Allowance

A set dollar amount provided by the landlord under a lease which is to be used by the tenant for a specific purpose.  Examples include allowances for tenant improvements; moving expenses, design fees, etc.  If the expense exceeds the allowance amount, such excess is the tenant’s responsibility.  If the expense is less than the allowance, the savings are retained by the landlord unless their agreement specifies otherwise.

As is condition

An agreement by a tenant or purchaser that a property is accepted in its current condition as inspected, including any known or unknown conditions defects or deficiencies.

Base rent

The amount of rent to be paid by the tenant excluding operating costs, maintenance, insurance, hydro, etc. for the right to occupy specific premises. Base rent is synonymous with minimum net or basic rent.

Base building

This refers to the existing shell or envelope of a building prior to tenant improvements.  This condition varies from building to building.

Base year

Defined as a 12 month period upon which a direct escalation of rent is based; typically the calendar year in which the lease commences.

BOMA

Building Owners and Managers Association.  A national association developed as a forum for building owners, property managers and developers.

Built-to-suit

Construct to meet the specific requirements of a tenant or purchaser.

CAM – Common area maintenance

Also called “additional rent”, the additional rent charged to a tenant associated to maintaining the common areas of an industrial, commercial or office building or property. These charges are shared by all of a building’s tenants on a pro-rata basis.

Class of Building

A method used to determine the desirability of one building over another using age, location and quality of improvements as determining factors. They are usually defined as Class A, B or C.

  • Class “A” building:  they are defined by BOMA as the most prestigious buildings competing for premier office users with above average rental rates for the area along with high-quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.
  • Class “B” building:  they are defined by BOMA as buildings competing for a wide range of users with rents in the average range for the area.  Building finishes are fair to good for the area and the systems are adequate, but the building does not compete with Class A at the same price.
  • Class “C” building:  they are defined by BOMA as buildings competing for tenants requiring functional space at rents below the average for the area.

Common area

An area of an office or industrial building that is used in common by tenants and their visitors.  This generally includes areas such as lobbies, corridors and public restrooms.  This term can also be extended to include the cost of maintaining parking areas, sidewalks, landscaped areas, loading facilities, mechanical and/or electrical rooms, janitor closets and elevators.

Default

Breaking any section of the terms contained within a lease document or contract.  Examples would include failure to pay rent, using the premises for purposes not agreed upon in the lease or failure to perform any one of the agreed upon terms.

Demised premises

A term used to describe a location in a multi-unit office, industrial or retail building individually divided by walls into a single space.

Demising walls

Defined as partitions or walls that separate a tenant’s space from another tenant’s space or from the building’s common areas.

Effective rent/rate

The actual rent per square foot or amount received by a landlord after deducting free rent, tenant allowance, realtor commissions, and landlord’s work.

Effective usable area

Excludes those areas within the industrial and office space that the tenant pays rent on but effectively cannot use such as columns and sharply angled spaces.

Escalation clause

A provision within a lease stating the preset rate increases in rent (base rent or operating costs) over the term of the lease.

Extension option

An agreed upon continuation of occupancy under the same conditions, as opposed to a renewal, which implies new terms or conditions.

Fixturing period

The period prior to the lease commencement date that the tenant uses to renovate or build-out the premises: usually free of base rent and operating costs but often including utilities consumed.

Floor plan

A drawing showing the layout of the partitions and improvements.

Gross lease

A lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease (opposite of Net Lease).

Gross Up

An adjustment made to operating expenses to account for the occupancy level in a building.  When operating expenses are “grossed up”, it means that the building’s variable expenses have been adjusted upwards to the level that those expenses would be incurred if the building was fully occupied (or nearly so, typically 95%).  It results in tenants who actually receive services, paying for them.

Lease guarantee

An agreement promising that if the tenant falls into default the rent will be paid to the landlord and all other obligations in accordance with the lease will be performed by the guarantor named.

Guarantor

If a business is relatively new (under five years), their financial statement is not strong, or the landlord has some discomfort with the prospective tenant’s ability to last through the lease, the landlord might ask for a personal or corporate guarantee.  The guarantor is the person or entity guaranteeing the lease. This provides assurance that if the tenant defaults, the guarantor will pay the rent and continue to live up to all the terms and conditions of the lease.

Heating, ventilating, and air conditioning (HVAC)

The mechanical system of the building that heats, provides fresh or conditioned air and ventilates.  High-rise office buildings and shopping centers have one or two main HVAC systems that supply tenants cooperatively, while strip malls and industrial buildings tend to have individual rooftop HVAC systems for each tenant or occupant.

Inducement (or incentive)

A concession, allowance or benefit offered by a landlord to a prospective tenant in order to encourage the prospective tenant to sign a lease commitment or renewal.

Leasehold improvements

Improvements or leasehold additions made to the property as required by the tenant and approved by the landlord.  These typically include items such as partitioning, door frames, doors, floor covering, side lights, electrical, and/or mechanical systems.

Lessee

The tenant, as it pertains to a lease agreement.

Lessor

The landlord or property owner, as it pertains to a lease agreement.

Net lease

A lease which requires the tenant to pay its proportionate share of the operating expenses of the property in additional to base rent.  Examples or expenses include taxes, insurance, maintenance, utilities, etc.

Net rent

Net rent of often equated with triple net leasing: as most elements, taxes, maintenance and operating costs are subject to escalation and therefore netted out.  Thus, a tenant would agree to pay a certain net rental rate plus their proportionate share of taxes, maintenance and operating costs.

Offer to lease

A document used to create an agreement for the lessor to lease commercial space to a lessee on specified terms and conditions. At closing the parties sign a formal lease agreement.

Operating expenses

The cost for property taxes, maintenance, insurance, salaries, utilities and similar items paid in connection with the operation of a commercial, office, industrial or warehouse property by the landlord.

Option to renew

A lease clause that gives the tenant the right to renew the current lease for an additional term subject to clauses and conditions as set out in the lease agreement.

Personal guarantee

The provision in a lease naming a guarantor who is held personally responsible for the payment of all the amounts for rent and additional rent and other terms as set out in the lease.

Pro rata share

The leased area of the tenants premises divided by the total gross leasable area for the building. The resulting fraction being used to compute the tenant’s share of operating expenses, taxes, common area maintenance fees, HVAC charges, and insurance.

Rent-free period

Period in which a tenant is not required to pay base rent, as contained in the lease.

Rentable area

Calculated as a leased premise’s usable square footage plus the pro rata share of the building’s common area excluding any major vertical penetrations between floors such as stairwells, duct shafts and elevators.

Rental rate

Annual rate per rentable square foot to be paid by the tenant to the landlord for leased premises.

Right of first refusal

A right granted to a party to enter into a contractual arrangement on terms identical to those offered by a third party. As an example, a tenant’s right to lease additional space that is often adjacent.  Usually the tenant would be required to match whatever bona fide offer to lease is made by the third party.

Right to renew

A clause which allows the tenant the right to remain in possession of premises beyond the lease expiry, at agreed upon terms and conditions.

Right to terminate

A special clause in the lease agreement giving one of the parties (usually the tenant or lessee) the right to cancel the lease.

Square footage

The number of square feet within the premises as determined in accordance with the applicable standard measurement.

Tenant improvement allowance

An amount of money paid or credited by the landlord to a tenant to assist the tenant in the cost of the improvements to the leased premises.

Triple net lease

A lease that requires the tenant to pay all expenses of the property being leased in addition to base rent.  Typical expenses covered in such a lease include taxes, insurance, maintenance and utilities.  Commonly referred to as “NNN” lease or “3N” (also see CAM charges).

Usable area

The area of the leased premises computed by measuring to the finished surface of the office side of corridors and other permanent walls, to the center of partitions that separate the office from adjoining Usable Areas, and to the inside finished surface of the dominant portion that occupies more than 50% of the wall space.  For example:  if you are measuring an office and one of the walls has a window that occupies more than half of the surface of the wall, you measure to the surface of the glass.

Vacancy rate

The percentage of unoccupied space compared to total inventory of space in a building.

Zoning

The sections of a city, town or municipality where construction is limited to a stated use or type of building and land usage.