COMMERCIAL REAL ESTATE GLOSSARY | TERMINOLOGY

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• Amortization: The process of repaying debt in equal installments over a fixed period of time.

• Appraisal: A professional opinion of a property's value, usually conducted by a licensed or certified appraiser.

• Assignment and Subletting: Assignment and subletting refer to the process of transferring the rights and obligations of a lease to a third party.

• CAM Charges: Common Area Maintenance charges are fees assessed to tenants for the up keep of the common areas of the building.  This is typically paid for by the tenant in addition to the rent.

• Capitalization Rate (Cap Rate): A measure of rate of return on a real estate investment property, calculated by dividing the property's net operating income by the purchase price.

• Depreciation: An accounting method used to spread the cost of a capital asset over its useful life.

• Easement: An easement is a legal right to use or access another party’s property for a specific purpose, such as for a utility line or access to a roadway.

• Equity: The difference between the market value of a property and the amount of money still owed on its mortgage.

• Indemnification: A contractual obligation where one party agrees to protect the other from certain losses or claims.

• Investment Property: A property that is bought or improved in order to generate income or capital appreciation.

• Landlord Work Letter: A landlord work letter is a document that outlines the landlord’s commitment to making certain improvements or repairs to the property prior to the tenant taking possession. This is important in ensuring that the property is fit for use.

• Lease Term: The duration of a lease agreement.

• Leasehold: A leasehold is an arrangement where the tenant pays rent to the landlord in exchange for the right to use the property for a certain period of time. The tenant has all the rights and benefits of ownership during the lease period, including the ability to make improvements to the property.

• Letter of Intent: A non-binding agreement between a landlord and tenant that sets out the terms of a possible lease agreement.

• Loan-to-Value Ratio (LTV): The ratio of the amount of the loan to the value of the property, expressed as a percentage.

• Market Rental Value: Market rental value is the amount of rent that a property will likely fetch in the open market. This is important in determining the terms of a lease agreement.

• Market Value: The price that a property would likely sell for under normal market conditions.

• Option to Renew: A clause that allows the tenant to renew the lease for an additional period of time.

• Rent Escalation: The increase in rental payments over the life of the lease.

• Rentable vs. Usable Square Footage: Rentable square footage is the total area available for rent, while usable square footage is the area within the boundaries of the leasehold.

• Security Deposit: An upfront payment by the tenant that is held by the landlord as security for the performance of the tenant's lease obligations.

• Tenant Improvements: Refers to any changes or improvements made to the leased space by the tenant.

• Triple Net Lease (NNN): A triple net lease, or NNN, is a type of commercial real estate lease in which the tenant is responsible for all expenses associated with operating the property, including taxes, insurance, and maintenance.

• Yield: The rate of return on a real estate investment, calculated by dividing the annual rental income by the purchase price.