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Welcome to Occupier’s Glossary of Commercial Leasing Terms. Here, you can browse our online glossary of commercial leasing terms to help you learn the language of commercial leasing so you can better understand your lease.
Abstraction
Occupier's abstraction is a bespoke, *by-hand process. We do the best that we can to ensure complete accuracy to the lease language and transparency in what liberties were taken and why.
Active Lease
The date when a unit is considered occupied under the terms of the lease, or when the lessee can begin to inhabit the unit, whichever is first.
Additional Rent
Additional rent refers to incidental expenses that the lessee is responsible for paying in addition to base rent each month.
Admin (User)
Have the ability to make any edits within Occupier. They also have the ability to add or remove other users.
Alterations
A substantial change to real estate, especially to the premises and usually not involving an addition to or removal of the exterior of the building’s structure.
Assignment
A transfer of an interest in real property. With commercial lease assignments, it is the transfer of the leasehold interest.
Auto-Renewal Option
An auto-renewal option is a type of renewal option whereby the lease term is extended automatically on a specific date (e.g., 30-180 days prior to termination) unless the tenant notifies the landlord of their intent to terminate the lease.
Base rent
A set amount is used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.
Base Year
Actual taxes and operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes a dollar lease.
Breakpoint
The level of sales at which percentage rent begins. It is typically the base rent divided by a predefined percentage in the lease. If the base rent were $100,000 and the percentage were five percent, the breakpoint would be $2,000,000 ($100,000/5% = $2,000,000).
Clauses
A specific part of a rental agreement between a landlord and tenant. Lease clauses are written to protect the rights of both parties and are usually in legal jargon that complies with local and state landlord-tenant laws.
Committed Lease
A binding lease agreement or commitment to enter into a lease on or after a specific date where the term of the lease had not yet begun.
Condemnation
The taking of private property by a public agency through the right of eminent domain for a public purpose upon the payment of just compensation by the government agency to the property owner.
Default
The general failure to perform a legal or contractual duty under a commercial lease, such as not paying rent when due, or the breach of other non-monetary lease covenants.
Estoppel Certificate
A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).
Execution Date
The date when a lease is signed between a tenant and a landlord, and when all conditions precedent for the lease have been met.
Expansion Option
A right for the tenant to increase the size of its premises under specified terms and conditions.
Exclusivity
A commercial lease provision that prohibits the landlord from leasing space to others that would engage in the same line of business as the tenant.
Expired Lease
An expired lease is a lease that has ended on its scheduled expiration date and is no longer valid.
Fair Market Value
The sale price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Also known as FMV.
First Refusal Right or Right Of First Refusal
A lease clause gives a tenant the first opportunity to buy or lease a property at the same price and on the same terms and conditions as those contained in a third-party offer that the owner has expressed a willingness to accept. Such rights often pertain to adjacent spaces.
Fixed Costs
Costs, such as rent, which do not vary with changes in the level of sales or production and would continue if the entity produced and sold nothing at all.
Force Majeure
A force that cannot be controlled by the parties to a contract and prevents said parties from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane or, acts of man such as a strike, fire, or war.
Free Rent
A free rent period is essentially a defined time frame during which a tenant is not required to pay any rent on their leased property.
Guaranty
An agreement whereby the guarantor undertakes collaterally to assure the satisfaction of the debt or other obligation of another or perform the obligation of another if and when the debtor or tenant fails to do so. Differs from a surety agreement in that there is a separate and distinct contract rather than a joint undertaking and shared liability with the debtor.
Hazardous Waste (also “Hazardous Material” or “Hazardous Substance”)
Dangerous substances that because of its physical or chemical composition, quantity, or concentration may cause harm to human health or the environment.
Heating, Ventilation, and Air Conditioning (HVAC)
The system that is used to provide heating and cooling services to buildings.
Hold Over
A tenant retaining possession of the leased premises after the expiration of a lease.
Indemnity (Indemnification)
The right of an injured party to claim reimbursement for its loss, damage or liability from a person has a legal obligation to indemnify them. Commercial leases often contain indemnity clauses to allocate risk between landlord and tenant.
Lease
An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Agreement
The formal legal document entered into between a Landlord and a Tenant reflects the terms of the negotiations between them; that is, the lease terms have been negotiated and agreed upon, and the agreement has been reduced to writing. It constitutes the entire agreement between the parties and sets forth their basic legal rights.
Lease Commencement Date
The date usually constitutes the commencement of the term of the Lease for all purposes, whether or not the tenant has actually taken possession so long as beneficial occupancy is possible. In reality, there could be other agreements, such as an Early Occupancy Agreement, which have an impact on this strict definition.
Lease Renewal
The continuing of the lease after its initial expiration.
Lease Term
The time restriction regulating a tenant’s right for the home’s exclusive possession.
Lease Expiration
The lease expiration date is the end of the initial lease term. It marks the end of the contractual agreement between a landlord and tenant, and the tenant's right to occupy the property ends.
Lessor
A lessor or landlord legally owns the asset or property. They may be a person, company, or legal entity. They lease the property or asset by giving the lessee the right to use or occupy it for a specified period.
Lessee
A lessee or tenant pays rent for the right to occupy or use the property. They may be a person, company, or legal entity.
Letter Of Credit
A commitment by a bank or other person, made at the request of a customer, that the issuer will honor 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 to satisfy security deposit requirements.
Letter Of Intent
A preliminary agreement stating the proposed terms for a final contract. They can be "binding" or "non-binding". This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.
Master Lease
A primary lease that controls subsequent leases and which may cover more property than subsequent leases. An Executive Suite operation is a good example in that a primary lease is signed with the landlord and then individual offices within the leased premises are leased to other individuals or companies.
Operating Cost Escalation
Clauses that adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings. The landlord’s definition of Operating Expenses is generally very broad, covering most costs of operation of the building. Most landlords pass through proper and customary charges, but in the hands of an overly aggressive landlord, these clauses can operate to impose obligations which the tenant would not willingly or knowingly accept.
Operating Expenses
The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord’s definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.
Open Items (Open Items Sheet)
Document that Occupier delivers after initial lease abstraction is complete that includes any missing information. This sheet will highlight the missing information as well as any assumptions or placeholder data that was included in their account. Examples are a specific commencement date or square footage.
Percentage Lease
Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant's gross sales as a component of rent. There is usually a base rent amount to which "percentage" rent is then added. This type of clause is most often found in retail leases.
Percentage Rent
Typically, in retail leases, the rent charged to a tenant based a percentage of gross sales.
Possession Date
The day when the lessee gains legal access to the leased asset or the lessor gives the lessee no barrier to the asset. The possession date is often the date when the tenant is allowed to make leasehold improvements before the lease term begins.
Pro rata
Proportionately; according to measure, interest, or liability. In the case of a tenant, the proportionate share of expenses for the maintenance and operation of the property.
Proration
The process of breaking down and dividing expenses proportionally based on each party’s share of owning or renting a property.
Renewal Option
The right of a tenant to extend the lease term for a specified period of time at a predefined rental rate. The rate is typically defined as a percentage of market rent, a consumer price index-based increase on previous rent, or a specified dollar amount. Often, there is a date by which this option must be executed (e.g., 30-180 days prior to termination); otherwise, the option expires.
Rent
Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.
Rent Commencement Date
The date on which a tenant is obligated to begin paying rent, as contrasted with the lease commencement date when the lease term commences, but payment of rent is deferred for a period of time.
Rent Schedule
A written document listing the rental rates that could be created by the owner, property manager, or both of them.
Rental Rate
An amount of money the tenants have to pay to landlords over a fixed time period for renting a property.
Right of First Offer (“ROFO”)
A tenant may hold a ROFO in its lease, meaning that if space becomes vacant or available, or if landlord should elect to sell the building, the landlord must first advise tenant of the available space, or landlord’s intent to sell the property so that if so inclined, the holder of the ROFO then has the right to make the first offer to lease the available space or to purchase the property on any terms and conditions which the ROFO holder might offer. Of course, landlord is free to accept, decline, or counter such offer, as a ROFO contains no specific terms, rent, or sale price. (See Right of First Refusal and option which are similar but have criterial differences from a ROFO).
Right Of First Refusal (“ROFR”)
A right which a tenant may hold to lease additional space in the property or to purchase the property under the following circumstances. If and when landlord is prepared or has agreed (subject to this right of first refusal) to lease space to a third party or sell the property to a third party on certain terms and conditions, that same transaction must be offered to the holder of the right of first refusal who has a fixed period in which to exercise the ROFR and purchase the property or lease the subject space on the specified terms and conditions, or waive the ROFR. See definition for option and for right of first offer (“ROFO”) which is similar, but differences from ROFR should be noted.
Rules and Regulations
Often an exhibit to a lease or a document incorporated by reference in the lease describing important operational aspects of the building or complex, such as hours of operation, noise control, parking regulations, delivery procedures, trash removal, 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
A lease where the original tenant sublets all or a portion of the leasehold interest to another tenant (referred to as the “subtenant”) while still retaining a leasehold interest in the property. This arrangement is sometimes loosely referred to as a “sandwich lease” because the original tenant is sandwiched between the landlord and the subtenant.
Subletting
Renting a property by a tenant to a third-party tenant for a specified segment of the tenant’s lease agreement.
Subordination Agreement
As used in a lease, the tenant generally accepts the leased premises subject to any recorded mortgage or deed of trust lien and all existing recorded restrictions, and the landlord is often given the power to subordinate the tenant's interest to any first mortgage or deed of trust lien subsequently placed upon the leased premise
Subrogation
Literally the substitution of one person or party in the place of another with reference to a lawful claim or right. When an insurer pays or defends a claim, the insurer may “step into the shoes” of the insured, including the right to pursue claims of the insured against others. Waiver of subrogation is an important aspect where a landlord and tenant mutually agree in the lease to require their insurers to waive subrogation on landlord claims against the tenant and tenant claims against the landlord. Mutual waiver of subrogation usually results in the equivalent of: “If one party’s insurer pays or defends a claim, the other need not fear retribution for its causation.”
Tenant
A person or entity that occupies and holds the right to possess real property owned by another.
Tenant Improvement Allowance
An amount, negotiated in a lease, that a landlord is willing to give to a tenant to make improvements to the premises. Landlords typically recover the Tenant Improvement Allowance from the tenant through the rent over the lease term.
Tenant Improvements
Modifications to the leased property to accommodate the specific needs of the tenant, such as interior walls, flooring, light fixtures, doors, window treatments, etc. Can be inside or outside of the premises and can be paid for by the tenant, landlord, or both. The costs of these are typically negotiated in the lease.
Term
The length of time during which the lease is in effect.
Termination
Ending or canceling a lease for any reason.
Use
The specific purpose for which a parcel of land or a building is intended to be used as specified in the lease’s use clause.
User (Edit Rights)
Has the ability to make edits within Occupier, same as an Admin. However, they cannot add or remove other users.
User (Read-Only Rights)
Have no edits rights within Occupier. They cannot make any changes to the leases, mark tasks as complete or add/remove other users. They can only review the data within Occupier, but cannot interact with it at all.
Variance
A more permanent exemption from the zoning ordinance for a specific feature that is obtained from the planning department of the city or county in which the property is located (e.g., a height limitation variance, a parking variance, etc.).
Warranty of Possession
This is the old "quiet enjoyment" term, which of course had nothing to do with noise in and around the leased premises. It provides a warranty by Landlord that it has the legal ability to convey the possession of the premises to Tenant; the Landlord does not warrant that he owns the land. This is the essence of the landlord’s agreement and the tenant’s obligation to pay rent. This means that if the landlord breaches this warranty, it constitutes an actual or constructive eviction.
Sources:
The Center For Commercial Real Estate (www.cfcre.org and www.1031exchange-tic.com), is an organization offering education, forms and software for those involved in commercial real estate.
The Society of Industrial and Office Realtors (www.sior.com) is an international affiliate of the national Association of Realtors (NAR). Its membership includes over 2,500 office and industrial specialists who have been awarded the SIOR designation.
Binary Stream (https://binarystream.com/blog/glossary-of-common-commercial-lease-terms-with-simple-definitions/)
LeasingProfessional.com (https://www.leasingprofessional.com/leasing-professional-webadmin/lpterminology.htm)
Ziva Law (https://zivalaw.com/resources/glossary-of-commercial-leasing-terms/)