We have listed below some of the common terminologies used in commercial real estate. The information comes in handy when you are negotiating and listing property.
ACCRUED ITEMS: These are items that are to be paid but are not yet payable. Commonly it is used in commercial real estate to maintain record of expenses for works on the property that are to be paid when the invoice arrives or is to be paid in the next monthly or yearly accounting period.
ACRE: This is the old imperial method of area measurement. You will frequently come across the measurement when you look at older plans and drawings. The conversion factor to convert between hectares and acres is 0.4046856. This means that there is approximately 2.2 acres in a hectare. For those of you who do not know, the definition of a hectare is an area of space that is 100m long by 100m wide. This space therefore contains 10,000m2. When considering area it is best to get a copy of the survey plans for the location.
ADDED VALUE OF IMPROVEMENTS: The monetary amount that buildings add to the market value of land as based on the building replacement costs less accrued depreciation.
AD HOC: This is something on the property that is set up for a special purpose.
AD INFINITUM: This is a matter without end. It infers infinity or applies to something that will not stop.
AD VALOREM: This terminology is Latin in origin and refers to the payment of real estate rates and taxes. You commonly see it in legal papers.
AFFIDAVIT: This is a voluntary statement taken from a person in writing. The statement is sworn before a notary public or other recognized legal officer.
AGENTS IN CONJUNCTION: In real estate transactions an agency an agency conjunctional relationship may be created by either:
(i) from specific instruction received from the vendor or purchaser to act in conjunction, or
(ii) where an agent acting on behalf of a vendor or purchaser allows another agent to introduce a purchaser or vendor - or vice versa - the agents are said to be acting in conjunction. In some States it is known as Agent in Association.
AIR HANDLING LIGHT FIXTURE: This is a light fixture commonly found in some older office premises. It relates to a light fixture that incorporates an air distribution ‘boot’ or dispersal system from the air conditioning system. Whilst it was thought that such a practice was sensible and economical across a ceiling space, it has been proven to be costly and not as practical as separate light and air conditioning installations.
AIR RIGHTS: This relates to the use of the space above a property or part of a building. Air rights can be sold subject to appropriate planning regulations and property documentation that allows the ‘air’ to be so used.
AMORTISATION: A process of recovering, over a stated period of time, the capital investment through scheduled, systematic repayments at regular intervals. You commonly see this done in leases.
AMMORTISED MORTGAGE: Some mortgages are established on the basis that the principal as well as the interest of that loan will be concurrently paid across the period of the loan. This type of loan is not as common in commercial real estate as an interest only short term loan. Many commercial investors and lending institutions involved in commercial real estate prefer the short term loan to refinance frequently every few years given that most commercial real estate assets are only held as an investment for 5 to 7 years.
ANCHOR TENANT: This is the main, usually the largest tenant on the property who attracts other tenants and customers to a shopping centre. In the very largest properties you may have two or more anchor tenants across the complete site. When this is done, the anchors are usually well separate from each other to attract different customers to different ends of the property.
APPRAISAL: The term commonly used in USA to indicate what in Australia is termed a valuation. To many real estate brokers and agents the term means an opinion or summation of the saleability of a property without resorting to a full scale valuation. When a full scale valuation is required it is necessary to engage a licensed valuer for that purpose.
ARCHITECTURAL DRAWING: These are the critical drawings for a property that reflect design and construction issues. When a buyer acquires a property it is essential that they get a set of final architectural drawings from the previous owner that details the constructed and ‘as built’ property. These drawings are invaluable when it comes to later handling matters of tenancy placement and design, or building alteration. In addition to the architectural drawings there are mechanical drawings covering the issues of electrical, mechanical, and structural design. All of these plans contain specialised information that is critical to the asset function.
ASSESSED VALUE: This is the value placed on a property investment by the local council or county assessor for the purposes of rates and taxes. Whilst some investors may think that the elevated assessed value has benefit to them in supporting property values, it does escalate the operating costs for the building and therefore impact on the ability of tenants to occupy the premises.
ASSIGNEE: One to whom a transfer of interest is made. Commonly you will see this in commercial real estate leases. There is also a clause in most leases that relates to how assignments are undertaken in the subject lease.
ASSIGNOR: This is one who makes an assignment to another person or entity. In commercial real estate leasing this will be the outgoing tenant who wants to move the existing lease across to another tenant to continue the occupancy of the space for the remaining period of the current lease. Such practice is normally done in accordance with the terms of the lease and with the landlord’s knowledge and consent. In some locations the legal rights and obligations between the parties to the assignment for the future will vary due to impacting legislation. For example an assignment of a lease to another tenant may not necessarily ‘release’ the previous tenant from liability should the newer tenant default under the lease. When undertaking a lease assignment, the advice of a solicitor is essential to know how the parties will be impacted by ongoing liability.
ASSIGNMENT OF LEASE: The transfer of the interest of a tenant to another party whereby the other person becomes the tenant in the place of the assignor. This is a legal document that is drawn up to correctly document and move the occupancy rights over existing leased tenancy space from one tenant to another.
BANKED ELEVATORS: Elevators in a building are installed in banks within the service core. This is to give support and function to the heavy machinery associated with the use of the lifts. Common areas will be located adjacent to the lift banks to allow access for tenants and public onto the floor space. The ratio and size of common area to the occupiable area on each floor should not be too large to create a loss of rentable area.
BASE RENT: This is the minimum acceptable rental provided in a percentage lease. Typically you will see these leases in a retail type of tenancy space and when the building is newer and still establishing occupants or trade. The tenant will then pay the base rent plus any extra rent when trade reaches a certain level. The extra rent is then a % of the levels of trade. The base rent approach gives the landlord some initial income from space that is still to achieve its full potential. It is not unusual for base rents to exist for a few years on newer properties, after which some adjustment to a more standard ‘market based’ lease rent will apply. Always read the lease document to see when this will be done and under what calculation mechanism.
BID: An offer to buy at a given or stated price a thing which is being sold by auction.
BONA FIDE: This is something that is done in good faith, honestly, without fraud, collusion, or participation in wrong-doing.
BREACH OF CONTRACT: The breaking of the obligation which a contract imposes. This can apply to either party to the contract. When a breach occurs it is normal for a notice to be issued on the offending party to ‘remedy the breach’. If such is not done within a required time, then legal implications evolve and damages can be pursued.
