amount inclusive of rent, taxes, utilities, maintenance, etc. associated with the rental of a property.

gross square feet:  Usually refers to gross area of a building by measuring from the outside of its exterior walls and including all vertical penetrations such as elevator shafts.  Also includes basement space.

ground lease:  A long-term lease of land entered into by a tenant to construct a building from which to conduct its business. (top)  

HVAC:  Acronym for heating, ventilation and air conditioning

hold over:  The condition that results when a tenancy exists beyond the end of the term of a lease. (top)  

improvements:  See “leasehold improvements.” (top)  

lease commencement date:  The date upon which the lease commences and the obligations of the parties begin.

leasehold improvements:  Construction or improvements for the purpose of preparing the premises for a tenant to conduct business.  Improvements permanently attached to the premises remain with the premises after the end of term of the lease.

letter of attornment:  See “attorn.”

lien waiver:  A waiver of mechanic’s lien rights signed by a general contractor and his subcontractors.

load factor:  The amount of square footage in a lease, in addition to the tenant’s usable square footage, that represents the tenants pro rata share of the building’s common areas. (top)  

mechanic’s lien:  A claim provided for under state statutes securing the priority of payment for the value of work and materials furnished in the construction or repair of real property.

month-to-month:  A lease for a specific period of time, usually one month, that automatically renews itself for the same period of time unless landlord or tenant provide notice to terminate. (top)  

NNN:  See “triple-net.”

net lease:  structured such that a base rent for a rental property is paid to the landlord.  Also, other charges such as utilities, building property taxes, insurance and maintenance are also payable by the tenant.  Sometimes referred to as triple net or absolute net lease.

notice of commencement:  Legal notice to the county’s Register of Deeds that remodeling/improvements will be starting at a particular address.

notice of furnishing:  Legal notice by a subcontractor or supplier that it furnished labor or materials, subsequent to the notice of commencement, thereby establishing the legal right to be paid for labor and/or materials. (top)  

operating expenses:  The costs associated with income producing property usually before interest and income tax expense, but including property taxes, insurance, repairs, maintenance and replacement reserves.

option:  A term in a lease for the rights either tenant or landlord may have with respect to one another, usually with stipulations regarding timing of those rights. (top)  

partition wall:  A wall constructed to create work areas such as offices or conference rooms.

pass-through expense:  An expense associated with tenancy where the landlord passes on to the tenant certain increases in building operating expenses occurring after a base year in the lease.

percentage rent:  Provides for a rent to be paid as a percentage of retail sales, usually quarterly or annually.  Often coupled with a base rent.

planned unit development (PUD):  A zoning category whereby each of the proposed buildings or uses are approved in advance as a part of  a parcel’s overall use.  Usually preserves large common or open areas on a site.

premises:  In commercial real estate, the description of the leasehold and the specific square footage for which the parties enter into a lease.

punch list:  A list of incomplete or unacceptable construction items that upon remedy and completion will usually complete the obligations of the contractor under a construction contract. (top)  

real estate broker:  A person licensed to act as an agent for another person or business to negotiate a lease or purchase of a leasehold or property, respectively, for a fee.

real property:  The land and anything permanently attached to the land such as buildings, parking lots, landscaping or other items that would otherwise be classified as personal property if not attached, excluding fixtures designed to be removable and reuseable.

renewal option:  Lease language that provides the means for the tenant to give the landlord notice of its intent to renew or extend the lease.

rent commencement date:  The date when the rent and usually the term of the lease begins.  May be different from the lease commencement date when certain obligations must be fulfilled such as the construction of tenant improvements.

rentable area:  Denotes the number of square feet in a commercial building deemed for rent, according to BOMA.  May include common area load factor or allowance for building amenities such as hallways and lavatories. (top)  

sale-leaseback:  A financing arrangement usually designed to raise capital for the property owner or to obtain favorable income tax results.

security deposit:  Generally, a deposit of funds by a tenant with a landlord to secure performance of a lease.

setback:  Zoning requirement that stipulates a building or improvement be set back a certain number of feet from the property line.

shell space:  The interior condition of either a new or existing building without improvements or finishes.

special assessment:  Any special charge levied against real property for public improvements that benefit the assessed property.

subordination agreement:  An agreement whereby the tenant agrees to the priority of a mortgage over the leasehold interest or other claim by the tenant on the property.

substantial completion:  The point during construction where the contractor is ready to turn the property over to the tenant for acceptance and final punch list.  Usually occurs upon the issuance of a certificate of occupancy. (top)  

tenant (lessee):  One who rents real estate from another and holds an estate by virtue of a lease. 

tenant representation:  An arrangement whereby a prospective tenant engages a real estate representative to exclusively negotiate a lease for commercial space.

tenant’s use clause:  Lease language that specifies the business activities the tenant will engage in at the leased premises.

trade fixtures:  Certain fixtures installed at the premises that are unique to the tenant’s business, generally removable by the tenant at the end of the term of the lease.

triple net:  Refers to the requirement for the lessee to pay for its share of the property’s taxes, insurance and operating expenses. (top)  

usable square feet:  Denotes the number of square feet in a commercial building deemed to be usable by BOMA. (top)  

white box:  The interior condition of either a new or existing building where improvements generally consist of heating/cooling with delivery systems, lighting, electrical switches and outlets, lavatories, a finished ceiling, walls that are prepped for painting and a concrete slab floor.  Also, called a “vanilla box.” 

(top)