Leasing Terminology


AREA/SPACE DEFINITIONS

Usable Area (Square Feet): The office area actually occupied by a tenant for its sole and exclusive use. The usable area on a single floor of a building may vary depending upon corridor configurations, whether the floor is a single tenant or multiple tenant occupancy, etc.

Rentable Area (Square Feet): The rentable area includes the usable area plus a pro rata portion of common areas on the entire office floor excluding vertical shafts, such as elevators, stairs, mechanical users, etc.

Common Areas: Common areas are those portions of the building used by all office tenants or which serve all office areas. Common areas include corridors, restrooms, public lobbies, and in some buildings, mechanical space, loading docks and other services areas which benefit all tenants.

Load Factor (Common Area Allocation): Load Factor is that percentage of the building which is common area allocated to the tenants to increase their usable area to rentable area. A load factor of 10% means that 900 usable square feet would be 990 rentable square feet.

B.O.M.A. Standard Measurement: A defined way to measure space by The Building Owners and Managers Association (B.O.M.A.). Landlords may chose their own method to measure space, normally by increasing the amount of common areas added to the usable area.

Efficiency: The percent of rentable area which is usable area, i.e. a 90% efficient building offers 900 usable square feet for every 1,000 rentable square feet. (Note Efficiency and load actor are not the same).

Layout Efficiency: Efficiency of the usable area to meet the tenant’s work flow requirements, office design, personnel, etc. Efficiency of usable area is dictated by building shape, core location, floor size, leasing depth, corridors, etc.

 

RENTAL STRUCTURES

Rental: The cost charged per rentable square foot on a monthly or annual basis for a leased area.

Base Rental: The first year’s rental rate normally identified as the annual rent in a gross lease.

Expense Stop: An identified dollar amount, either on a dollar per square foot per year basis or a pro rata share basis of total operating expense cost that the landlord is responsible to pay. Any increase over the expense stop will be allocated to the tenant.

Gross Rental (Gross Lease): A rental rate which includes normal building standard services as provided by the landlord within the base year rental.

Net or Semi-Gross Rent (Net Lease): A lease in which the tenant is responsible for every and all expenses associated with his proportionate share of occupancy of the building.

Net Net Net Rent: A Lease in which the tenant is responsible for every and all expenses associated with his proportionate share of occupancy of the building.

Operating Expenses: Those normal expenses associated with the operation of a standard office building included, but not limited to: utilities, janitorial service, consumable supplies, taxes, insurance, maintenance and repair, etc.

Right of First Refusal To lease Additional Space: This means that the Landlord must offer space to then tenant before if leases that space to anyone else. The terms on which the tenant has the right to take additional space are those of the lease that the landlord intends to make with a third party.

Right of First Offer: The gives the tenant the right to sit down with the landlord and try to come to an agreement before the landlord offers the space to the public.

Base Year: The year of building operation, normally a calendar year, in which the landlord fixes or identifies the operating costs which are included in a gross or semi-net lease.
Any increase in operating expenses over the base year is “passed through” to the tenant on a pro rata share of occupancy.

Pro Rata Share: The ratio between the tenant’s percent of occupancy of the rentable square footage of the building and the entire building’s rentable area.

Expense Allocation: The allocation of all expenses (NNN Lease) or a proportionate share of increased expenses to a tenant based upon tenant’s pro rata share.

Direct Charge of Operating Expenses: On a net net net lease where the tenant does not pay cost directly, the landlord directly bills tenants for pro rata share of occupancy costs. In most instances, this will be done on a “good faith”, “best estimate” advanced payment basis, wherein the landlord bills the tenant for estimated operating expense costs during the lease term.

Recapture: The billing to tenants of their pro rata share of increased operating expenses after those expenses have been incurred and paid for by the landlord.

Projected Operating Expense Increase: A “good faith” estimate by the owner as to current operating expense increases over a base year, which are billed to the tenant as additional rent.

Ownership Costs: The cost to the owner to own the building, service existing debt, or receive a return on his equity. Also included would be costs of capital improvements, repair and upkeep which would not be considered standard operating costs.

Operating Expenses: Those expenses necessary for the day-to-day operation of the building which have been outlined above. Included can also be amortization of capital improvements which are necessary or required for the more efficient operation of the building or to meet certain code costs.

Amortization of Tenant Improvements or Tenant Allowances: The return to the landlord over the term of the lease those costs included in the landlord’s building standard work letter and any other costs which landlord has agreed to assume or amortize.

 

RENT TERMINOLOGY

Free Rent: Period of time in which the tenant occupies the premises under the lease but does not pay rent.

Stair-Stepped Rent: A rental rate which increases by fixed amount during the period of the lease term.

Rental Increases/Rental Review: Changes in the base rent during the term of the lease. Not to be confused with operating expense recapture increase or expense billings, usually tied to “fair market” or C.P.I reviews.

Effective Rent: The dollar per square foot per year figure which the tenant pays on an average over the term of the lease. This would be the average of specified rents in a stair-stepped lease as well as the average of a lease with a substantial free rent period. Example: A 5-year lease with 6 months’ free rent offers 10% discount from the face rent.

Face Rate (Contract Rate): The identified rental rate in a lease which is subsequently discounted by concessions offered by the landlord, also known as contract rate.

Concessions: Those inducements offered by a landlord to a tenant to sign a lease. Common concessions are free rent, extra tenant improvement allowances, payment of moving costs and lease pick-ups.

Lease Pick-Up: Landlord’s commitment to pay the costs associated with assuming the financial obligation of paying a tenant’s rent in premises to be vacated which are still under lease.

Lease Buy-Out: A cash inducement offered by a landlord to a tenant’s previous landlord to cancel the remaining term of the tenant’s lease.

Sublease: Leasing of premises by one party to another for the remaining balance of an existing lease term.

Moving Allowance: An offer by a landlord to pay all or part of tenant’s moving costs.

Fair Market Value: The rental value of space similar to the leased premises for comparison purposes in rental adjustments.

Pre-Lease: Leasing of premise in a building under construction which is not yet ready for occupancy.

 

IMPROVEMENTS & ALLOWANCES

Tenant Improvements Building Standards: Standard building materials and quantities as identified by the landlord which are to be provided at no cost to the tenant to improve tenant premises. Normally included are partitioning, doors, walls, hardware, ceiling lighting, window and floor coverings, telephone and electrical outlets and HVAC (heating, Ventilation and Air Conditioning Systems).

Building Standard Work Letter: A document which delineates the type and quality of materials and quantities to be furnished by the landlord as building standard.

Work Letter: A document which would include the above plus any additional items to be paid for by the landlord or by the tenant with an indication as to who is responsible for each item.

Improvement Allowance: The estimated or dollar value of the building standard work letter being offered by the landlord.

Above Building Standard: Materials not included in the work letter which are subject to negotiation between the landlord and tenant.

Amortization of Tenant Improvements: An agreement on the part of the landlord to pay for above-building standard improvements and amortize those improvements at a defined interest rate over a fixed term as additional rental.

Turnkey: A complete build-out of tenant’s premises to the tenant’s specifications.

Substitution and Credits: The ability to substitute non-standard materials for landlord-supplied materials as specified in the work letter or to receive dollar amount credits for those materials if not utilized.

Lay Out (Space Plan): A plan created by a space planner/architect showing locations of tenant improvements and the utilization of the space by the tenant.

Working Drawings: Drawings necessary to obtain a building permit and for the construction of tenant improvements.

 

CODE REQUIREMENTS & COMPLIANCE CONDITIONS

Code Requirements: Building code requirements which must be satisfied by either the tenant or the landlord in preparing space or the building for occupancy. Included are seismic (earthquake) life safety, energy, hazardous/toxic materials and handicapped code requirements.

Code Compliance Trigger: Certain costs, structural changes or other defined events which necessitate the compliance of a building to current codes

Un-Reinforced Masonry Building (UMB): A building that does not meet current seismic code requirements.

Asbestos/Hazardous Materials: Materials which may exist in office structure which may pose a detriment to tenant’s occupancy.

Life Safety: Government regulations and building code requirements for buildings relative to seismic, fire, handicapped and existing requirements.

Fire Corridors: Special corridors with partitioning designed to create escape routes in time of fire.

Compartmentalization: A code requirement to divide large floor plates into smaller units to meet fire code requirements.

Sprinklers: A fire suppression system designed into many building to avoid compartmentalization and to provide additional fire protection.

Handicapped Requirements: Code required features designed to accommodate handicapped persons. Included are entry ramps, restrooms, restroom fixtures, hardware, special doors, etc.

“Fire Rated”: Special building materials, such as partitioning and doors which have greater fire resistance than normal building standard materials.

 

BUILDING DEFINITIONS

Demising Walls: Those walls between one tenant’s area and another; as well as walls between tenant areas and public corridors.

Partitioning: The divisions between offices; separate office suites, tenant areas and corridors.

Floor Plate: A broker’s buzz word for rentable floor size.

Building Module: Standard dimensions within leased areas dictated by spacing of window mullions or columns, i.e. a 5-foot module dictates offices in multiples of 5-feet dimensions.

Window Mullions: Those divisions on large windows which can accept tenant partitioning to create offices.

Leasing Depth: The distance measured from the building window line to building corridor.

Building Core: The “guts” of a building which normally includes: building elevators, restrooms, smoke towers, fire stairs, mechanical shafts, janitorial closets, etc.

Center Core Building: A building in which the elevators and service cores are located in the center of the floor.

Side Core Building: A building in which the elevators and service cores, i.e. restrooms, mechanical shafts, etc. are located on the side of the floor.

Offset Core: A building in which the core is located midway between each side and center.

Elevator Banks: A series of elevators which serve only certain floors in a building. A major building may have as many as 3 or 4 elevator banks serving the floors within the building.

Cross-Over Floor: A floor, in which one bank of elevators connects to another bank of elevators, consequently allowing tenants to have access to floors in other elevator banks without returning to the lobby of the building.

Dropped Ceiling: A suspended ceiling attached to the underside floor above.

Core Drilling: A method of drilling holes in floors and ceilings to allow telephone and electrical installation.

Under Floor Duct System: A system of ducts permanently located in floors to assist in the installation of telephone and electrical wiring.

Zones: The identified portion of an office area served by the HVAC system which have separate thermostatic and temperature controls.

Smart Buildings: A building which has additional technical capabilities to provide enhanced building management and operating efficiency.

Shared Tenant Services: Services provided by a building to allow tenants to share the costs and benefits of sophisticated telecommunications and other technical services.

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