Glossary of Lease Abstract Glossary
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- EXAMPLE: To induce ABC Tenant to execute their lease, the Landlord provided an abatement equal to 50% of the Base Rental payments for the initial 3 months of the 5 year lease term. During these 3 months, the monthly Base Rental payment per the Lease was $2,000. Because of the abatement, ABC Company is only required to pay $1,000.
- Ad Valorem Taxes
- Taxes which are assessed "according to value", such as property taxes.
- Additional Rent
- Any financial obligation of tenant payable to the landlord other than Base Rent. Additional Rent may include, among others, items such as expense recoveries, utilities, percentage rent, CPI adjustments and late fees.
- Add-On Factor
- EXAMPLE: ABC Tenant's lease indicates that the square footage of the premises is 1,000 useable square feet and 1,140 rentable square feet. The add-on factor applied to the premises is 14.0%.
- All-Risk Insurance
- EXAMPLE: ABC Tenant's lease requires them to obtain All-Risk Insurance equal to 100% of full replacement cost for all personal property and improvements paid for by Tenant upon the premises. A fire destroys a portion of ABC Tenant's premises, and many computers and items of furniture are lost. The All-Risk Insurance will reimburse ABC Tenant for the replacement cost of the computers and furniture.
- A legal document executed by a landlord and tenant which changes the terms or provisions of a previously executed document. Amendments are often sequentially numbered based upon the order in which they were executed (i.e., First Amendment, Second Amendment, etc.).
- EXAMPLE: ABC Tenant's lease gives the Landlord the right to include in recoverable operating expenses, capital expenditures as required by law, as amortized over the useful life of such expenditure on a straight line basis. The Landlord incurs a cost of $250,000 for a capital expenditure required by law, which expenditure is determined to have a useful life of 10 years. The Landlord may include in recoverable operating expenses $25,000 per year, representing the annual amortization of the capital expenditure.
- Anchor Tenant
- The primary tenant in a shopping center. Larger shopping centers may have more than one anchor tenant. Rent for anchor tenants is often significantly lower than for other tenants in a shopping center because they are the tenants who draw consumers to the center
- EXAMPLE: ABC Tenant has been purchased by XYZ Company. The purchase agreement requires ABC to assign all of their leases to XYZ. In accordance with the terms of ABC Tenant's lease at Ellipsis Tower, ABC and XYZ enter into an Assignment and Assumption Agreement, whereby ABC agrees to assign their lease to XYZ, and XYZ assumes all of ABC's lease obligations for the unexpired term of the lease.
- The act of assuming the obligations of a tenant under a lease. An assumption is often associated with an assignment via an 'Assignment and Assumption Agreement', whereby the Assignor assigns their rights in a lease to the Assignee, and the Assignee assumes the obligations of the Assignor.
- EXAMPLE: ABC Tenant's lease at Ellipsis Tower contains an attornment clause whereby ABC agrees to attorn to a new Landlord in the event of foreclosure under a mortgage agreement. The Landlord of Ellipsis Tower defaults under their mortgage with Lender One, and Lender One forecloses on the mortgage. Because of the attornment provision, ABC agrees to recognize Lender One as the new Landlord under the lease.
- Base Amount
- ABC Tenant signs a five-year lease which requires ABC to pay Base Rent plus its proportionate share of recoverable expenses in excess of $9.00/sq. ft. The Base Amount is equal to $9.00/sq. ft.
- Base Rent
- The minimum amount of rent due under a lease. Base Rent may be quoted on a gross basis (a portion of recoverable expenses are included in Base Rent) or a net basis (Base Rent excludes any portion or recoverable expenses, with the amount paid by a tenant being 'net' to a landlord).
- Base Year
- EXAMPLE: ABC Tenant signs a five-year lease which requires ABC to pay Base Rent plus its proportionate share of recoverable expenses in excess of the actual expenses incurred for the year 2000. The Base Year in this example is the year 2000.
- EXAMPLE: ABC Retail Tenant signs a five-year lease which requires ABC to pay Base Rent of $50,000/year plus Percentage Rent in an amount of 4% of Gross Sales in excess of $1,250,000. The Breakpoint in this example is $1,250,000. Furthermore, the Breakpoint is natural because when the Breakpoint of $1,250,000 is multiplied by the Overage Percent of 4%, the result is $50,000, which equals Base Rent.
- An individual or company who acts as an intermediary to negotiate the sale, purchase or lease of real estate. For leases, the tenant, landlord or both parties may engage a broker to negotiate the terms of a lease. In many cases, the broker's commission is calculated as a stated percentage of the negotiated Base Rent, with the percentage often determined by the geographical market in which the real estate is located.
- Business Hours
- EXAMPLE: ABC Retail Tenant has a lease clause which requires them to remain open from 9:00 AM - 9:00 PM Monday thru Friday and 10:00 AM - 6:00 PM on Saturdays and Sundays. These hours represent ABC's Business Hours.
- Cancellation Option
- ABC Tenant signs a five-year lease which gives them the right to terminate the lease after 3 years upon 6 months notice to the Landlord and payment of a cancellation fee equal to 3 months of Base Rent at the date of cancellation. The clause in the lease specifying this right is a Cancellation clause.
- EXAMPLE: ABC Tenant's lease requires ABC to pay 5% (their pro-rata share) of recoverable expenses in excess of $10.00/sq. ft., with a cap on the reimbursement of $2.50/sq. ft. If recoverable expenses exceed $12.50/sq. ft., ABC Tenant will not be required to pay their pro-rata share of the excess because of the $2.50/sq. ft. Cap.
- Capital Expenditure
- EXAMPLE: The Landlord of Ellipsis Retail Center has received numerous complaints from tenant that the roof is leaking. Rather than patch the roof where necessary, the Landlord decides to replace the entire roof. The cost of replacing the roof is a Capital Expenditure (as opposed to the cost of patching the roof, which would have been a repair).
- Certificate of Insurance
- A document provided by an insurance company which indicates that a landlord or tenant's insurance policy is in effect and the levels of coverage contained within the policy. Leases often require the tenant and/or the landlord to provide such a certificate to the other party on an annual basis as evidence that the coverage required pursuant to the lease has been obtained and is in effect.
- Commencement Date
- The date upon which the landlord and tenant's rights and obligations pursuant to a lease begin.
- Common Area
- That portion of a property which is available for use by all tenants over which the landlord retains control and liability.
- Common Area Maintenance
- The operating expenses incurred by a landlord to maintain the common areas. CAM charges, as they are typically called, may be recovered from tenants on a pro-rata basis and/or included in Base Rent via the addition of an Add-On Factor to the square footage of the leased premises.
- To induce ABC Tenant to execute a lease at Ellipsis Tower, the Landlord offers ABC a $2.00/sq. ft. moving allowance, $5.00/sq. ft. above standard tenant improvement allowance and a 3 month abatement of Base Rent. Each of these items granted to ABC by the Landlord is a Concession.
- EXAMPLE: A governmental agency has decided to build an interstate highway which will run over the land upon which Ellipsis Tower has been built. The government uses their power of eminent domain to take the property via the Condemnation process, and pays the Landlord an 'award' to compensate the Landlord for the taking.
- Consumer Price Index
- An index published monthly by the U.S. Bureau of Labor Statistics which measures the inflation/deflation in the prices of specified goods and services. The index may vary based upon location (national average vs. regional index), type of consumer (all urban consumers vs. wage earners and clerical workers), goods and services included (all items vs. specifically defined goods and services) and base index period (i.e., the starting point for measurement of the index, stated as 100.0).
- Consumer Price Index Adjustment
- EXAMPLE: ABC Tenant signs a five-year lease which requires ABC to pay Base Rent of $20,000/annum plus annual increases based upon the increase in the Consumer Price Index over the index for the month and year for which the lease commenced. After the first year, the CPI has increased 3.5%. The Consumer Price Index Adjustment beginning in the second lease year would be $700/annum
- Continuous Operations Clause
- EXAMPLE: ABC Retail Tenant signs a lease at Ellipsis Mall which requires them to continuously operate their business throughout their 10-year lease term. After three years, ABC is not happy with customer traffic at the mall and decides to discontinue operating. ABC would be in default of their lease pursuant to the Continuous Operations Clause.
- Contraction Option
- ABC Tenant signs a 10-year lease at Ellipsis Tower for 20,000 rentable square feet on the 6th floor and 5,000 rentable square feet on the 7th floor. The lease gives ABC the option to terminate their lease for only the 7th floor space after five years upon 6 months notice to Landlord and payment of a contraction fee equal to the unamortized dollars spent by the Landlord for tenant improvements and leasing commissions for such space. The right to terminate the lease for the 7th floor space only is a Contraction Option.
- EXAMPLE: ABC Retail Tenant is concerned that traffic at Ellipsis Mall will be adversely affected if BIG Anchor Tenant ceases their operations at the mall. To alleviate this concern, ABC negotiates in their lease a Co-Tenancy clause, whereby if BIG Anchor Tenant ceases operations, ABC Retail Tenant may terminate their lease at Ellipsis Mall.
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