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Agent:
One authorized to represent and to act on behalf of another person (called the principal).

"As-Is" Condition:
The acceptance by the tenant or buyer of the existing condition of the premises at the time the lease or sale is consummated. This would include any physical defects.

Assignment:
Under the terms of an assignment, a tenant transfers all interest in the leased property to another party. Generally all lease terms remain the same.


Brokerage:
The bringing together of parties interested in making a real estate transaction. The business of a brokers acting as a third party agent to a transaction.

Base Rent:
A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.

Business Opportunity:
The assets of an existing business enterprise including its goodwill. As used in the Real Estate Law, the term includes the sale or lease of the business and goodwill of an existing business enterprise or opportunity.


CAM Charges:
Common Area Maintenance (CAM) is the amount of rent charged to the tenant in addition to the Base Rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: outdoor lighting, parking lot sweeping, insurance, property taxes, etc.

Cap Rate:
Cap Rate (Capitalization Rate): Method of estimating a property’s value by considering net annual income as a percentage of a reasonable rate of return on an investment (Net Income / Cap Rate = Property Value).

Close-of-escrow/closing:
The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment of the purchase price by the buyer. Closing in some areas may not occur until the documents are recorded; however, under general rules of Real Estate Law, transfer of title takes place upon delivery of the deed to the grantee.

Common Areas:
There are two components of the term "common area". If referred to in association with the Rentable/Usable or Load Factor calculation, the common areas are those portions of the building used by all office tenants or which serve all office areas (i.e. lobbies, corridors, restrooms, etc.). On the other hand, the cost of maintaining parking facilities, malls, sidewalks, landscaped areas, public toilets, truck and service facilities, and the like are included in the term "common area" when calculating the tenant's pro-rata share of building operating expenses.

Contingency:
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

Consumer Price Index ("CPI"):
Measures inflation in relation to the change in the price of a fixed market basket of goods and services purchased by a specified population during a "base" period of time. It is not a true "cost of living" factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the Base Rent periodically as a means of protecting the landlord's rental stream against inflation.


Dual Agency:
An agency relationship in which the agent acts concurrently for both principals in a real estate transaction.


Escrow:
The process by which money and/or documents are held by a disinterested third person (a stakeholder) until satisfaction of the terms and conditions of the escrow instructions (as prepared by the parties to the escrow) has been achieved. Once these terms have been satisfied, delivery and transfer of the escrowed funds and documents takes place. Although in some states a real estate broker is authorized to handle escrow functions, the common practice is to employ the services of a licensed escrow company, title company or lending institution.

Escrow Account:
The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction.

Escrow Instructions:
In a sales transaction, a document signed by buyer and seller that details the procedures necessary to close a transaction and directs the escrow agent on how to proceed. Sometimes the buyer and seller execute separate instructions and sometimes the contract of sale itself serves as the escrow instructions.

Essentials of a Valid Lease:
A lease is a form of contract. To be valid, a lease must meet essentially the same requirements as any other contract:
  • Offer and acceptance -The parties must reach a mutual agreement on all the terms of the contract.
  • Consideration -The lease must be supported by valid consideration. Rent is the normal consideration given for the right to occupy the leased premises. However, the payment of rent is not essential as long as consideration was granted in creating the lease itself. Sometimes, for instance, this consideration is labor performed on the property. Because a lease is a contract, it is not subject to subsequent changes in the rent or other terms unless these changes are in writing and executed in the same manner as the original lease.
  • Capacity to contract -The parties must have the legal capacity to contract.
  • Legal objectives-The objectives of the lease must be legal.
Exclusive Agency Listing:
A written listing agreement giving a sole agent the right to sell or lease a property for a specified period of time. The exclusive agent is entitled to a commission. It is exclusive in the sense that the property is listed with only one broker.

Exclusive-Buyer/Tenant-Agency-Agreement:
This is a completely exclusive agency agreement. The buyer/tenant is legally bound to compensate the agent whenever the buyer purchases a property of the type described in the contract. The broker is entitled to payment regardless of whether he or she locates the property.


Full Service Gross (FSG) Lease:
A lease wherein all services to a property are included in the rent such as utilities, janitorial service, building maintenance and others. Exception items would be noted as "net of" item(s). For example: FSG, Net of Janitorial and Utilities.


Gross lease or Industrial Gross:
A lease of property where a landlord pays for property charges such as exterior repairs to the structure, real property taxes and real property insurance. (See also Triple-net Lease, Full Service Gross Lease, and Modified Lease).


HVAC:
The acronym for "Heating, Ventilating and Air-Conditioning".


Landlord:
The Lessor or the owner of leased premises. The landlord retains a reversionary interest in the property, so that when the lease ends the property will revert to the landlord.

Lease:
An agreement transferring the right to exclusive possession and use of real estate for a definite period of time. To create a valid lease, the lessor must retain a reversionary right; that is, the lessor (landlord) must grant the right of possession to the lessee (tenant) but retain the right to retake possession after the lease term has expired. (See Landlord, Tenant ).

Lease Purchase Option:
A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

Lease Renewal Option:
A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount as provided for in the option language.

Lessee:
The person to whom property is rented or leased; also referred to as tenant.

Lessor:
The person who rents or leases property to another. Often referred to as a Landlord.

Listing Agreement:
A contract between a property owner (as principle) and a licensed real estate broker (as agent) authorizing the broker to find a buyer or a tenant for certain real property, for which service the property owner agrees to pay a commission.

Load Factor:
That percentage of a building which is common area allocated to the tenants to increase their usable area to rentable area. If the load factor for a suite is 10%, multiplying the usable square footage of the suite by 1.10 would yield the rentable square footage of the suite. A load factor of 10% means that 900 usable square feet would be 990 rentable square feet. (See Rentable Square Footage vs. Usable Square Footage.)


Modified Gross Lease:
This lease is typically an Industrial Gross or Full Service Gross Lease with certain deviations from the standard definition of such lease forms. For example, items such as utilities, property taxes, property insurance, and building maintenance may be the responsibility of either the landlord or the tenant through negotiations.


Property Management:
A branch of the real estate business involving the marketing, operation, maintenance and day-to-day administration of rental properties.

Pro-rata Share:
The ratio between the tenant's percentage of occupancy of the rentable square footage of the building and the entire building rentable area.


Rentable Square Footage vs. Usable Square Footage:
The rentable square footage includes the usable square footage plus a pro-rata share of common areas, excluding vertical shafts, such as elevators, stairs, mechanical risers, etc. Usable square footage is the 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.


Security Deposit:
A deposit of money by a tenant to a landlord to secure performance of a lease. This deposit can also take the form of a Letter of Credit or other financial instrument.

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


Triple-net Lease (NNN or Net-Net-Net):
A lease where, in addition to the stipulated rent, the lessee assumes payment of all expenses associated with the operation of the property. This includes both fixed expenses, such as real property taxes and real property insurance, and all operating expenses, including costs of services, maintenance and repairs.

Tenant Improvements:
Alterations to the interior of the building to meet a tenant's particular space needs. Such construction alterations range from simply repainting or recarpeting to completely gutting the interior and redesigning the space by erecting new walls, partitions and electrical systems.


Zoning:
The regulation of structures and uses of property within designated districts or zones. Zoning regulates and affects such things as use of the land, lot sizes, types of structure permitted, building heights, setbacks and density (the ratio of land area to improvement area).


 

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