Real Estate Terms and Defenitions

Abatement: Often and commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.

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

Abstract of Title: A condensed version of the history of title to a piece of land that lists any transfers in ownership, as well as any liabilities attached to it, such as mortgages.

Abutting: The joining, reaching or touching of adjoining parcels of land. Abutting pieces of property have a common boundary.

Acceleration clause: A provision in a written mortgage, note, bond or conditional sales contract that, in the event of default, the whole amount of principal and interest may be declared to be due and payable at once.

Acre: A measure of land equal to 43,560 square feet.

Ad Valorem: According to value.

Adjustable Rate Mortgage(ARM): A mortgage loan whose interest rate fluctuates according to the movements of an assigned index or designated market indicator.

Adjustment Date: The date on which the interest rate changes for an adjustable rate mortgage (ARM).

Alienation Clause: A clause in a mortgage, which gives the lender the right to call the entire loan balance due if the property is sold, also known as a due-on-sale clause.

Amortization: Calculation to determine a regular-interval payment plan over time, with interest, to pay a set sum.

Anchor Tenant: The major or prime tenant in a shopping center, building, etc.

Annual Percentage Rate: (APR) The actual cost of borrowing money, expressed in the form of an annual interest rate.

Appraisal: A determination of the value of something by a qualified, disinterested expert.

Appreciation: An increase in value or worth of property.

Asking (list) price: The price a seller wishes to receive on a property for sale.

Assignee: A person to whom a property right is transferred.

Assumable Mortgage: An existing mortgage that can be taken over by the buyer on the same terms given to the original borrower.

Assumption of Mortgage: The transfer of title to property to a grantee wherein he assumes liability for payment of an existing note secured by a mortgage against the property.

Attorn: To turn over or transfer to another money or goods. To agree to recognize a new owner of a property and to pay him/her rent. In a lease, when the tenant agrees to attorn to the purchaser, the landlord is given the power to subordinate tenant's interest to any first mortgage or deed of trust lien subsequently placed on the leased premises.

Balloon Payment: The final payment due under a partially amortized mortgage that is larger than the periodic payments made during the term of the loan.

Base Rent: A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.

Base Year: A specific lease term used to compare subsequent years; usually when calculating operating expense pass throughs.

Brokerage: For a commission or fee, bringing together parties interested in buying, selling, exchanging or leasing real property.

Building Classifications: Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to a particular building is very subjective, Class "A" properties are typically newer buildings utilizing the latest construction technology and finish.. Usualy located in prime locations with easy access, and offering a multitude of amenities fortenants. The class of a building may vary depending on the location of the property. Each market is specific as to classification. What is a class B in one market might be a class C in a different market.

Building Core: The section of a building where the restrooms, ventilation shafts, electrical distribution, elevator shafts, and stairwells are located.

Building Standard: Project specifications set by the owner, usually in conjunction with the project architect. Details the type, quality and color selection available with respect to carpet, paint, light fixtures, wall coverings and other project finishes.

Build-out: The space improvements put in place per the tenant's specifications.

Build-to-suit: An approach taken to lease space by a property owner where a new building is designed and constructed to the tenant's specifications.

Buyer's Broker: A licensee who has declared to represent only the buyer in a transaction.

Cap: The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Capital Expenses: This type of expense is most often defined by reference to generally accepted accounting principles (GAAP), but GAAP does not provide definitive guidance on all possible expenditures. Accountants will often disagree on whether or not to include certain items.

Carrying Costs: Costs incidental to property ownership, other than interest, (i.e. taxes, insurance costs & maintenance expenses,) that must be absorbed by the landlord during the initial lease up of a building and thereafter during periods of vacancy.

Ceiling: The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Occupancy: A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant's space) has been satisfactorily inspected and is/are in a condition suitable for occupancy.

Clear Title: A title free of any liens (including a mortgage.)

Closing: The conclusion of a sales transaction when the seller transfers title to the buyer in exchange for consideration.

Closing Costs: Costs a buyer must pay at the time of closing, in addition to the down payment which may include points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, appraisal, prepayments for property taxes, deed recording fee and property insurance.

Closing Statement: A detailed written summary of the financial settlement of a real estate transaction showing all charges and credits made, and all cash received and paid out.

Commission: The compensation paid to a licensed real estate broker or by the broker to the licensee for services rendered.(Usually a percentage of the selling price of the property or the total value of the lease.)

Common Area: There are two components of the term common area. If referred to with the Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants of groups of tenants and their invitees. On the other hand, the cost of maintaining parking facilities, malls, sidewalks, public toilets, service facilities and the like are included in the term "common area" when calculating the tenants pro-rata share of building operating expenses.

Comparables: Properties similar to a particular property. Used to compare and establish a value.

Concessions: Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses, cabling expenses or other monies expended to influence or persuade the tenant to sign a lease.

Condemnation: The process of taking private property without the consent of the owner by a governmental agency for public use through the power of eminent domain.

Condominium: A form of real estate, usually a dwelling with individual ownership of separate portions of the building plus shared ownership of the common areas.

Contiguous Space: Multiple suites/spaces within the same building and on the same floor which can be combined and rented as a single unit; Or, a block of space located on multiple adjoining floors in a building.

Contingency: A provision in a contract stating that some or all of the terms of the contract will be altered or voided by the occurrence of a specific event.

Conveyance: The transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.

Coterminous: Two or more leases that end at the same time.

Counter Offer: The rejection of an offer to buy or sell that simultaneously changes terms.

CPI (Consumer Price Index): Used to index rent rate escalations.

CPM (Certified Property Manager): Professional designation conferred by Institute of Real Estate Management; requires extensive education and experience.

DBA (Doing Business As): Aliases of business names.

Debt Service: Also referred to as ‘mortgage payment’ or the total mount of debt which you must pay.

Deed: A written instrument by which title to land is conveyed.

Default: The failure to meet an obligation, including lease clauses (i.e. timely rent payment, tenant use of premises, etc) and mortgages (i.e. timely ortgage payments, timely payoff upon due date).

Demising Walls: The dividing wall separating one space from another; or from the buildings common area such as a public corridor.

Depreciation: A loss in value.

Disclosure: The relaying of all facts previously unknown.

Down Payment: An amount of money the buyer pays which is the difference between the purchase price and the mortgage amount.

Earnest Money: A currency deposit made by the buyer as evidence of good faith in offering to purchase real estate and to secure performance of the contract. Earnest money is typically held in an escrow account during the period between acceptance of the contract and the closing.

Easement: The right to use another person's real estate for a specific purpose. The most common type of easement is the right to travel over another person's land.

Effective Rent: The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by the tenant, usually expressed as an average rate over the term of the lease.

Eminent Domain: The right of the government to take private property for public use, through court action known as condemnation.

Encroachment: The intrusion of a structure which extends, without permission over a property line, easement boundary, or building setback line.

Encumbrance: A burden or charge upon an estate or property, so that it cannot be disposed of without being subject to it.

Environmental Impact Study: Documents required by federal and state laws to accompany proposals for major projects and programs that will likely have an impact on the surrounding area.

Escalation Clause: A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc.

Escrow Account: An account held by an escrow agent (an individual or escrow company or title company,) into which is deposited the documents and funds in a transfer of real property, including money, a mortgage deed of trust, an existing promissory note secured by the real property.

Estoppel Certificate: An executed document certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser.

Fair Market Value: The price a willing buyer will pay a willing seller for a property. With both under no compulsion to either buy or sell.

Financial Statements: Accounting statements that provide specific information about a company's financial position including the Profit and Loss Statement, also known as the Income Statement, the Balance Sheet, and the Statement of Cash Flows.

Fixture: Personal property which has been attached to real estate so as to become a part of the real property. The article must meet one of three conditions: 1) attached in a permanent manner 2) specially adapted to the property or 3) intentionally made part of the real property.

Flex Space: A building providing its occupants the flexibility of utilizing the space. Usually configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse etc.

Force Majeure: A force that cannot be controlled by the parties to a contract and prevents said parties from complying with the provisions of the contract, (i.e. Natural Disasters.)

Foreclosure: A procedure by which the mortgagee (lender) either takes title to or forces the sale of the mortgagor's (borrower's) property in satisfaction of a debt.

Full Service Rent: All-inclusive rental rate which includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount.

Government Survey Method: A system of land description which uses meridians (north and south lines) and base lines (east and west lines). Areas include quadrangles (24 miles on each side), townships (6 miles on each side) and sections (1 mile on each side.)

Gross Lease: A type of lease in which the tenant pays a flat rate for rental space and the landlord pays all expenses.

Gross Square Footage: The total square footage of a building including elevator shafts, vertical penetrations, equipment areas, ductwork shafts and stairwells.

Highest And Best Use: The use of land or buildings which will bring the greatest economic return over a given time which is physically possible, appropriately supported and financially feasible.

Hold Harmless: A clause, or promise in the contract by one party not to hold the other party liable in a way that causes damage to the first party.

HVAC: Heating Ventilation and Air Conditioning.

IREM: Institute of Real Estate Management.

ISDN: Integrated Services Digital Network; A high-speed data and media communication system faster than conventional phone lines.

Lease: A contract giving the right to use the leased property for a period of time.

Lease Term: The fixed term of the lease.

Leasehold Improvements: Improvements made to the leased premises by or for a tenant.

Legal Description: A description of a specific parcel of real estate which is acceptable to the courts in that state, and which allows an independent surveyor to locate and identify it. i.e. government survey, metes and bounds or recorded plat, (lot and block number.)

Lessee: The person or company useing leased property under the lease.

Lessor: Depending on the type of the lease, either the owner of the leased property or the owner of the security interest in the leased property.

Letter of Credit: A specific arrangement between a lessee and one of its banks. The bank agrees in the event of a defined event, the lessor can look to the bank to make payment instead of the lessee. This is similar to a security deposit in that it is one way for a lessor to insure that it will be paid under the lease.

Letter Of Intent (LOI): A preliminary agreement stating the proposed terms for a final contract. They can be binding or non-binding.

Lien: A monetary claim against a property.

Listing Agreement: A Legal agreement between the listing broker and seller outlining: services to be rendered, identifying the property, and stating the terms of payment.

Load Factor: The common area calculation used to convert usable square foot measurements (usually, the physical space actually occupied by the tenant) to rentable square foot calculations. Usually includes a pro rata share of restrooms, lobby and common hallways.

Market Rent: The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business; indicated by the rents that landlords are willing to accept and tenants are willing to pay in recent lease transactions for comparable space.

Mechanic's Lien: A legal claim placed on real estate by someone who is owed money for labor, services or supplies contributed to the property for the purpose of improving it.

Metes And Bounds: A system of land description using distance (metes) and angles/compass directions (bounds) beginning and ending at the same point.

Mixed-Use: Space within a building or project providing for more than one use (i.e. residential/retail.)

Month-to-Month Tenancy: A rental agreement that provides for a one month tenancy that is automatically renewed each month unless either tenant or landlord gives the other the proper amount of notice (usually 30 days) to terminate the agreement.

Mortgage: A contract providing security for repayment of a loan, registered against property with stated rights and remedies in the event of default.

NACORE: International Association of Corporate Real Estate Executives.

Net Lease: Type of lease whereby the Tenant pays for part or all of the operating expenses which may include utilities, janitorial, property insurance, property management, sewer, water & garbage.

Net Net Net Lease (NNN): Type of lease where Tenant generally pays for all operating expenses.

Non-Compete Clause: A clause specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business can occupy space in the building.

Operating Expenses: Actual costs associated with operating a property. (Including maintenance, repairs, management, utilities, taxes, and insurance.)

Parking Ratio or Index: A ration expressing the number of parking spaces available in relation to the rentable square footage. X spaces per 1000 square feet, a building that offered 5 spaces for every 1000 square feet would show a parking ration of 5:1000.

Percentage Lease: Lease in which all or part of the rental is a specified percentage of gross income from total sales made upon the premises.

Personal Guaranty: The guarantee of someone to be individually responsible for the obligations of the lease. Generally for Subchapter S closely held companies and small businesses, a Lessor may ask for a personal guaranty as a way to insure that the lease payments will be made.

Plat book: A book of recorded subdivisions of land.

Pre-leased: Space in a proposed building that has been leased prior to the start of construction or in advance of the issuance of a Certificate of Occupancy.

Prime Rate: The lowest rate interest that a financial institution, such as a bank, charges its best customers, usually large corporations, for short term unsecured loans.

Property Taxes: Taxes that are paid yearly on real property.

Pro-Rate: To divide or distribute proportionally. At closing, various expenses such as taxes insurance, interest, rents etc are divided between the seller and the buyer.

Purchase Option: Option to purchase leased property either at the end of the lease term or if some other specific criteria are met by the lessee.

Quiet Enjoyment: The right of a property owner or tenant to enjoy his or her property without interference.

Real Property: Land, and generally whatever is erected or affixed to the land, such as buildings, fences and including light fixtures, plumbing and heating fixtures or other items which would be personal property if not attached.

REALTOR®: A real estate broker or associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors®.

Receiver: Court-appointed custodian who holds property for the court, pending final disposition of the matter before the court.

Recorded Plat: A subdivision map filed with the county recorder's office that shows the location and boundaries (lot and block number) of individual parcels of land.

Renewal Option: A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount provided for in the option language.

Rentable Square Feet: Usually the space measurement which incorporates both the "usable square foot" measurement as well as the common area. The difference between usable and rentable is generally between 10% - 15%.

Right of First Refusal: A) A lease clause giving a tenant the first opportunity to buy a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept. B) A lease clause giving a tenant the first opportunity to lease additional space that may become available in a property at the same price and under the same terms and conditions as those contained in a third party offer that the owner has expressed willingness to accept.

Sale-Leaseback: An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant.

Security Deposit: A payment required by a landlord to ensure that a tenant pays rent on time and keeps the rental unit in good condition. If the tenant damages the property or leaves owing rent, the landlord can use the security deposit to cover what the tenant owes.

Setback: The distance a building must be set back from the property lines in accordance with local zoning ordinances or deed restrictions.

Site Development: The installation of all necessary improvements (installment of utilities, grading etc) made to a site before a building or project can be constructed on such a site.

Site Plan: A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by zoning ordinances.

Slab: The exposed wearing surface laid over the structural support beams of a building to form one of the floor(s) of the building or laid slab on grade in the case of non-structural ground level concrete slab.

Space Plan: A graphic representation of a tenant's space requirements, showing all wall and door locations, room sizes, and sometimes furniture layout.

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

Specific Performance: Carrying out the precise terms agreed upon in a contract.

Sublease: A rental agreement or lease between a tenant and a new tenant (called a sublessee) who will either share the rental or take over from the first tenant. The sublessee pays rent directly to the tenant. The tenant is still bound by the terms of the original lease including payment, and any damages. Including those caused by the sublessee.

Subordination Agreement: As used in a lease, the tenant generally accepts the leased premises subject to any recorded mortgage or deed of trust lien and all existing recorded restrictions and the landlord is often given the power to subordinate the tenant's interest to any first mortgage or deed of trust lien subsequently placed on the leased premises.

Survey: The process by which a parcel of land is measured and its boundaries and contents are ascertained and marked.

Tax Roll: A list or record containing the descriptions of all land parcels located within the county, the names of the owners, the assessed values and the tax amounts.

Tenant Improvement (TI): Allowance or work letter defining the fixed amount of money contributed by the landlord towards tenant improvements.

Tenant Improvements: Improvements made to the leased property by or for a tenant.

Time Is Of The Essence: An optional clause in a contract, making failure to perform by a specific date a material breach or violation of the contract.

Title Insurance: A policy issued by a title company which insures against loss resulting from defects of title to a specifically described parcel of real property or from the enforcement of liens existing against it at the time the policy is issued.

Trustee: One who as agent for others handles money or holds title to their land.

Under Contract: A property for which the seller has accepted a buyer's offer to purchase is said to be under contract. During this period the seller is not permitted to enter into other contracts pertaining to said property.

Unimproved Land: Most commonly refers to land without improvements or buildings but can also mean land in its natural state.

Uninterruptible Power Supply (UPS): A special power source which takes over in the event of a failure in the main power system.

Usable Square Feet: The space deemed usable contained within the premises. If the entire building is occupied by a single user, the rentable and usable square foot calculations may be the same.

Variance: An exception to a zoning ordinance, usually granted by a local government.

Virtual Tour: A visaul tour provided to anyone using the WWW to display the properties, individual features, and contents of any property.

Void: Having no legal force or effect.

Waiver: The intentional or voluntary relinquishment of a known claim or right.

Walk Through: A) Buyer's on-site inspection of the property being purchased. B) A detailed inspection of a new construction, in which a punch list and cosmetic items are addressed prior to final acceptance.

Work Letter: A list of the building standard items that the landlord will contribute as a part of the tenant improvements.

Zoning: Police powers of city in regulating and controlling the character or use of property. Zoning laws divide cities into different areas according to use, from single-family residences to industrial plants.

Zoning Ordinances: Laws which control the size, location, and use of buildings in different areas.