Common Brokerage Terms

Common Terms

AssigneeIndividual/Entity to whom a contract is assigned.AssignmentThe manner by which a contract is transferred from one individual/entity to another individual/entity.Base RentThe minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.Build OutThe construction or improvements of the interior of a space, including flooring, walls, ceiling grid, finished plumbing, electrical work, etc.Building PermitWritten government/municipality permission to develop, renovate, or repair a building.Capital ImprovementAny major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof, and renovations of the lobby.Capitalization Rate (Cap Rate)The value given to the property when the Net Operating Income (NOI) is divided by the current market value or sales price. A cap rate can be used as a rough indicator of how quickly an investment will pay for itself. The higher the cap rate, the better.ChattelHousehold goods, including personal property such as lamps, desks, and chairs.Common AreaFor lease purposes, the areas of a building (and its site) that are available for the non-exclusive use of all it tenants, such as lobbies, corridors, and parking lots.Common Area Maintenance (CAM)Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants are charged for parking lot maintenance, snow removal and utilities.Deed RestrictionAn imposed restriction in a deed that limits the use of the property. For example, a restriction could prohibit the sale of alcoholic beverages.Discount RateThe percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk-free rate of interest and a risk premium.Due DiligenceThe process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk. Applying a consistent standard of inspection and investigation one can determine if the actual conditions do or do not reflect the information as represented.Estoppel CertificateA legal instrument executed by the one taking out the mortgage (i.e., mortgagor). The owner of a property may require an individual leasing a property to sign an estoppel certificate, which verifies the major point (e.g., base rent, lease commencement and expiration) existing lease between the landlord and tenant.1031 Tax Deferred ExchangeUnder Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the from of (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).FixturesPersonal property so attached the land or building (e.g., improvements) it is considered part of the real propertyFree rentSee rent concessions.Ground LeaseA lease of land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the land from ownership of buildings and improvements constructed on the land.Holdover TenantA tenant who remains in possession of leased property after the lease term expiration.Joint TenancyOwnership of real property by two or more individuals, each of whom has an undivided interest with the right of survivorship.Letter of IntentAn informal, usually non-binding, agreement among parties indicating their serious desire to move forward with negotiations.Net Operating Income (NOI)The potential rental income plus other income, less vacancy, credit losses, and operating expenses.Non-Disturbance AgreementThe tenant signs this to prevent himself from being evicted if the property owner does not pay its mortgage to the bank.Office PropertyA commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Office properties may be classified as Class A, B, or C. Class A properties are the most functionally modern. Properties Classed B and C in the same market typically command lower rents because
they are older and in need of modernization. They may not be as efficient or desirable as Class A properties because their design or condition causes functional problems.Operating ExpensesOperating Expenses – Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.Percentage RateThe additional rent (over a base amount) that is paid by tenants to owners on tenant sales over a specified dollar amount. It is frequently found in retail leases. Also known as overage rent.Real Estate Investment Trust (REIT)An investment vehicle in which investors purchase certificates of ownership in the trust, which in turn invests the money in real property and then distributed any profits to the investors. The trust is not subject to corporate income tax as long as it complies with the tax requirements for REIT. Shareholders must include their share of the REIT’s income on their personal tax returns.Rent ConcessionA period of free rent given to the tenant by the lessor.Residential PropertySingle or multifamily housing units that are used, serve, or are designed as a place of residence.Retail PropertyProperties used exclusively to market and sell consumer goods and services.Sale-LeasebackA leasing and financing strategy in which a property owner sells its property to an investor, then leases it back. This strategy frees capital that otherwise would be frozen in equity.Specific PerformanceWhen a court requires a defendant to carry out the terms of an agreement or contract.SubleaseA lease in which the original tenant (lessee) sublets all or part of the leasehold interest to another tenant (known as a subtenant) while still retaining a leasehold interest in the property. Also known as sandwich lease due to the sandwiching of the original lessee between the lessor and the subtenant.SubmarketA segment or portion of a larger geographic market defined and identified on the basis of one or more attributes that distinguish it from other submarkets or locations.Tenancy In CommonOwnership of property by two or more individuals, each of whom has an undivided interest, without the right of survivorship.Tenant ImprovementsPreparation of leased premises prior to or during a tenant’s occupancy, which may be paid for by either the landlord, the tenant, or both.TISee tenant improvements.TI AllowanceEntry on the tenant’s Cash flow Form. A specified amount of money the owner will pay for tenant improvement.Usable AreaRentable area, less certain common areas that are shared by all tenants of the office building (such as corridors, storage facilities, and bathrooms). Also defined in office buildings as the area that is available for the exclusive use of the tenant. Usable area = rentable area x building efficiency percentage.VarianceGovernment authorization to use or develop a property in a manner which is not permitted by the applicable zoning regulations.Work LetterAn amount of money that a landlord agrees to spend on the construction of the

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