Glossary of Real Estate Terms
Acknowledgment: A declaration before a Notary Public, Justice of the Peace or other officer by a party executing a legal document that the execution is his free and voluntary act and deed.
Affidavit: A voluntary statement in writing, sworn to before a Notary Public, Justice of the Peace or other officer.
Agent: One who acts or who has power to act for another. A licensed real estate broker authorized to act under a listing or management agreement executed by a property owner (the Principal); this creates a fiduciary relationship under the law of agency.
Air-handling light fixture: A light fixture into which air is introduced by means of an air diffuser for quiet, draft-free air distribution.
Amortization: The process of paying off a debt together with interest, usually with equal payments at regular intervals over a period of time.
Amortized mortgage: A mortgage loan in which the principal, as well as the interest, is payable in monthly or periodic installments during the term of the loan.
Annual Loan constant: The principal and interest of a loan expressed as the constant annual payment required to retire a debt at a certain rate of interest over a certain period of time.
Appraisal: An estimate of quantity, quality or value. The process through which conclusions of property value are obtained; also refers to the report setting forth the estimate and conclusion of value.
Approaches to value: Used by an appraiser to estimate the value of real estate. The three approaches are: cost approach, income approach and market data approach.
Architect: A person who normally functions as a creator, coordinator, author of the drawings and specifications and the general administrator of construction.
Architectural drawing: Includes all architectural contracts and drawings such as plot plans, floor plans, elevations, sections, details, schedules, etc., and any architectural drawing that forms a part of the contract documents. Exceptions include mechanical, electrical and structural drawings, as well as specialized data that are normally handled by specialists in those fields.
Assessed value: The value placed on land and buildings by a township or a county assessor for use in levying annual real estate taxes.
Assignment: The transfer in writing of an interest in a lease, mortgage or other instrument. The assignor, or lessee, transfers the entire remainder of the term created by the lease, and the assignee becomes liable to the original lessor for rent. Assignor may or may not retain secondary liability for performance under the lease, depending upon the terms of the lease pertaining to assignment.
Banked lifts: A group of lifts adjacent to each other with a specific demised enclosure.
Base lease: A contract stating the minimum established requirements that are applicable to all tenants.
Base year: The year of a lease term that is used as the standard when implementing an escalator clause. Operating costs are judged higher or lower during the next year when compared to the base year.
Bay: An unfinished area or space between a row of columns and the bearing wall. Usually the smallest area into which a building floor can be partitioned.
Bids: A competitive system in which each bidder submits a sealed proposal to execute construction work for a specified sum. The list of bidders (bid list) is controlled by the client and architect.
Binder: A preliminary agreement evidencing a meeting of the minds and effective until the principal agreement can be executed.
Borrowed light: A partition containing glass or plastic panels between an interior dark space and a space illuminated by daylight or high-intensity artificial light.
Building core: The central or arterial part of a multistory building that integrates functions and service needs for established occupants. Such areas are normally composed of toilet facilities, elevator banks, janitors' closets, utilities, mechanical facilities, smoke shafts and stairwells.
Building permit: The approval that must be obtained under national or local regulations. Drawings an specifications must be filed with the legal authorities in control of building operations.
Building shell: The skeleton of a building to which the finished exterior and interior are applied. It includes the building foundation.
Building skin: The exterior materials that cover a building's shell (see Building shell).
Building standard: The specific construction standards that have been established by the owner and architect to achieve a uniform element of design throughout the building and to establish a cost basis for fitting up charges and/or allowances. Such items may be changed only with the approval of the building owner or the managing representative.
Build-to-suit: An agreement between a landlord and a new tenant whereby the landlord assumes the obligation of fitting up the demised space to the tenant's specification within the constraints of building standards. The tenant takes possession when the space is completed.
Cancellation clause: A provision in a lease that confers upon one or both of the parties to the lease the right to terminate the lease upon the occurrence of the condition or contingency set forth in the said clause.
Capitalization: The process of ascertaining the value of a property by the use of a proper investment rate of return and the net income expected to be produced by the property. The formula of net annual income divided by proper capitalization rate is express: Income/Rate=Value.
Cash flow: The net operating income of a property minus its debt service.
Cash-on-cash return: A Percentage figure arrived at by dividing the cash flow from a property by the total investment in the property and multiplying by 100. Also call Cash yield.
Ceiling plenum: A totally enclosed area above the ceiling used for the handling of air.
Certificate of insurance: A certificate issued by an insurance company or its agent. It verifies that a certain insurance policy is in effect for stated amounts and coverages and names those insured.
Change order: An order issued any time there is a change in the specification, price or time set forth in the building contract as authorized by the owner, architect or engineer.
Channeling: Cutting, chipping or routing a prescribed sectional area in a linear pattern on any surface, usually in concrete or plaster.
Chattels: Personal property items.
Circulation allowance: The space needed to have sufficient access to, from and around workspaces.
Class P Grade: Building classification system; defined by SAPOA as the most prestigious buildings competing for premier office users with preimum rental rates for the area along with highest -quality finishes, state of the art systems, exceptional accessibility and a definite market presence
Class A Grade: Building classification; defined by SAPOA as buildings competing for a wider range of users with rents in the above average- average range for the area. Building finishes are good for the area and the systems are adequate, but the building does not compete with Class P at the same price.
Class B Grade: Building classification; defined by SAPOA as buildings competing for tenants requiring functional space at rents below the average for the area.
Clear span: The amount of floor area clear of interference from columns.
Commitment: A pledge, promise or affirmation of agreement.
Common areas: Areas used by two or more tenants and/or third parties and not under the control of any one tenant.
Condemnation: The taking of private property for public use, with adequate compensation to the owner, under the right of eminent domain.
Consideration: Anything of value given by one party to induce another to enter into a contract. It may be money, personal services or even "love and affection."
Construction allowance or Tenant Installation: The amount a Landlord contributes to the cost of construction and/or alteration necessary to prepare a space for a tenant's occupancy. This is usually an established amount, but is negotiable.
Construction cost: Total expense, plus normal overhead and profit, that must be paid for the job in question.
Constructive eviction: Any disturbance by the landlord of the tenant's possession of leased premises, whereby they are rendered unsuitable for occupancy (the purpose for which they were leased). In such a case, the tenant is not liable for further payment of rent.
Constructive notice: Notice given to the world by the recording of documents with a public official. Al persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them.
Contract documents: Documents consisting of the agreement and the conditions of the contract (general, supplementary and other conditions). They include the drawings, the specifications, all addenda issued prior to execution of the contract and all modifications thereto. A modification is (1) a written amendment to the contract signed by both parties; (2) a written interpretation issued by the architect in the form of a drawing or otherwise; (3) a change order; or (4) a written order issued by the architect for a minor change in the work.
Contractor: An individual and/or firm used in performing work on construction projects. There are different classes of contractors, which are normally listed under the heading of subcontractors. The function of the subcontractor is to perform a particular task only under the direction and coordination of the general contractor, who takes on the responsibility of managing the project in accordance with the construction documents. The general contractor is normally selected through bidding procedures and is totally responsible for completion of the project in a skillful manner that is acceptable to both architect and owner. However, the general contractor may be persecuted to handle all work within a particular project. This is usually the case for multistory office buildings where the general contractor is the same for all tenant space construction. The contractor also could be contracted on a time-and-material basis, which may or may not have an upset maximum.
Core: (See Building core.)
Cost approach: The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the replacement cost of the building, less depreciation.
Default: Failure to meet an obligation when due or to perform any provision of a lease, mortgage or other agreement.
Demarcation point: The location where a telecommunications provider's network ends and a private network begins
Demised premises: Premises, or parts of real estate, in which an interest or estate has been transferred temporarily, such as an interest in real property conveyed in a lease.
Demolition clause: A clause within a lease denoting the fact that if or when the ground lease has expired, the building will be demolished per such clause. The lessor must notify the tenants within an established time of such condition.
Design development: The process by which, upon approval of the schematic design, the architect proceeds with development of he plans and elevation of the building. Drawings establishing all major elements and outline specifications are prepared. A revised statement of probable construction cost is usually made at this time.
Diffuser: a device for reducing the velocity of air flow from a mechanical duct system supplying air. Its shape is usually circular or square and it is set in the ceiling at predetermined locations to diffuse air within that space.
Duct: A pipe, tube, channel or any other unit necessary for conveying gases, liquids or solid units from one point to another. The term is mostly identified with air-conditioning systems where the transfer of air is necessary. This is accomplished through sheet-metal ducts. The term is also applicable to under-floor duct systems for conveyance of telephone lines and other electrical conductors.
Economic obsolescence: Impairment of desirability or useful life or loss in the use and value of property arising from economic forces outside the building or property, such as changes in optimum land use, legislative enactments that restrict or impair property rights and changes in supply-demand relationships.
Effective gross income: The scheduled gross income of a property minus the vacancy rate.
Egress: The right to leave a tract of land. Often used in connection with access.
Eminent domain: The right of a government or municipal quasi-public body to acquire private property for public use. It is acquired through a court action called condemnation in which the court determines the use is a public use and decides the price or compensation to be paid to the owner.
Encroachment: A building or some portion of it, or a wall or fence, that extends beyond the land of the owner and illegally intrudes upon land of an adjoining owner, a street or an alley.
Encumbrance: Any lien, such as a mortgage, tax or judgment lien. It can also be an easement a restriction on the use of the land or an outstanding dower right that may diminish the value of the property.
Equity: The interest or value an owner has in real estate over and above the mortgage against it.
Escalation clause: A clause in a contract providing for increases or decreases in rent payments in accordance with fluctuations of certain costs or expenses of the landlord.
Eviction: The forced removal, by legal means, of a tenant from the leased premise (see Constructive eviction).
Exclusive agency listing: A listing contract under which the owner appoints a real estate broker as the one exclusive agent for a designated period of time to sell the property on the owner's stated terms, and under which the owner agrees to pay the broker a commission. However, the owner reserves the right to sell without a commission to a prospect not introduced or claimed by the broker (see Exclusive right to sell).
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Exclusive listing: A contract to sell property as an agent, whereby the agent is given the exclusive right to sell the property or is made the exclusive agent for its sale. Exclusive right to sell: A listing contract in which the owner appoints a real-estate broker as the exclusive agent for a designated term. The broker must sell the property on the owner's stated terms, and the owner agrees to pay the broker a commission when the sale is consummated.
Expense ratio: The percentage of gross income that is consumed by the operating expenses of a property.
Expense stop: A ceiling or limit on the dollar amount one party, typically the landlord, will pay in an expense category. This ceiling is determined by adding a percentage or dollar amount to the base year costs.
Fiduciary: A person to whom power or property is entrusted for the benefit of another.
Fixture: Personal property or improvements so attached to the land as to become part of the real property. The right of the tenant to remove fixtures may be given by stipulation in the lease or by separate written agreement between the parties.
Footcandle: A measurement of light level. It is equivalent to the light intensity made by one candle at a distance of one foot.
Footcandles maintained: The level of light that will be maintained after the initial drop-off of footcandles following installation. Usually it will be after the first 100 hours of burning.
Footprint: The shape and configuration of a building.
Foreclosure: A court action initiated by the mortgagee or a lien or for the purpose of having the court order the debtor's real estate sold to pay the mortgage or other lien (mechanic's lien or judgment).
Functional obsolescence: Defects in a building or structure that detract from its value or marketability (see Obsolescence). Garden-type building. A modern, low-rise building typically found in suburban areas, that is built to blend in with its surroundings. Often of stucco exterior.
General lien: A lien on all property, both real and personal, of a debtor.
Graduated lease: A lease that provides for specific increases or decreases in rent at definite times during the term of the lease.
Grantee: A person to whom an interest in land is conveyed by deed, grant or other written instrument.
Grantor: A person who transfers his or her interest in land to another by a written instrument.
Gross lease: A lease of property whereby the lessor is to pay all property charges regularly incurred through ownership (see Net lease).
Gross rent multiplier: A figure that produces an estimate of the property's value when used as a multiplier of the gross income of a property.
Ground lease: A lease (usually of long duration) of land to a tenant who covenants to erect a building on the premises. The building is security for rentals. If the tenant defaults, the landlord may foreclose on the lease (see Subordinated ground lease).
Hard construction costs: The costs of constructing a building shell plus most of the covering materials.
Hardware: General term that includes the following: (a) hinges, butt or pivot; (b) lever handles, knobs or pulls; (c) latchset, lockset, magnetic and friction catches; and (d) door closures, door holds, door bumpers.
Highest and best use: That possible use of land that will produce the greatest net income and thereby develop the highest land value.
High rise: An inexact term, usually denoting a building of steel frame construction regardless of the building height.
Holding over: The act of a tenant retaining possession of the premises longer than the term expressed in the lease.
HVAC: An abbreviation for heating, ventilating and air conditioning.
Income approach: The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.
Insured: The indemnified person(s) or company(ies) who receive the proceeds of insurance in the event of insurable loss or damage.
Interior partitions: All types of interior nonload-bearing partitions that enclose or subdivide tenant space. May be of steel, wood, glass, masonry or combinations of these materials. Such partitions may be either movable or non-movable, prefabricated or built on the job.
Joint tenants: Two or more landowners who have been specifically named in one conveyance as joint tenants. Upon the death of a joint tenant, the surviving joint tenant or tenants receive the deceased tenant's interest by the right of survivorship, which is the important element of joint tenancy.
Justice of the Peace: An officer appointed by the Government with authority to take the acknowledgment of persons executing documents and to sign the certificate and affix a seal.
Lease: A contract whereby, for a consideration (usually termed rent), one who is entitled to the possession of real property transfers such rights to another for life, for a term of years, month to month or at will.
Leasehold: The interest or estate that a lessee of real estate holds under the provisions of a lease.
Lessee: The tenant in a lease.
Lessor: The landlord in a lease.
Letter of Intent: (see Offer to lease.)
Levy: To impose or assess a tax on a person or property. The amount of taxes to be imposed in a given district.
License: Permission given by the landlord for a person to enter the premises of a tenant for a particular purpose. A license is of temporary character, purely a personal right, and cannot be sold. It is revocable.
Lien: A right given by law to a creditor to have a debt or charge satisfied out of the property of the debtor. It applies to a particular piece or pieces of real or personal property.
Market data approach: The process of estimating the value of property through the examination and comparison of actual sales of comparable properties.
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.
Mechanic's lien: A lien established by law in favor of those who provide labor or material for the improvement of real estate.
Month-to-month tenancy: A tenancy from month to month is generally created when no definite lease term is specified by the parties and the rent is payable monthly. Such a lease may be written or oral, and can be terminated by either party at the end of any month. Otherwise, it is renewed automatically from month to month on the same terms.
Mullions: Metal strips placed at regular intervals along a window line. They are designed to receive a wall partition in a manner ensuring a smooth, soundproof connection.
Net lease: Lease under which the tenant pays the agreed-upon rent plus utilities and taxes.
Net-net-net lease: Lease under which the tenant pays the agreed-upon rent plus utilities, taxes, insurance and maintenance.
Net operating income (NOI): The effective gross income from a property minus operating expenses.
Notary public: An officer appointed by the Government with authority to take the acknowledgment of persons executing documents and to sign the certificate and affix a seal.
Obsolescence: Lessening of value due to being out of date (obsolete) as a result of changes in design and use; and element of depreciation.
Offer to lease: An agreement that binds the lessor to continuing negotiations in good faith once a qualified tenant has been found, until all negotiating points have been covered. In effect, it takes the space off the market during the negotiating period.
Open listing: A listing contract under which the broker's commission is contingent upon the broker producing a buyer before the property is sold by the owner or another broker.
Option: A contractual agreement giving one party a privilege of demanding, within a specified time, the carrying out of a transaction upon stipulated terms.
Pass-through: Expenses or a portion of expenses associated with tenancy that are "passed through" from the landlord to the tenant who then pays them.
Percentage lease: Lease under which the tenant pays a fixed minimum monthly rent plus a percentage of his or her gross monthly income in excess of that minimum. Used primarily in retail leases.
Personal Property: Items (chattels) that do not fit the definition of realty; movable objects.
Prime tenant: A tenant who occupies a great portion of the space available within a given building that may, in addition, be owned by that tenant.
Principal: (1) A sum lent or employed as a fund or investment, as distinguished from its income or profits;(2) the original amount (as of a loan) of the total due and payable at a certain date;(3) a party to a transaction, as distinguished from an agent.
Principal and agent: 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.
Procuring cause: A broker will be regarded as the 'procuring cause' of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun" Coles versus Pattison, 189 Okl. 160, 114 P. 2d 457, 458.
Pro forma: A set of figures projecting costs and income on a proposed new property. Used as a basis for capitalization.
Programming: A system in which specific requirements of the client are determined in written form and, when approved by the client, become the basis for all future planning. The effects of successful programming will be felt by the client as long as he or she lives with the facility executed. The client will have a flexible enclosure able to house immediate and long-range needs without disrupting his or her operation during growth periods.
Public corridor: The space that leads to different tenants' spaces from a service core.
Punch list: A list prepared by the architect, designer and owner and formally submitted to the contractor to note any deficiencies when the check all completed construction, which assures verification that such work has been accomplished in a good, workmanlike manner in respect to the contract documents.
Quiet enjoyment: A covenant, usually inserted into leases and conveyances on the part of the grantor, promising that the tenant or grantee shall enjoy possession of the premises in peace and without disturbance.
Real estate broker: Any person, copartnership, association or corporation who, for a compensation or valuable consideration, sells or offers for sale, buys or offers to buy, or negotiates the purchase, sale, or exchange of real estate, or who leases or offers to lease or rents or offers for rent any real estate or the improvements thereon for others. Such a broker must secure a state license. For a license to be issued to a firm, it is usually required that all active partners and officers must be licensed real estate brokers.
Real estate salesperson: Any person who, for a compensation or valuable consideration, is employed either directly or indirectly by a real estate broker to sell or offer to sell, or buy or offer to buy or negotiate the purchase, sale or exchange of real estate or to lease, rent or offer for rent any real estate or to negotiate leases thereof or the improvements thereon.
Recapture: A clause in a lease agreement providing for lessor's retaking or recovering possession of the premises, usually by cancellation of the lease under certain conditions.
Recording: The act of entering a record of documents affecting or conveying interest in real estate in a county recorder's office. Until recorded, a deed or mortgage generally is not effective against subsequent purchasers or mortgages or other third parties (see Constructive notice).
Rentable area: The generally accepted means of measuring space within an office building is the Building Owners and Managers association ( SAPOA). From the inside of the outside wall (or in new buildings from the glass line) to the outside of the inside wall (or hall wall) and center to center on the division walls. Columns are included.
Replacement cost: The current cost of replacing the subject property with property having exactly the same utility and amenities.
Rules and Regulations: Building standards that are binding on the tenants are usually set forth in a part of the lease covering such things as use of common areas, door lettering, signs, noise, odors, moving or installation of equipment, special locks, etc.
Save harmless: To indemnify another; to secure another against loss or damage or claims of a third party. Often referred to as hold harmless.
Scheduled gross income: The rental rate of a property multiplied by the total rentable space.
Schematic design: (1) A design concerning the building program resulting from inspection of the site and conferences with the client. The client's needs and requirements are carefully analyzed. Zoning regulations and codes affecting the work are studied. Sketches and statements of probable construction costs are prepared for the owner's approval.(2) A suggested plan, design or program of action.
Space analysis: An analysis of an existing office situation to locate problem areas and to provide a basis for judgment in evaluating major changes. Also, it can be in the form of planning tools that will be used by the client in developing a planning decision. This includes space standards, adjacency requirements and space requirements.
Space planning: Architecturally designing any space with all the amenities and mechanical gadgets to make it more functional for the occupants. Besides amenities, gadgets and good communication systems, it includes better sound and light control within the space.
Space standards: The standard-size spaces for particular functions--a necessary tool in planning for any growing organization. The absence of standards leads to a situation where space is allocated to offices in a haphazard, nonfunctional manner.
Sublease: A lease executed by the lessee of an estate to a third person that conveys the same estate for a shorter term, or a portion of the estate for the same or a shorter term, is a sublease. When the entire estate is sublet for the entire remainder of the term, it is call an assignment.
Subordinated ground lease: A ground lease in which the lessor (owner) places his right in relation to the structure behind that of others, such as the holder of the construction loan or permanent mortgage (see Ground lease).
Subordination: An agreement by which a lienholder, a lessee or one having an interest or claim in or against personal or real property places the interest behind that of another.
Task lighting: Overhead lighting systems that provide each workspace with individual overhead lighting controls. Designed to conserve energy by lighting only work areas that are occupied at any given time.
Tenancy at sufferance: A tenancy that exists when, after expiration of a lease, the tenant remains in possession without the consent of the landlord or the person entitled to possession. No notice is required to terminate this tenancy.
Tenancy at will: One wherein the landlord agrees that the tenant may stay in possession after expiration of the lease and pay rent for the time the space is occupied, until either landlord or tenant desires to terminate the tenancy.
Tenant representation agreement: A contract under which a client agrees to work through no salesperson except the one designated in the agreement.
Thermopane: A brand name (now used generally) for a window-glass construction that has insulating qualities. Two layers of glass are separated by an air space. Also called double-glazing insulating glass.
Thermostat: A device actuated by temperatures that regulates and controls dampers, valves, switches or other mechanisms.
Trade fixtures: Articles installed by a tenant under terms of a lease and removable by the tenant before the lease expires. These remain personal property; they are not true fixtures.
Triple net lease: (See Net-net-net- lease.)
Unit office space: Fully enclosed or semi-enclosed space, providing workspace for a single occupant and involving a circulation provision required to access the space.
Usable area: Any area in a given floor that could be used by the tenant. This area includes a point from the perimeter glass line to demising walls; it also includes column areas within such a space.
Value: The power of a thing to command other goods in exchange; the present worth of future rights to income and benefits arising from ownership.
Wall base: A defined material applied to the base of walls for general protection and finish. Although it can be provided in various materials, the primary material is vinyl or rubber. The base is available in various heights and colors. It is also available as a straight or flat base, for carpeted areas, or a cove base, which is normally used for tile floors as a maintenance and finish advantage.
Water closet (W.C.): A toilet.
Wet columns: Columns where provisions are made to have a plumbing fixture for drinking fountains, sink, etc.; the pipes are taken through the small enclosure (chase) against the column.
Working drawings: Detailed floor-space plans that diagram all improvements to be made. They are designed as instructions to the various contractors involved.
Work letter: That part of the lease stated in detail pertaining to all work that is to be done for a tenant by a landlord.