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Terms and glossary

Find commercial real estate terms and business definitions.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A
Absolute net
Lease requiring tenant to pay - in addition to base rent - all costs associated with the operation, repair and maintenance of the building, all real estate taxes, and utilities including repair and maintenance of the building's structure and roof. Often the tenant is directly responsible for all such costs and for the active handling of the items themselves. Also known as triple net and net, net, net.
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Absorption rate
The estimate of the rate at which commercial office, warehouse or industrial space will be leased or occupied in a given market within a specified period.
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Accounts payable
Referred to as A/P. Invoices for goods or services that are due vendors, employees and government. They have been expensed for accounting purposes, but not yet paid.
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Accounts receivable
Outstanding customer invoices that have been recognized as revenue, but not yet collected.
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Agency
A relationship in which one party in real estate, usually a broker or agent acts for, or represents a principal, either a buyer or a seller or in the case of leasing the lessor or the lessee. Agency involving commercial property should be in writing, such as listings, trusts, etc.
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Agent
A person or entity that is licensed under the applicable real estate board(s) to represent a party in a real estate transaction.
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Agreement of purchase and sale
Written documents whereby both seller and buyer agree to the terms and conditions under which a property will be sold.
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Allowance
A set dollar amount provided by the landlord under a lease to be used by the tenant for a specific purpose. Examples include allowances for tenant improvements, moving expenses and design fees. 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.
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Alternative workspace
Term embodies numerous concepts related to utilization of space including telecommuting, hotelling, office sharing and open office plans.
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Amenity
A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.
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Amortization
The process of paying off a debt together with interest, usually with equal payments at regular intervals over a period of time.
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Appraisal
An estimate of value for an asset such as an office or industrial building based upon the opinion of a certified professional.
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Appreciation
The increase in value of a real estate asset.
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As is condition
An agreement by a tenant or purchaser that a industrial or office property is accepted in its current condition as inspected, including any known or unknown defects or deficiencies.
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Assessment
A fee imposed on property, usually to pay for public improvements such as water, sewers, streets and improvement districts.
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Assignment
An agreement conveying the leasehold interests, including the financial responsibilities, from one tenant to another tenant.
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B
Base building
The existing shell of a building prior to tenant improvements. This condition varies from building to building.
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Base rent
The amount of rent to be paid by the tenant excluding operating costs, maintenance, insurance and hydro. Base rent is synonymous with minimum, net or basic rent.
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Base year
The 12 month period upon which a direct expense escalation of rent is based. Typically the calendar year the lease commences.
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Betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
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Building Owners and Management Association
Referred to as BOMA. A national association developed as a forum for building owners,managers and developers.
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Bona fide
In good faith, without fraud.
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Broker
A term equivalent to agent, being a party licensed to trade in real estate in return for a fee.
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Build out
The construction or improvements of the interior of a commercial space, including walls, flooring, plumbing, electrical and paint.
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Build-to-suit
The construction of an office or industrial building to meet the specific requirements of a large tenant or purchaser.
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Business value
Expressed monetarily, what your business or business opportunity is worth. Business value can be different for a buyer, seller, and management. It is synonymous with enterprise value, firm value and company value. If interest bearing debt is outstanding then the equity value will be less than the business value. Most business valuations will separate the intrinsic value of the business from any real estate the company may own.
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C
Cancellation clause
A provision in a lease that confers upon one or both of the parties, the right to terminate the lease upon the occurrence of the condition or contingency set forth in the said clause.
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Capital expenditures
Referred to as CAPX. Annual purchases of long term assets such as computers, machinery, vehicles, tool and leasehold improvements. The useful life of these assets is greater than one year. Companies may finance the purchase of CAPX with debt, equity, or surplus cash from the business.
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Capital improvements
Improvements made by the landlord or owner of a building or site that potentially increases the value of the asset. Capital improvements should not be included in a building's operating expenses.
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Capitalization rate
Referred to as Cap rate. The rate typically used to calculate or make an estimate on the underlying value of a property based upon the net income derived from the property. Formula: net income ÷ cap rate = estimated value.
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Capitalized lease payments
Payments to a lender for long-term use of equipment or machinery used in the business. Capitalized lease payments reflect a choice as to how to finance an asset of the business.
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Certificate of insurance
A written certificate verifying the insurance coverage, parties involved and term of coverage.
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Chattels
Items that are found within the premises and are not affixed to the premises, which may be removed.
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Churn
Moving people from one workspace to another within the leased premises. Usually involves relocation of furniture, phones, and the like and can be very expensive and time-consuming. A high churn rate is to be avoided
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Class "A" building
Classification system; 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.
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Class "B" building
Classification; 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.
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Class "C" building
Classification; defined by BOMA as buildings competing for tenants requiring functional space at rents below the average for the area.
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Closing costs
Expenses incurred above the price of the property by vendors and purchasers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey.
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Commercial property
Referred to as ICI. It may also be called investment or income property referring to buildings or land intended to generate a profit, either from capital gains or rental income. Commercial properties includes office buildings, industrial property, medical centers, factories, warehouses, hotels, malls, retail stores, shopping centers, farm land and multi-family housing buildings to name a few.
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Common area
An area of an office or industrial building that is used in common by tenants and their visitors and generally include areas such as lobbies, corridors and restrooms. This term can also be extended to include the cost of maintaining parking areas, sidewalks, landscaped areas, public washrooms, loading facilities and often form part of the tenant's pro-rata share of the buildings operating expenses.
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Common area maintenance
Referred to as CAM. The amount of additional rent charged to the tenant to maintain the common areas of an industrial, commercial or office building or property. These charges are shared by the tenants on a pro-rata basis.
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Concession
Benefits granted by the landlord or owner to entice a new tenant to lease premises or an existing tenant to remain within their premises. Common concessions include free rent, lower rent, cash, cash for improvement work, moving expenses and any other item agreeable to both parties.
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Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
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Construction drawings
Referred to as working drawings. Architectural drawings with keyed notes detailing the work required and types of materials to be used in constructing the improvements.
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Contiguous space
Space that is adjacent to another space or series of spaces. May also be used in describing space that is on a floor either directly above or directly below the vacant space in an office or industrial complex.
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Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
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Core factor
The percentage of net rentable square feet of a building devoted to common areas, such as washrooms, hallways and lobbies. Calculated as rentable square footage divided by the usable square footage. Also known as R/U factor or loss factor.
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Cost of capital
Expected rate of return used to evaluate your business opportunity. The cost of capital represents what investors expect to earn on their investment, taking into consideration the risk and volatility of your company/industry. Volatility doesn't mean your business is good or bad. Great businesses can be highly volatile; but volatility does create uncertainty. The greater the uncertainty, the higher the cost of capital needed to adequately compensate investors. Also known as K, WACC, discount rate or hurdle rate.
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Covenant
Wording found in deeds that limits/restricts the use to which a property may be put (e.g., no bars).
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D
Debt to capital ratio
Referred to as D/K ratio. Interest bearing debt divided by total capital (debt plus equity). This financial ratio represents the amount of leverage or debt used in the calculation of the discount rate used in your analysis.
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Default
Breaking any section of the terms contained within a lease document. Examples 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.
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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.
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Demising walls
Partitions or walls that separate one tenant's space from the building's common areas, or from another tenant's space in a commercial, office, industrial or retail property.
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Deposit receipt
A document that lists the price, conditions and terms under which the buyer is willing to purchase the property. Each of these means the same thing: offer to purchase, purchase offer, earnest money agreement, contract of purchase or deposit receipt.
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Discounted cash flow
Referred to as DCF. This widely recognized valuation technique emphasizes the future revenue and expenditure fundamentals of your company to estimate cash flow and value. It gives the best estimate of your company's intrinsic value. Other techniques include using sales prices for what other comparable businesses sold for; looking at stock market benchmarks for companies in your industry, tangible asset value, opportunity cost, make or buy decisions or simply gut instinct.
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Due diligence
Activities carried out by a prospective purchaser or mortgager of real property to confirm that the property is as represented by the seller and is not subject to environmental or other problems.
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E
Earnings before interest, taxes, depreciation and amortization
Referred to as EBITDA. Fundamental measure of your company's operational health. A key measure in determining the amount of financing a lender can provide. Positive EBITDA allows the business to pay interest, taxes, dividends and repay loans. EBITDA is equal to revenue less cost of goods sold and SGA. This is a primary measure of a businesses worth. Most industries have an EBITDA multiple inwhich most buyers would pay to buy that business.
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Easement
The right of use of the property by another as allowed through an agreement or necessary implication. Common examples include easement for the purposes of access to adjoining land and access to public utility equipment/services.
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Economic rent
The minimal net rental rate that makes a property viable and profitable to the landlord after paying all expenses and debt servicing.
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Effective useable area
The total useable area and 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.
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Equity
The difference between a property's current market value and the debt, mortgages and liens against it.
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Escalation clause
A provision within a lease stating the preset rate increases in operating costs over the term of the lease.
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A written agreement among parties, requiring that certain property/funds be placed with a third party. The object in escrow is released to a designated entity upon completion of some specific occurrence.
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An agreement between a tenant and landlord wherein the tenant certified that the lease is in force and effect, the date of commencement and expiration is correct. The landlord has performed its part of the lease agreement to the date of the certificate and there are no outstanding promises or agreements outside the lease.
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Estoppel certificate
A 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 points. For example base rent, lease commencement and expiration.
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Exclusive letter of representation
A tenant's written authorization specifying a particular realtor as the tenant's representative with respect to a lease, renewal or purchase of a commercial property.
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Exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.
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Expansion option
A right granted by the landlord to the tenant whereby the tenant has the option(s) to add more space to their existing premises set out in the formal lease agreement.
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Expense stop
A fixed amount (typically per square foot) in a lease where the tenant is responsible for all building operating expenses and taxes in excess of said amount.
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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 has the option to extend the lease.
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F
Face rate
The rental rate stated in the formal lease agreement without factoring in inducements or concessions.
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Fiduciary
A person who represents another on financial/property matters.
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First right of refusal
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.
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Fixed rate option
The right for a tenant to renew their lease agreement at a predetermined net rate.
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Fixturing period
The period prior to the 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.
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Floor plan
An architectural drawing showing - to scale - the position of walls and additional features within a property.
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Floor plate
The total square footage of a floor in an industrial or office building.
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Formal lease agreement
A legal document outlining and defining all terms and conditions of the leased space by the tenant from the landlord for a given period of time.
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Free rent
A concession granted to a tenant that allows the tenant to carry on business within the premises for a specified period of time without the payment of net rent. In some cases this concession may include additional rent as well.
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Full service lease
A lease that requires the landlord to provide all services for the tenant's occupancy throughout the lease term. The cost associated with providing such services are included in the base rent.
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G
Goodwill
Excess of the purchase price over a company's acquired assets. The goodwill value shown on a company's books is periodically revised based upon an updated valuation of the company's future prospects. Publicly traded companies must reassess goodwill on an annual basis.
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Gross lease
A lease in which the stated rent includes the operating expenses of the building. Same as full service lease.
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Gross margin
Revenue less the cost of goods sold - expressed as a percentage. This is the first measure of a company's financial performance.
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Gross rent
Usually the base rent plus taxes, maintenance and insurance (TMI) and in some cases common area maintenance (CAM). Utilities are usually still extra. Because TMI is controlled by the landlord we try to use gross rent for our figures on the For Sale For Lease website for more accurate comparisons.
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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 (typically 95%).
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Ground lease
A lease involving the rental of land only, either vacant or exclusive of any buildings on it. Usually a net lease on a long-term basis (20 years+).
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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, they might ask for a personal or corporate guarantee. It is assurance that if the tenant defaults, the person or entity guaranteeing the lease will pay rent and continue to live up to all the terms and conditions of the lease.
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Guaranty
An agreement promising that if the tenant falls into default rent payment and all other obligations in accordance with the lease will be performed by the guarantor named.
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H
Heating, ventilation and air conditioning
Referred to as HVAC. The mechanical system of the building that heats, provides fresh or conditioned air and ventilates it from the building. 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.
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Holding over
A provision of a lease that allows a tenant to maintain possession of its premises for a period of time beyond the expiry, if the tenant does not renew its lease.
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I
Incentive
An allowance or benefit concession that is offered by the landlord to encourage the tenant to renew a lease or to sign a lease.
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Inducement
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.
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Interest
The fee or percentage charged for borrowing money.
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Intrinsic value
The value of your company based upon the forecasted cash flow fundamentals, plus the cash flow beyond your forecast (known as the terminal value). Intrinsic value is best thought of as what the projected cash flows of your business opportunity are worth to you. Helping others to understand your company's intrinsic value based upon its cash flow potential.
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Investment property
A property that is not occupied by the owner but is purchased for the sole purpose of earning income or capital gains.
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J
Joint tenancy
Ownership of real property by two or more individuals, each of whom has an undivided interest with the right of survivorship.
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L
Landlord
The owner of a property. They may take the form of a group, an individual, a corporation or a trust.
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Landlord's work
Work and improvements carried out by the landlord for the tenant as according to a specified agreement.
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Lease buy out
A payout (by a tenant or a landlord) to the other party, therefore relieving both parties of all obligations to each other in the lease.
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Lease term
The set out period of time that a lease is in effect and binding for both the landlord and the tenant for a leased premises.
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Leasehold improvements
Improvements or leaseholds made to the property as required by the tenant and approved by the landlord. These typically include items such as partitions, door frames, doors, carpet, side lights, electrical and mechanical.
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Lender
A person or company who provides the tenant with financing by lending money.
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Lessee
The tenant, as it pertains to a lease agreement.
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Lessor
The landlord or property owner, as it pertains to a lease agreement.
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Letter of credit
A commitment by a bank or other person that the issuer will honour drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.
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Letter of intent
An informal offer to lease or purchase. This letter requests certain conditions to be allowed by the parties before entering into any formal agreements.
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Levy
To impose or assess a tax on a person or property. The amount of taxes to be imposed in a given district.
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Lien
A legal claim filed against a property for payment of a debt or obligation. For exapmle, if a property owner fails to pay a creditor the creditor can place a lien on the property. A lien can halt the sale of a property.
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Listing agreement
An agreement between a property owner and real estate broker giving the broker the right to attempt to lease the property at agreed upon terms and conditions in return for a commission or fee.
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Listing broker/agent
The individual or real estate brokerage that has rights in listing and leasing space for a landlord or owner.
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Loss factor
Referred to as R/U factor. The percentage of net rentable square feet of a building devoted to common areas, such as washrooms, hallways and lobbies. Calculated as the rentable square footage divided by the usable square footage.
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M
Management fee
A fee paid out to the company that manages a property for the landlord and included operating costs.
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Market data approach
The process of estimating the value of property through the examination and comparison of actual sales of comparable properties.
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Market rate/rent
The rent a landlord can reasonably charge within the current market area of the property.
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Market value
The highest price that a buyer ready, willing and able but not compelled to buy, would pay, and the lowest a seller ready, willing and able but not compelled to sell, would accept.
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Minimum rent
Referred to as net rent. The basic monthly rental rate for the property, usually excluding operating costs.
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Month to month lease/tenancy
An agreement between the tenant and landlord to rent or lease space for no more than one month. Unless there is a letter of termination from either party, every month the term renews for an additional month.
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Moving allowance
A payment made by a landlord to a tenant to offset for moving costs. The concession may be provided to move a tenant in or out of a location.
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Municipality
The city inwhich a property exists. It may be an area such as Toronto, Etobicoke, Mississauga, Vaughan, Markham, Scarborough, Pickering, Milton, Thornhill, Newmarket, North York, Unionville, Richmond Hill, Brampton, Oakville, or Burlington.
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N
Net absorption
The square feet leased over a period after deducting space vacated in the same area during the same period.
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Net cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
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Net lease
A lease which requires the tenant to pay in addition to base rent, the expenses of the office or industrial property such as taxes, insurance, maintenance and utilities.
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Net operating income
Referred to as NOI. The net proceeds of income after first deducting reasonable operating expenses and all vacancy allowance, but before the payment of any service or return on an investment or income-producing property.
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Net operating loss
Referred to as NOL. Equals negative earnings before taxes on the income statement. The NOL is carried forward to a year or years where this historical loss can be offset against current year earnings. Doing so reduces the current year tax liability and provides a positive impact to cash flow and value.
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Net present value
Referred to as NPV. The calculation of net present value takes into account both the netting of cost and benefits and the time value of money. See present value.
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Net rent
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 portion of taxes, maintenance costs and operating.
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Nondisturbance
The term requiring that mortgage holder honour the terms of a lease agreement in the case of a foreclosure, provided all terms and conditions of the agreement are being met.
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Normalized
To place on a comparable basis. In a typical valuation, historical results are adjusted to remove interest expense, goodwill amortization and any taxes paid. Both historical and future financial results are also adjusted to remove any excess business owner compensation. Typically, any discretionary expenses that would not be paid to a non-business owner or professional manager are also removed. Normalizing financial results allow for a better comparison of company's results over time.
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Notice clause
The clause that establishes the timeframe and method each party must use to inform the other of matters that require notifications as outlined in a lease agreement.
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O
Occupancy date
Unless specifically stated otherwise in the lease, it is the date on which the tenant takes possession of its leased premises.
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Occupancy rate/level
The relation of space currently rented within a property in relation to the total space and the vacancies contained within.
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Offer to lease
A formal document that creates an agreement between a landlord and tenant for a specified property.
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Open listing
A listing given to any broker without liability to compensate any broker except the one who first secures a buyer who is ready, willing, and able to meet the terms of the listing, or secures the acceptance by the landlord of a satisfactory offer; the lease of the property automatically terminates the listing.
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Operating cash flow
Referred to as OCF. Cash flow generated from business operations prior to CAPX. OCF is another key measure of financial performance that illustrates the financial health of a business. Companies with positive operating cash flow can more easily invest in machinery and equipment to grow the business.
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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.
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Option to renew
A lease clause that gives the commercial tenant the right to renew the current lease for an additional term subject to clauses and conditions as set out in the lease.
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Overholding period/clause
The portion of a lease agreement stating the basic rental terms should the lessee remain in occupancy of a suite or building without a lease renewal.
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Owner
The individual or entity in legal possession of a property.
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P
Parking area ratio
The size of the parking area in relation to the size of the building. Often calculated as the number of parking spaces per 1,000 square feet of gross leaseable area.
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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.
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Planners
Individuals employed by municipalities and other levels of government who are trained in urban planning and advise governments with respect to zoning and planning matters.
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Pre-leasing
The leasing of a real estate property before construction is completed.
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Present value
The amount that must be invested now to produce the known future value. For any sum invested at a given interest rate, the amount one would receive at the end of the period can be determined by taking the investment times one (1) plus the interest rate of the period to the power of the period. For example, if $10 is invested with an interest rate of 10% for one year, the investment would grow to $11 at the end of the year. It follows, then, that $11 one year from now is worth $10 today; that is $10 is the present value of $11.
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Principal
The relation created by express or implied contract or by law whereby one party delegates the transaction of some lawful business, with more or less discretionary power, to another who undertakes to manage the affair and render an account thereof.
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Pro forma rate
The original projected rental rate as estimated by the landlord.
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Pro rata share
The leased area of the tenants premises divided by the total gross leaseable area for the premises, the resulting fraction being used to compute the tenant's share of operating expenses, taxes, common area maintenance fees, HVAC charges, and insurance.
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Property, plant and equipment
Referred to as PPE. A balance sheet amount of gross property, plant and equipment. After accumulated depreciation is subtracted, it is referred to as Net PPE.
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Q
Quiet posession/enjoyment
A covenant inserted in a lease promising that the tenant shall enjoy possession of the premises in peace and without disturbance.
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R
Real property
Land and generally whatever is erected or affixed to the land that would be personal property if not attached.
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Rentable/useable factor
Referred to as R/U factor, same as loss factor. The percentage of net rentable square feet of a building devoted to common areas. Calculated as the rentable square footage divided by the usable square footage.
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Rent abatement
Free rent provided by the landlord to the tenant. It may or may not be included in the terms of lease, such as early occupancy.
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Rent concession
A concession to the tenant in the form of reduction of payable rent.
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Rentable area
The area of the leased premises computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deduction shall be made for columns and projections necessary to the building. The rentable area of an office on the floor shall be computed by multiplying the usable area of the office by the quotient of the division of the rentable area of the floor by the usable area of the floor resulting in the R/U ratio.
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Rentable square footage
Calculated as the usable square footage plus the pro rata share of the buildings common areas, using the R/U factor.
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Rental rate
Annual cost per square foot to be paid by the tenant to the landlord for leased premises.
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Request for proposal
Written request from the tenant or real estate broker to the landlord for information on leasing the building.
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Right of first offer
Also known as right of first opportunity. 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. Unlike under a right of first refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. 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.
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Right of first refusal
A right granted to a party to enter into a contractual arrangement on terms identical to those offered by some third party.
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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.
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Risk management
A systematic approach to identifying and separating insurable risks from non-insurable risks, and evaluating the availability and costs of purchasing third-party insurance.
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S
Sale-leaseback
A transaction inwhich an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed capital and tax breaks and the investor a guaranteed return as well as appreciation.
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Sales, general and administrative
Referred to as SGA. General overhead and fixed expenses of the business that typically must be paid in a given year regardless of sales volume. Many companies split their labour expense between production (cost of goods sold) and administration/management (SGA) to allocate the variable versus fixed labour charges.
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Security deposit
An amount of money the tenant pays the landlord before the tenant takes up occupancy in the new leased space.
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Shell space
The condition of a vacant space before any leasehold improvements have been constructed.
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Space planner
An organization or individual that is retained by the building owner to develop drawings for the design of tenant space.
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Speculative space
Also known as Spec space. Space that is built on the speculation there will be tenants or buyers interested in leasing or buying upon the developer's completion of construction of the building.
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Square feet
Length times width of a space, measured in feet.
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Stepped rate
A method used to formulate a rent agreement, with a lesser amount, paid at the beginning of the tenancy and great amount paid toward the end of the tenancy.
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Straight line depreciation
Depreciation expense evenly amortized over an asset's useful life.
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Sublease
Also known as sublet. An agreement between a tenant and a sub-tenant that requires the tenant to remain responsible for the performance of the lease to the head landlord while allowing the sub-tenant to occupy the space.
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T
Tax effect
Tax payments, or benefits based upon taxable income, will impact the cash flow of your business opportunity. This is an important assumption in estimating the economic value of your business opportunity, regardless of whether taxes are paid at the company level or personal level.
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Taxes
Typically referring to property taxes assessed against a tenant's premises and a proportionate share of the property taxes assessed against the common areas of the property.
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Taxes, maintenance, insurance
Referred to as TMI. This is used interchangeably with Common Area Maintenance. In rare cases you may have TMI and CAM.
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Tenant
The entity responsible for paying rent to the landlord developer in order to occupy a site location for a specific term.
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Term
The duration of time for a tenant's lease.
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Terminal value
Equals the present value of your company's cash flows beyond your forecast projection. The terminal value is combined with the present value of your forecast to determine business value. We develop the estimate of our client company's terminal value based upon the future profile of the company: business longevity, revenue growth, marketability, exit from the business and end of the business life cycle.
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Title
The right to ownership of a real property, and the document of verification.
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Triple net
A lease that requires the tenant to pay all expenses of the property being leased in addition to rent. Typical expenses covered in such a lease include taxes, insurance, maintenance and utilities. Commonly referred to as "NNN" lease or "3N".
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U
Unlevered
Refers to the calculation of cash flow without the effects of debt financing (e.g., no interest expense, issuance or repayment of debt). Unlevered cash flow shows the pure operating performance of a company. Our unlevered financial analysis provides a true picture of your business opportunity's fundamental performance.
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Use clause
A lease provision that restricts a commercial tenant's use of the rented space by indicating what business activities are allowable by the tenant.
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V
Vacancy rate
The total amount of available space compared to the total inventory of space and expressed as a percentage.
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Valuation
Used by investors, brokers, developers and lending institutions as a method of determining the current or potential market value of a new or existing property.
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Virtual office
An office that moves with the person. Typically used in a sales organization where the salespeople are given portable computers, modems, and cellular phones in return for having their offices taken away.
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Volatility
Refers to the movement of your business and your company's industry in relation to the economy as a whole. If your business moves up and down in the same fashion as the economy, then your business has a low level of volatility. However, if your business either performs much better or much worse than the economy, your business has greater volatility. In general, more volatile businesses require a promise of greater financial returns to compensate their investors for greater uncertainty.
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W
Work letter
The part of the lease, stated in detail, pertaining to all work that is to be done for a tenant by a Landlord.
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Working capital
Represents the current assets and current liabilities of your company - most significantly accounts Receivable, inventory and accounts payable . Increases or decreases in current assets and current liabilities create a cash flow source or use of funds. Understanding your working capital source or use of funds is important to understanding how your company's operating cash flow is calculated. For example when A/R increases as sales grow from year to year, a use of funds will occur because revenues are greater than the actual cash collected. Similarly, if your operating expenses increase the company's A/P balance will increase and create a source of funds because recorded expenses are greater than cash payments made to creditors. For example, retailers' changes in the inventory balance can require cash funding to support higher inventory levels or provide a source of funds if inventory balances are lowered, while still maintaining current sales volumes.
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Z
Zoning
The division of a city, town or municipality into districts in which construction and use is limited to a stated type of building and land usage; in accordance with legislative act.
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Zoning ordinance
A law by a local governmental authority (e.g., city or county) that sets the parameters for which the property may be put to use.
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