Commercial Real Estate Terms You Should Know & Understand
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Whether you own or rent your space for
your business, property costs and obligations surrounding ownership
or leasing are one of the largest business expenses that you will
incur. They will have a significant impact on your operation because
of long term commitments that you will have to making. That’s why
it’s important to comprehend the full ramifications of taking over
title to a property or entering into a lease agreement. Therefore,
we recommend that you always retain a commercial real estate broker
holding the CCIM Designation and real estate attorney with a proven
track records and education in commercial real estate transactions.
Also, you should familiarize yourself with some common commercial
real estate terms:
A-2 Survey: A legally recognized survey of the measurements of
the boundaries of a parcel of land, its area, and sometimes its
topography. This survey may also include any/or all underground
utility feeds, fencing, encroachment, easements, etc. This document is
stamped by a licensed land surveyor and is often required by mortgage
holders.
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Acre: A measure of land equal to 43,560 square feet in any
shape.
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Add on Factor: Generally accept term used to describe the
percentage of floor area added on to a base square foot measurement to
accommodate for common areas in a building used by all tenants.
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Assignment: A transfer to another of any property, real or
personal, or of any rights or estates in said property. Common
assignments are of leases, mortgages, deeds or trust, but the general
terms encompass all transfers to title.
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Base Rent: Is the rate at commencement of the lease. It is
subject to annual increases unless otherwise negotiated in the lease
or Addendum or an attached amendment. This phrase has more than one
meaning. To some landlords, and in some markets it refers to the
rental rate minus operating expenses., i.e. $14 per square foot quoted
rate, the building operates at $6.50 (operating expense cost);
therefore, the base rate (net rent) is $7.50.
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Common Area: Any space in a building affording common use for all
tenants, with the exception of vertical penetrations. Common Areas
include lobbies, corridors, restrooms, building break rooms, building
conference room, health facility, janitorial closets and storage
rooms. It does not include the stairwells or the elevator shafts,
flues or vertical ducting.
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Cost/SF: (A common method of pricing space for lease.) In most
lease offering in the market, properties to lease and corresponding
operating expense are priced on an annualized cost per SF basis. It is
important that you understand what the actual annual and monthly rent
obligations are going to be by multiplying the “Rentable SF” of the
space by the $ / SF being quoted. This will give you the annual rent;
divide by 12 to get the monthly rent. (Please note that it is common
practice to price lease space on a $ / month basis on the West
Coast.)
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Demising Wall: A common wall that separates two tenants. Often
requiring fire rating standards set by state and/or local
municipalities.
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Escalation Clause: The clause in the lease that addresses the
increases to be passed on to the tenant during the life of the lease.
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Establishment: "Establishment" means any real property at which
or any business operation from which (A) on or after November 19,
1980, there was generated, except as the result of remediation of
polluted soil, groundwater or sediment, more than one hundred
kilograms of hazardous waste in any one month, (B) hazardous waste
generated at a different location was recycled, reclaimed, reused,
stored, handled, treated, transported or disposed of, (C) the process
of dry cleaning was conducted on or after May 1, 1967, (D) furniture
stripping was conducted on or after May 1, 1967, or (E) a vehicle body
repair facility was located on or after May 1, 1967.
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Estoppel Certificate: A document signed by the tenant stating the
current condition of the lease and any other agreements between the
landlord and tenant.
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Fair Market Value: FMV, this is the price that the property would
most likely bring in today’s market.
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Fee Interest: An ownership under which the owner is entitled to
unrestricted powers to use and dispose of the property, and which can
be left by will or inherited. Commonly, a synonym for
ownership.
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Grantee: Buyer, one to whom a grant is made.
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Grantor: Seller, one who grants property or property rights.
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Gross Lease: The type of lease that as all inclusive. The tenant
pays rent only; the owner pays all expenses related to the property.
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Hazardous Waste: "Hazardous waste" means any waste which is (A)
hazardous waste identified in accordance with Section 3001 of the
federal Resource Conservation and Recovery Act of 1976, 42 USC 6901 et
seq., (B) hazardous waste identified by regulations adopted by the
Connecticut Commissioner of Environmental Protection, or (C)
polychlorinated biphenyls in concentrations greater than fifty parts
per million except that sewage, sewage sludge and lead paint abatement
wastes shall not be considered to be hazardous waste for the purposes
of this section and sections 22a-134a to 22a-134d, inclusive of the
Connecticut General Statutes.
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Leasehold Interest: An ownership in realty held under a lease; a
use of that real estate for a fixed term. Considered in some states to
be personal property.
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Lessee: The individual or company leasing space from another
party.
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Lessor: The individual or building owner leasing space to another
party.
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Lien: An encumbrance against personal items such as property for
money.
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NNN Lease: A lease agreement that provides for the tenant to pay
as additional rent, its proportionate share of real estate taxes,
building insurance and common area maintenance such as snow plowing,
landscaping and management. Additionally, the tenant will pay for his
own utility and janitorial service.
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Operating Expenses: The landlord’s cost to operate the property.
Some items included are: real estate taxes and assessments and other
taxes, utilities, insurance, maintenance and repairs, common area
refurbishing, janitorial, materials and supplies, repair service, cost
of property management, security fees, employees and contractors,
outside maintenance, cost of signs, rubbish removal, pest control,
bulb replacement, etc.
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Quit-Claim Deed: A
deed operating as a release; intended to pass any title, interest, or
claim which the grantor may have in the property, but not containing
any warranty of a valid interest or title in the
grantor.
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Rentable SF: The amount of square feet, including the common area
factor of the building. This typically is the square footage the
tenant will pay rent on.
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Sublease: Occurs when a tenant re-leases their space during the
term of their tenancy. It is generally a three party transaction.
Sub-lessee leases space from tenant and Landlord approves. This does
not release the Tenant from its obligations of the lease.
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Useable SF: The amount of square feet measured within the
confines (Premises) of the tenant’s space.
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Warranty Deed: A deed used in many states to convey fee
interest/title to real property. Until the widespread use of title
insurance, the warranties by the grantor were very important to the
grantee. When title insurance is purchased, the warranties become less
important as a practical means of recovery by the grantee for
defective title.
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If you should have any other questions
regarding leasing or acquiring/selling commercial real estate,
please contact Frederick P. Petrella, CCIM,
fredp@ctrealtygroup.com,
or call at 203-484-0425.
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