Office Lease Agreement > Common Terms & Definitions
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Office Lease Agreement Definitions |
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Absolute Net Lease - A lease that requires Tenant to pay all additional costs associated with operating the property such as; repairs and maintenance, real estate taxes, utilities, repair and maintenance of the building's structure and roof, parking lot maintenance, etc. Sometimes the tenant assumes responsibility not only for the cost but for arranging the actual repairs.
ADA - Americans With Disabilities Act, which
was passed by the U.S. Congress in 1994 provides persons with
disabilities certain rights to accommodations and accessibility equal
to or similar to that of the general public.
Additional Rent or Added Rent - Any amounts due under a lease
that are charged in addition to the base rent. The most common form is
Common Area Maintenance.
Agency - Any relationship in which one party ("the Agent") acts
as a fiduciary or represents another party ("The Principal") under the
Principal's authority. An Agency Relationship involving real property
should be in writing.
Allowance - A set dollar amount provided by the Landlord under
a lease to be used by the Tenant for a specific purpose, such as;
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.
Amortization - Payment of debt in regular, periodic
installments of principal and interest, as opposed to interest only
payments. May also be used in a lease where the landlord incurs costs
for additional tenant improvements and then effectively treated as a
debt and repaid by tenant over the term of the lease.
Assignment - A transfer of one's rights to another for either
real or personal property, Common assignments are of leases,
mortgages, real estate contracts, options, and/or deeds of trust.
Base Rent - A specific amount used either as a minimum rent in
a lease onto which expenses and/or taxes are added on in. This would
apply to Net Leases.
Base Year - The 12 month period upon which a direct expense
escalation of rent is based. Typically the calendar year the lease
commences.
BOMA - Building Owners and Managers
Association. BOMA publishes the definition of rentable and useable
area, which is used to determine the square footage leased in most
commercial office buildings.
CAM Charges - Common Area Maintenance charges. Those charges
levied on the tenant to repay the Landlord for expenses incurred in
maintaining the common areas of a building.
Churn - Moving people from one workspace to another within
the leased premises. Usually involves relocation of furniture, phones,
computers, etc. and can be very expensive and time consuming. A high
churn rate is to be avoided.
Circulation - Those areas (hallways, corridors, etc.) in an
office space that are used to travel between offices, cubicles and the
like.
Commencement Date - The date on which a lease begins. This is
typically but not always the day on which the tenant takes possession
of the leased space, which usually occurs upon substantial completion
of the tenant improvements.
Class - Class usually refers to the quality of property. Class
definitions typically fall with the following guidelines; Class A+:
Landmark quality, high-rise building within a prime Central
Business District (CBD). Class A: Generally 100,000 sq. ft. and
larger (5 stories and higher floors), concrete and steel construction,
built after 1980, business/support amenities, strong identifiable
location and access. Class B: Renovated and in good locations.
Newer buildings, smaller in size, and/or in non-prime location.
Class C: Older, un-renovated of any size in average to fair
condition.
Common Area - Common area is the area used by all of the
Tenants such as elevator, lobbies, restrooms, cafeterias and the
building's corridors.
Contingent Fees - Fees to be paid only in the event of a future
occurrence. Examples include: A Broker's commission paid only upon
closing the sale of a piece of property or the renewal of a lease.
Certificate of Occupancy (C/O) - A certificate issued by a
local government verifying that a newly constructed building or space
is in compliance with all codes and may be occupied.
Demised Area - The inclusive space consisting of the walled-off
and secured area of a leased space, separated from spaces leased to
others (by a "demising" wall). Also measured as useable area.
Discount Rate - The rate of interest used in
a present value analysis representing the "time value of money".
Effective Rent - The average rent per square foot paid by the
tenant over the term of a lease. Takes into account only free rent and
stepped rents. Does not include allowances, free parking and other
similar landlord concessions.
Effective Useable Area - Excludes those areas within the
Useable Space (see below) that the tenant pays rent on but effectively
cannot use such as columns and sharply angled spaces.
Escalation - A clause in a lease providing
for an increase in the rental rate at some future point in time. This
may be accomplished by
several types of clauses, such as: (1) fixed increases -- a clause
which calls for a definite, periodic rental increases; (2) cost of
living -- a clause which ties the rent to a government cost of living
index, with periodic adjustments as the index changes; (3) direct
expense -- the rent adjusted according to changes in the expenses of
the property paid by the lessor, such as tax increases, increased
maintenance costs, etc.
Estoppel Certificate - A document signed by both Tenant and
Landlord of a commercial building which prevents either party from later asserting facts different from
those contained in the document. Often required by a Buyer and their
lender in the sale of a commercial building. The Tenant and Landlord both sign the
Estoppel Certificate, confirming the lease and pertinent facts
thereto.
Exclusive Listing - A contract between Landlord and Broker
whereby Broker is given the Exclusive Right to represent the Landlord
in the leasing and/or sale of the property.
Expansion Option - A right granted by the
Landlord to a Tenant whereby the Tenant is given the option to add
more space to its premises pursuant to the terms of the option.
Expense Stop - A fixed amount (typically per
square foot) in a lease where the Tenant is responsible for all
building operating expenses and real estate taxes in excess of said amount.
Extension Option - An agreed continuation of
occupancy under the same conditions, as opposed to a renewal, which
implies new terms or conditions. In a lease, it is a right granted by
the Landlord to the Tenant whereby the Tenant is given the option to extend
the lease for a period of time.
Free Rent - A concession granted by a
Landlord to a Tenant whereby the Tenant is excused from paying rent
for a stated period during the lease term. This is usually an
inducement Landlords may offer to attract new Tenants.
Fully Serviced Lease - Implies a "Gross Lease" (as opposed to a
"Net Lease"). This is a lease in which the
stated rent includes the operating expenses and taxes for the
building.
Gross Lease - (Same as "Fully Serviced Lease") A lease in which the stated
rent includes the operating expenses of the building.
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 if the building were fully occupied.
Ground Lease - A lease of land only, (either
vacant or exclusive of any buildings on it), usually for a
long period of time. The Ground Lease rent is typically not
passed-through to
the Tenant as an operating expense.
Hotelling - An alternative workspace concept
where rather than having an assigned exclusive workspace, an employee
accesses one space, perhaps being one of many such spaces in common
with others on an as needed basis, and otherwise works outside of the
office.
HVAC - Heating, Ventilation, Air
Conditioning. A general term encompassing any system designed to heat
and cool a building in its entirety. Typically this refers to a
rooftop unit that provides both Heating and Air-conditioning.
Landlord - (The "Lessor", usually the
owner) who gives the Tenant a lease (right to possession) in return for a
rent.
Lease Term - The length of time
in which the Landlord grants to the tenant the right to possession of
real property.
Lessee (Tenant) - The party to whom a
lease (the right to possession) is given in return for rent.
Lessor (Landlord) - The party (usually the
owner) who gives the lease (right to possession) to a Tenant in return for a rent.
Letter of Intent - A written proposal between two
parties to a prospective transaction (buyer/seller or lessor/lessee)
that sets forth the major points and business terms and which is used
as a basis to form a more formal, legally binding agreement. L.O.I's
are generally non-binding on either party and typically do not involve
the exchange of any funds.
Listing Agent - The real estate agent
hired by the property owner to lease a property on their behalf. The
agent obtains a listing agreement, which calls for that agent to act
on the owner's behalf as a fiduciary in leasing the property.
Load Factor - In a lease, the load factor is
the multiplier to a Tenant's useable space that accounts for the
Tenant's proportionate share of the common area (restrooms, hallways,
lobby, mechanical rooms, etc.). The load factor is usually expressed
as a percentage.
Master Lease - A lease that controls subsequent leases. May
cover more property than subsequent leases. For example: "A" leases an
office building, containing ten offices, to "B". "B" subsequently
subleases the ten offices individually. The ten subleases from "B" as
sublessor are controlled by the lease from "A" to "B" (master lease).
Net Lease - (Opposite of Gross Lease) . A lease in which the stated rent excludes the
insurance, utilities, operating expenses and real estate taxes for the
building. The tenant is then responsible for the payment of these
costs either directly or as additional rent. The term "Net Lease" is
somewhat ambiguous as the specific terms of the added rent charges are
subject to negotiation. (See also "Triple Net")
Net Present Value (NPV) - The calculation of
NPV takes into account both the netting of cost and benefits
and the time value of money. See Present Value.
Net Rentable Area - (See "Rentable Area").
The area (square footage) for which rent can be charged. Generally it
is the gross area of the full floor less the area of all vertical
penetrations (elevator shafts, stairwells, mechanical shafts etc.)
Non-disturbance - This is a common lease clause that provides
assurance to the Tenant, that as long as lease is not in
default, its rights to occupancy under the lease will not be disturbed
by the Lessor, Lender, it's successors or assigns.
Occupancy Cost - Any cost or charge
incurred by a tenant pursuant to its lease, such as rent, operating
expense increases, parking charges, remodeling costs,
etc.
Occupancy Date - Unless specifically stated
otherwise in the lease, it is the date on which the tenant takes
possession of its leased premises. (See "Commencement Date").
Open Listing - A listing agreement between a Landlord and
Broker whereby Landlord retains the right to lease on its own without
any obligation to the Broker. But if the Broker produces a Tenant then
the Broker will still earn its commission.
Operating Expenses - The cost of operating
an office building, such as janitorial, management fees, utilities,
and similar day to day expenses, as well as taxes, insurance, and a
reserve for replacement of items which periodically wear out. This
would not include capital expenditures ("Cap-ex") such building-wide
upgrading nor expenses
associated with the leasing, accounting and/or legal fees.
Owner's Representative - An agent who is an
advocate for the owner and/or landlord. (See "Exclusive Broker").
Pass-through - An increase in operating
expenses over the base year amount that is billed to the tenant as
additional rent. (See "Escalations").
Premises - Typically the entire rentable
area leased by lessee. Sometimes used to designate solely the useable
area leased to the Lesee and not including common areas.
Reasonable Consent - A standard applied in a
lease (most often in a sublease clause) which limits the landlord's
ability to withhold consent in its sole discretion. If a reasonable
person would give consent to an action given the circumstances, so
must the landlord.
Renewal Option - The right of a tenant to
renew (extend the term of) a lease for a stated period of time at a
rent to be determined.
Rent - Consideration paid for the occupancy and use of real
property.
Rentable Area - The (square footage) for
which rent can be charged. Generally it is the gross area of the full
floor less the area of all vertical penetrations (elevator shafts,
stairwells, mechanical shafts etc.) Rentable area is typically
calculated in accordance to BOMA standards.
Rental Rate - The amount of Rent paid for
the occupancy and use of real property. Typically stated on a per
square foot per month or per year basis.
Request For Proposal (RFP) - A document
typically issued by the Tenant's Rep or Agent to Landlord,
inviting the Landlord to submit a proposal to the tenant for the
leasing of a vacant space. The RFP sets forth a description of the
space; the rental rate, net lease or other charges; improvements,
inducements and/or allowances to be provided by the Landlord.
Right of First Refusal - A
right, usually given by an owner to a tenant, which gives the tenant a
first chance to buy the property or lease a portion of the property if
the owner decides to sell or lease. If the tenant refuses to make an
offer or if the parties cannot agree on terms, the property can then
be sold or leased to a third party.
Right of Offset - A specific clause in a
lease where the tenant has the right to deduct from the rent certain
costs which are due to the tenant from the landlord. Included may be
the costs incurred by tenant to cure defaults of the landlord, after
notice and failure by landlord to cure the defaults. These are called
"self help".
Space Planning - Planning of the layout of the interior space of a
building to meet the needs of the user. Can also include detailed
interior design and preparation of construction drawings. Space
planning does not necessarily involve structural changes and therefore
can be done by an Interior Designer who is not always a Licensed Architect.
If there are any structural changes or construction plans required
then a Licensed Architect and/or Engineer will be required to draft
and file necessary plans and permits
Space Pocket - A portion of a leased
premises that is set aside to accommodate future growth on the part of
the tenant. No rent is charged until the actual use or a specified future date.
Sublease - A lease, under which the Lessee takes on the role of
Lessor and leases all or some portion of its space to another party.
The Sublease may be for any amount and for any term provided that the
term does not run any longer than the underlying lease.
Subordination - To make subject or junior
to.
Substantial Completion - Generally used in
reference to the construction of tenant improvements (TIs). The
tenant's premises is typically deemed to be substantially completed
when all of the TIs for the premises have been completed in accordance
with plans and specifications previously approved by the tenant.
Sometimes used to define the commencement date of a lease.
Tenant - Tenant (the Lesee) is a holder of an interest in
property for a specific term under a lease or other rental contract/agreement.
Tenant Inprovements (T.I's) - Improvements to
land or buildings to meet the needs of the Tenant. This may be in the
form of new
improvements, fixtures or remodeling. T.I's may be paid for by either
the Tenant, Landlord or shared by both sides.
Tenant Representative - An agent who represents and is an
advocate for the tenant. The relationship is usually stipulated in the
form of a signed representation agreement.
Triple Net Lease - A lease requiring the tenant to
pay in addition to a fixed rental, the expenses of the property
leases, such as taxes, insurance, maintenance, utilities, cleaning
etc. The specifics of a Triple Net lease are subject to negotiation.
This is different from an "Absolute Net Lease" which implies
that the Landlord has absolutely no responsibility or expense of
operation.
Turn-key - Referring to an owner making a property ready for a
tenant to begin business by having the tenant furnish only furniture,
phone and inventory, if any. Turnkey tenant improvements are provided
at the landlord's expense according to plans and specifications
previously agreed upon by the parties. Unlike an allowance where the
tenant pays for costs in excess of the allowance amount, the landlord
bears the risk of construction in a turnkey situation.
Value Engineering - Process by which costs can be decreased or
benefits can be added to an undertaking or project through redesign,
prioritization or other similar actions.
Useable Area - The secured area (square footage) occupied
exclusively by tenant within a tenant's leased space. The Useable area
can be measured in many ways, but the most common measurement for
office buildings is according to BOMA standards.
Virtual Office - Typically means an office that moves with the
person, such as when salespeople implement the use of portable
computers, modems, and cellular phones in return for having their
offices taken away.
Vertical Transportation - Elevators, stairs or escalators that
transport people or freight between floors in a building.
Work Letter - Specifications for tenant improvements usually
attached to a lease and/or Letter of Intent (L.O.I.). The work letter
provides the basis for working drawings and contractor pricing and may
allocate costs between the parties. The work letter also establishes
critical dates for approval of drawings and completion of the work.
Working Drawings - Architectural Drawings used by contractors
in the construction of tenant improvements. Shows all architectural
detail such as electric, plumbing, partitions, etc.
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