Reference

Property Management & Real Estate Glossary

111 terms used in net lease, commercial and residential property management, defined plainly, by the people who administer them.

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Showing 111 of 111 terms

Net Lease & NNN

Triple Net Lease (NNN): A lease in which the tenant pays base rent plus its share of the three "nets": property taxes, building insurance, and common area maintenance. The landlord's obligations are typically reduced to the roof, structure and sometimes parking.
Absolute Net Lease: The most tenant-responsible structure. The tenant carries every cost including roof, structure and casualty repair, leaving the landlord with no operating obligations. Common on single-tenant assets bought by passive investors.
Double Net Lease (NN): The tenant pays base rent plus property taxes and insurance, while the landlord retains responsibility for maintenance, typically including roof and structure.
Single Net Lease (N): The tenant pays base rent plus property taxes only. The landlord retains insurance and maintenance obligations. Rare in practice.
Modified Gross Lease: A middle ground in which the tenant pays base rent plus some but not all operating expenses, with the split defined specifically in the lease rather than by a standard formula.
Full Service Gross Lease: The landlord pays all operating expenses out of the rent collected. Common in multi-tenant office, usually paired with a base year or expense stop.
Ground Lease: A long-term lease of land only, on which the tenant builds and owns improvements for the lease term. Terms of 50 to 99 years are typical, and improvements usually revert to the landowner at expiry.
Single-Tenant Net Lease (STNL): A property occupied by one tenant under a net lease. Value is driven primarily by the tenant's credit and the remaining lease term rather than by local market rents.
Credit Tenant: A tenant whose financial strength is strong enough that its lease obligation is treated as a bond-like income stream. Usually a large national or investment-grade company.
Investment Grade Tenant: A tenant rated BBB- or higher by S&P, or Baa3 or higher by Moody's. The rating materially affects the cap rate a buyer will accept.
Corporate Guaranty: A lease backed by the parent corporation's balance sheet rather than only by the operating entity at the property. Considerably stronger security for the landlord.
Franchisee Guaranty: A lease backed only by the individual franchisee operating the location, not by the national brand. The signage may say McDonald's while the credit behind the lease does not.
Roof and Structure: The obligations most commonly retained by a landlord under a triple net lease. Precisely which components are included, and who pays for replacement versus repair, is a frequent point of dispute.
Rent Escalation: A contractual increase in base rent over the lease term, expressed as a fixed percentage, a fixed dollar amount, or an index such as CPI.
Bumps: Industry shorthand for scheduled rent escalations, typically quoted as "10% bumps every five years."
Primary Term: The initial, non-cancellable period of a lease, before any renewal options.
Option Period: A renewal term the tenant may elect to exercise, usually at a pre-agreed rent and within a defined notice window. Options belong to the tenant; the landlord cannot force one.
Weighted Average Lease Term (WALT): The average remaining lease term across a portfolio, weighted by rent or square footage. A key measure of income durability.
Lease Abstract: A structured summary of a lease capturing the commercial terms that drive money and risk: term, rent schedule, escalations, options, recovery provisions, exclusions and critical dates. The working document that day-to-day administration depends on.
Critical Dates: The deadlines in a lease that carry consequences if missed: option notice windows, escalation dates, reconciliation deadlines, renewal and termination notices.
Estoppel Certificate: A signed statement from a tenant confirming the current facts of its lease: rent, term, deposits, defaults, landlord obligations. Lenders and buyers require them so they cannot later be surprised by a side agreement.
SNDA: Subordination, Non-Disturbance and Attornment agreement. The tenant subordinates its lease to the lender's mortgage, the lender agrees not to disturb the tenant's possession on foreclosure, and the tenant agrees to recognize the lender as landlord if that happens.
Assignment and Assumption: Transfer of a lease from one tenant to another, with the new party assuming the obligations. Most leases require landlord consent, and whether the original tenant remains liable depends on the release language.
Sublease: An arrangement in which the tenant leases space to a third party while remaining primarily liable to the landlord under the original lease.
Go Dark Clause: A provision governing whether a tenant may cease operating while continuing to pay rent. A dark anchor can trigger co-tenancy rights for other tenants even though rent is still being paid.
Percentage Rent: Additional rent calculated as a percentage of the tenant's gross sales above an agreed breakpoint. Requires sales reporting and audit rights to administer properly.
Breakpoint: The sales threshold above which percentage rent becomes payable. A natural breakpoint is base rent divided by the percentage rate; an artificial breakpoint is any negotiated figure.
Sale-Leaseback: A transaction in which an owner-occupier sells its property and simultaneously leases it back, converting real estate equity into working capital while retaining occupancy.
Dark Value: What a single-tenant property is worth if the tenant leaves, valued on the real estate alone rather than on the lease. The floor under a net lease investment.

Recoveries & Operating Expenses

CAM: Common Area Maintenance. The cost of operating shared areas of a property: parking, landscaping, lighting, security, sweeping, common utilities, which is billed to tenants under most commercial leases.
CAM Reconciliation: The annual process of comparing actual common area costs against what tenants were billed in estimates, then invoicing or crediting the difference. Also called the true-up.
Recovery Cap: A contractual ceiling on how much a tenant's share of expenses can increase. Caps materially reduce what a landlord can recover and therefore affect the value of the asset, not just its accounting.
Cumulative Cap: A cap that allows unused increase allowance from prior years to be carried forward and applied later. More favorable to the landlord than a non-cumulative cap.
Non-Cumulative Cap: A cap applied year by year, with any unused allowance lost. Recovery shortfalls under a non-cumulative cap are permanent.
Compounding Cap: A cap in which each year's ceiling is calculated on the prior year's capped amount rather than on actual costs. Over a long lease the gap between real costs and recoverable costs widens every year.
Controllable vs Non-Controllable Expenses: A common carve-out in which caps apply only to costs the landlord can influence, leaving taxes, insurance and utilities fully recoverable.
Pro Rata Share: A tenant's percentage of a shared cost, normally its rentable square footage divided by the building's total rentable square footage. The denominator used is a frequent source of dispute.
Gross-Up: An adjustment that restates variable operating expenses as if the building were substantially occupied, commonly 95%. It prevents tenants in a half-empty building from underpaying their true share.
Base Year: The first year of a lease, whose operating expense level becomes the benchmark. The tenant pays its share of increases above that year only.
Expense Stop: A fixed dollar amount per square foot of operating expenses that the landlord absorbs, with the tenant paying its share of everything above it.
Operating Expense Escalation: The mechanism by which a tenant's share of increases in operating costs is billed, whether by base year, expense stop or direct pro rata recovery.
Pass-Through: Any cost billed from landlord to tenant under the lease, including CAM, taxes, insurance and utilities.
Admin Fee: A percentage added to recoverable expenses to cover the landlord's cost of administering them, typically 10 to 15 percent. Whether it applies to all categories is defined by the lease.
Audit Rights: A tenant's contractual right to inspect the landlord's books supporting a reconciliation, usually within a limited window after the statement is issued.

Commercial Leasing & Space

Rentable Square Feet (RSF): The area a tenant pays rent on, including its allocated share of common areas. Always equal to or larger than usable square feet.
Usable Square Feet (USF): The area a tenant can actually occupy and use, excluding common areas.
Load Factor: The ratio of rentable to usable square footage, expressed as a percentage. A 15% load factor means a tenant pays rent on 15% more space than it occupies.
Tenant Improvement Allowance (TI): A sum the landlord contributes toward building out the tenant's space, usually quoted per square foot and paid on completion or against invoices.
Turnkey Build-Out: An arrangement in which the landlord delivers the completed space to an agreed specification rather than paying an allowance, carrying the cost overrun risk itself.
Vanilla Shell: Space delivered with basic finishes in place: typically walls, ceiling, lighting, HVAC distribution and a restroom, ready for the tenant's fit-out.
Grey Shell: Space delivered as an unfinished structure, without interior finishes, ready for a full build-out.
Free Rent: A period at the start of a lease during which no base rent is charged. Sometimes called abatement, it is a concession that lowers effective rent without lowering the headline rate.
Effective Rent: The true average rent over a lease term after concessions, free rent and allowances are netted against the face rate.
Co-Tenancy Clause: A provision allowing a tenant to reduce rent or terminate if a named anchor or a threshold percentage of the center stops operating. One empty anchor can put pressure on leases that had nothing to do with it.
Exclusive Use Clause: A tenant's contractual right to be the only occupant in a property selling a defined product or service. Breaching one by signing a competing tenant is a common and expensive landlord error.
Prohibited Use: Uses a lease forbids at a property, whether to protect another tenant's exclusive, satisfy a lender, or comply with a recorded restriction.
Radius Restriction: A clause preventing a tenant from opening a competing location within a defined distance, usually to protect percentage rent.
Right of First Refusal (ROFR): A tenant's right to match a third-party offer on space or on the property itself before the landlord may accept it.
Right of First Offer (ROFO): A tenant's right to be offered space or the property before it is marketed, without the right to match a later third-party offer.
Holdover: A tenant remaining in possession after the lease expires. Leases usually impose penalty rent, commonly 150 to 200 percent of the prior rate.
Letter of Intent (LOI): A non-binding summary of proposed lease or purchase terms used to reach agreement in principle before legal documents are drafted.
AIR CRE Forms: Standardized California commercial lease and purchase forms published by AIR CRE, widely used in Southern California industrial and retail transactions.
Anchor Tenant: The largest and most trafficked tenant in a retail center, whose presence drives customer flow and supports the rents of surrounding tenants.
Pad / Outparcel: A separately developed building site at the perimeter of a shopping center, often occupied by a single-tenant restaurant, bank or pharmacy on its own net lease.
Inline Space: Standard tenant space within the main row of a retail center, as distinct from anchor space or a pad.
Flex Space: A building combining office and warehouse or light industrial use in one unit, with the proportions varying by tenant.

Financial & Investment

Net Operating Income (NOI): Gross income less operating expenses, before debt service, income tax, depreciation and capital expenditure. The figure most commercial valuation is built on.
Capitalization Rate (Cap Rate): NOI divided by value or price, expressed as a percentage. A lower cap rate means a higher price for the same income, and usually reflects lower perceived risk.
Going-In Cap Rate: The cap rate at acquisition, based on the first year's expected NOI.
Exit Cap Rate: The cap rate assumed when modeling a future sale. Small changes in the assumption produce large changes in projected returns.
Gross Potential Rent (GPR): Total rent if every space were leased at market rent with no vacancy or loss.
Effective Gross Income (EGI): Gross potential rent less vacancy and credit loss, plus other income such as parking, storage or percentage rent.
Vacancy and Credit Loss: The allowance for space that sits empty and for rent billed but never collected.
Operating Expense Ratio: Operating expenses divided by effective gross income. Useful for comparing efficiency between similar assets.
Debt Service Coverage Ratio (DSCR): NOI divided by annual debt service. Lenders typically require 1.20 to 1.35, meaning income must exceed the loan payment by that margin.
Loan-to-Value (LTV): Loan amount divided by property value, expressed as a percentage.
Cash-on-Cash Return: Annual pre-tax cash flow divided by the cash actually invested. Measures return on equity rather than on total price.
Internal Rate of Return (IRR): The discount rate at which the net present value of all cash flows, including sale proceeds, equals zero. The standard measure for comparing investments over time.
Gross Rent Multiplier (GRM): Price divided by gross annual rent. A rough screening tool that ignores expenses entirely.
Capital Expenditure (CapEx): Spending on long-lived improvements such as roofs, parking lots and HVAC replacement, treated separately from operating expenses.
Replacement Reserve: Money set aside periodically for future capital replacement, so major work does not have to be funded by a sudden capital call.
1031 Exchange: A transaction under Section 1031 of the Internal Revenue Code allowing capital gains tax deferral when investment property is exchanged for like-kind property, subject to strict identification and closing deadlines.
Due Diligence Period: The contractual window in which a buyer inspects the property, reviews leases and financials, and may withdraw under the contract's terms.
Broker Opinion of Value (BOV): A broker's written estimate of likely sale price, based on comparables and market conditions. Not a licensed appraisal.
Value-Add: An asset whose return depends on active improvement: raising occupancy, correcting below-market rents, renovating, or fixing operations, rather than on stable in-place income.
Trust Account: A segregated bank account holding client funds separately from the manager's own money, required of licensed property managers in California and most states.

Residential & Multi-Family

Unit Turn: The work of preparing a vacated unit for the next resident: cleaning, repairs, paint, flooring and inspection. Turn time directly drives lost rent.
Lease-Up: The period during which a new or repositioned property is leased to stabilized occupancy.
Stabilized Occupancy: The occupancy level at which a property performs at normal market expectations, commonly 90 to 95 percent.
Concession: An incentive used to secure a lease, such as free weeks, reduced deposit or waived fees.
RUBS: Ratio Utility Billing System. A method of allocating a master-metered utility bill among residents by formula, usually based on occupancy or square footage, where sub-metering is impractical.
Security Deposit: Funds held to cover unpaid rent or damage beyond ordinary wear and tear. California limits the amount and imposes strict deadlines and itemization requirements on its return.
Ordinary Wear and Tear: Deterioration from normal use over time, which a landlord may not charge against a security deposit.
Rent Stabilization Ordinance (RSO): A local law limiting annual rent increases and restricting the grounds for eviction. Los Angeles, Pasadena and a number of other Southern California cities have their own ordinances with differing rules.
Just Cause Eviction: A requirement that a landlord have a specified legal reason to terminate a tenancy, rather than simply electing not to renew.
Three-Day Notice: A statutory California notice giving a resident three days to pay rent or cure a lease violation before the landlord may file to recover possession.
Unlawful Detainer: The California court action to recover possession of a property from a tenant. It is the legal process commonly called eviction.
Fair Housing: Federal, state and local law prohibiting discrimination in housing on protected characteristics. Applies to advertising, screening, terms and services, not only to the decision to rent.
Section 8 / Housing Choice Voucher: A federal rental assistance program in which a housing authority pays part of the rent directly to the landlord under a Housing Assistance Payments contract.
Resident Benefits Package (RBP): A bundled set of services offered to residents for a monthly fee, which may include filter delivery, credit reporting, insurance and on-time payment rewards.
Rent Roll: A schedule of every unit or space at a property showing tenant, rent, term, deposit and occupancy status. The first document any buyer or lender asks for.

Compliance & Risk

Certificate of Insurance (COI): Evidence that a tenant or vendor carries the coverage its contract requires, naming the landlord as additional insured. Tracking expiry dates is a core management function.
Additional Insured: A party added to another's insurance policy so it is covered by that policy for claims arising from the insured's operations.
ADA Compliance: Obligations under the Americans with Disabilities Act covering accessible parking, paths of travel, entrances, restrooms and signage at properties open to the public.
CASp Inspection: A Certified Access Specialist inspection under California law. A CASp report can provide a property owner with certain procedural protections in accessibility litigation.
Proposition 13 Reassessment: Under California law, property is generally reassessed for tax purposes on a change of ownership, which can sharply increase property taxes and, where recoverable, tenants' expense obligations.
Mello-Roos: A special tax levied in a California Community Facilities District to fund infrastructure, appearing on the property tax bill in addition to ordinary assessments.
Title 24: California's building energy efficiency standards, which apply to new construction and to many alterations and tenant improvements.
Force Majeure: A lease provision excusing performance when prevented by events outside a party's control. Whether it covers rent payment, and what qualifies, depends entirely on the drafting.
Environmental Phase I: A preliminary environmental site assessment reviewing a property's history and condition for signs of contamination, standard in most commercial acquisitions.
Percentage Rent Audit: Review of a tenant's reported gross sales against its records to confirm percentage rent has been correctly calculated and paid.

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