Real Estate Terms provided by, real estate web design with IDX, RETS and VOW integration.

Abstract Of Title

A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Further, An abstract of title is the condensed history of title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate. In the United States, the abstract of title furnishes the raw data for the preparation of a policy of title insurance for the parcel of land in question.

An abstract of title should be distinguished from an opinion of title. While an abstract states that all of the public record documents concerning the property in question are contained therein, an opinion states the professional judgment of the person giving the opinion as to the vesting of the title and other matters concerning the status of the chain of title. Many jurisdictions define the giving of an opinion of title as the practice of law, thus making it unlawful for a non-attorney to do so.


The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale-Clause.


A formal declaration before an authorized official (usually a notary public) by a person who has executed a document, that he did in fact execute (sign) the document.


Something added. Items added to a document, letter, contract, escrow instructions, etc.


An individual who acts or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has a fiduciary responsibility towards the principal. Buyer's Agent: a agent who represents the buyer and owes fiduciary duties to the buyer. Seller's Agent: an agent who represents the seller and owes fiduciary duties to the seller. They are usually referred to as the listing agent who is authorized by a property owner to find a buyer or a tenant for the property.

Agreement of Sale

A written agreement of contract in which the seller agrees to sell and the buyer agrees to buy under specific terms and conditions.

Alienation Clause

A clause within a loan instrument calling for a debt in its entirety upon the transfer of ownership of the secured property. Also called a "due on sale" clause.


Features that enhance and add to the value or desirability of real estate. Common amenities include swimming pools, professional landscaping, gourmet kitchen and so on.


The reduction of a debt over time by making periodic payments, usually monthly, a portion of which is interest and a portion of which reduces the outstanding amount of the debt. The monthly mortgage payments remain the same over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan period the principal repayment is very small and interest repayment is very high. At the end of the loan that relationship is reversed.


An estimate of the value of property, made by a qualified professional called an "appraiser".


Someone who practices appraisal. Appraisers' work involves appraising, review (the process of critically studying a report prepared by another), or consulting (the process of providing information, analysis of real estate data, and recommendations on diversified problems in real estate, other than estimating value).

APR Annual Percentage Rate

The actual interest rate taking into account the points and other prepaid fees expressed in annual percentage terms. Not to be confused with initial interest rate, a teaser rate lenders use to get you into a loan.

ARM Adjustable Rate Mortgage

A loan that allows the interest rate to change periodically up or down. The interest rate on an ARM is determined by adding a margin or spread to a specified financial index. Financial indexes include; Treasury, Certificate of Deposit,Cost of Funds. The margin is the difference between the index rate and the ARM rate. Adjustment interval is how often the interest rate is adjusted. A loan that adjusts its interest rate after six months is called a six-month ARM. Rate caps limit how much your interest rate can move up or down. Periodic caps limit the change per adjustment period, and a lifetime cap governs the maximum amount the interest rate can increase or decrease over the life of the loan.


A local tax levied against a property for a specific purpose, such as a sewer or street lights.


One appointed to assess property for taxation.


A transfer or making over to another the whole of any property, real or personal, or of any estate or right therein. To assign is to transfer.


The agreement between the buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, probably higher, interest rates will apply.

Balloon Mortgage

A mortgage for a fixed term shorter than necessary to fully repay the debt. As a result, the remaining amount of principal is due at the maturity of the loan.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage.


An insurance agreement by which one party is insured against loss or default by a third party. In the construction business a performance bond ensures the interested party that the contractor will complete the project.


Violation of an obligation in a contract.

Bridge Loan

A loan, usually short term, that finances the portion of the purchase price not provided by the mortgage loan and the down payment. A bridge loan is commonly used when a purchaser has not sold his existing home before he closes on his purchase of a new home. The bridge loan is paid off when the old home is sold, out of the proceeds of that sale.


A real estate professional who has acquired a higher level of training and experience than a sales agent. A minimum number of classes must be taken along with passing a state exam to acquire a brokers license. Generally they are a legal representative or a proprietor of the office. Brokers usually charge a fee or receive a commission for their services.

Building Code

A set of stringent laws that control the construction of buildings, design, materials and other similar factors.

Building Line or Setback

Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy down

When the lender and or the home builder subsidized the mortgage by lowering the interest rate during the first years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Buyers Market

A market condition which occurs in real estate where more homes are for sale than there are interested buyers.

Cash Flow

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, insurance, maintenance, utilities, etc.)

Capital Gain

Income that results from sale of a capital (tangible) asset.


An appraising term used in determining value by considering net operating income and a percentage of reasonable return on investment.

Certificate of Eligibility

The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Chain Of Title

A history of conveyances and encumbrances affecting the title as far back as records are available.


The end of the transaction when the seller hands over the title to the buyer in exchange for payment. Also called settlement.

Closing Costs

Costs the buyer must pay at the time of the closing in addition to the down payment which may include points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, appraisals, prepayments for property taxes, deed recording fee, and homeowners insurance. Closing costs can vary considerably from one financial institution to another.

Cloud On Title

An outstanding claim or encumbrance which adversely affects the marketability of title.


Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price: 4 to 7 percent on houses, 10 percent on land.


A declaration by governing powers that a structure is unfit for use.

Conditional Sales Contract

A contract for the sale of property where the buyer has possession and use, but the seller retains title until the conditions of the contract have been fulfilled. Also known as a land contract.

Condominium or Condo

A condominium is a home in a shared building or development. The buyer gets title the space inside the unit, shares the common areas with other unit owners and pays a maintenance fee to the condominium association to pay for needed maintenance, repairs and improvements to the property.

Construction Loan

A short term interim loan to pay for the construction of building or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.


A condition that must be met before a contract is binding. Contingencies include: the property must appraise for sales price or buyers approving of various inspections.

Contract Sale or Deed

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Loan

A fixed rate and fixed term loan that is made without government insurance.

Convertible Loan

Some ARM Color loans include a provision that allows it to convert to a fixed rate mortgage at specific times, usually from the end of the first through the fifth years. There is usually an additional fee, $300-$500, to convert it.


The transfer of the title to land from one to another.

Cooperative or CoOp

In a residential co-operative, the buyer purchases shares in the co-op corporation which is made up of the residents in the co-op property. The buyer owns the shares rather than owning real property. In exchange he has the right to lease and occupy a co-op unit.


Agreements written into deeds and other instruments stating performance or non-performance of certain acts or noting certain uses or non-uses of property.

Credit Report History

Lenders will investigate your credit record which is a history of your debts. They get a report from a credit reporting agency (TRW, Equifax, TransUnion) which shows if you pay you debts on time and with who you have current debts with.

Debt-to-income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.


A legal document by which property title is transferred from one owner to another.


Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.


Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.


An individual who receives real estate from another by will.

Down Payment

The down payment is the percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender. The down payment amount in addition to the mortgage equals the purchase price of a property. They can vary from 0% to over 50%. The less your down payment the better your credit has to be. Lower down payments generally result in higher interest rates.

Dual Agency

Representing both parties in a transaction. In virtually all states it is unethical and illegal for a broker to represent buyer and seller in a real estate transaction without written consent of both.

Due on Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money

The deposit money given to the seller by the potential buyer as evidence of good faith in purchasing real estate. The broker places the money in an escrow or trust account until closing, when it becomes part of the down payment.

Easement Rights

A right- of- way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right- of- way across private property is a common example.

Economic Obsolescence

Loss of useful life and desirability of a property through economic forces, such as change in zoning, changes in traffic flow, etc., rather than deterioration.


An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.


A legal right or interest in land that affects a good or clear title, and diminishes the land's value.

Equal Credit Opportunity Act ECOA

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.


The value of the property less the amount of unpaid mortgages and any outstanding liens.

Escalation Clause

A clause in a lease providing for an increased rent at a future time due to increased costs to lessor, as in cost of living index, tax increases, etc.


The reverting of property to the state in the absence of heirs.


Money or other valuables given to a third party with directions to deliver them to another party upon the fulfillment of a specific act or condition.

Escrow Instructions

This discloses when the escrow should be closing and when possession should take place, proration of property taxes, transfer taxes, release of funds and the basics of satisfying the escrow demands.


The ownership interest of a person in real property. Also refers to a deceased person's property.

Exclusive Agency Listing

A written agreement giving the broker the right to market an owner's property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission.

Exclusive Right to Sell

A written agreement between the agent and the owner whereby the owner promises to pay a fee or commission to the broker if his property is sold during the listing period, regardless of whether the broker is responsible for the sale.

Fair Market Value

That price a property will bring given that both buyer and seller are fully aware of market conditions and comparable properties.

Fannie Mae FNMA

Nickname for the Federal National Mortgage Association. FNMA is a public corporation originally established by the federal government. Fannie Mae purchases mortgage loans from lenders and results in a major source of funds for mortgage companies.

Fee Simple

Ownership of title to property without any limitation, which can be sold, left at will, or inherited.

FHA Federal Housing Administration

Part of the US Department of Housing and Urban Development (HUD). It was established in 1934 to encourage improvement in housing standards and communities. The FHA insures mortgage loans.

FHA Mortgage

A mortgage loan insured by the Federal Housing Administration.

FHA Mortgage Insurance

Requires a fee (up to 2.25% of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5% of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.


A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Freddie Mac FHLMC

Nickname for Federal Home Loan Mortgage Corporation. It is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD- approved mortgage bankers.

Functional Obsolescence

Loss in value due to out-of-date or poorly designed equipment while newer equipment and structures have been invented since it's construction.

Ginnie Mae GNMA

Government National Mortgage Association

Graduated Payment Mortgage GPM

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.


That party in the deed who is the buyer or recipient.


That party in the deed who is the seller or giver.

Home or Property Inspection

A detailed inspection of the physical structure, the plumbing, electrical and heating systems and the overall condition of the home. Typically the cost is $150-$300 and the results are detailed in a multiple page report.

Homeowners Insurance

Insurance that protects the homeowners from Casualty losses or damage to the home or personal property and from liability damages to other people or property. Homeowners insurance is required by the lender and may be included in the monthly mortgage payment.

Home Owners Association

An association of homeowners within a community formed to improve and maintain the quality of the community. An association formed by the developer of condominiums or planned developments.

Housing Expense to Income Ratio

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his or her gross monthly income.

HUD The US Department of Housing and Urban Development

Department of Housing and Urban Development, a government agency created to make the American Dream of home ownership a real possibility for everyone. HUD has many programs involving homeownership assistance for low and moderate income families, community planning and development, fair housing and equal opportunity, and home improvement loans. The Housing and Urban Development home page is a rich resource of information.


That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.


A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-three and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is used to adjust the interest rate on an adjustable mortgage.

Initial Interest Rate

The initial rate quoted usually is a lower introductory rate, sometimes called a teaser or discount rate. This lower rate lasts only until the first adjustment, after which you will be charged the fully indexed rate.


A charge paid for borrowing money.

Joint Tenancy

Joint ownership by two or more persons with right of survivorship. Upon the death of a joint tenant, his interest does not go to his heirs, but to the remaining joint tenants.

Jumbo Loan

A loan which is larger than the limits set by the FNMA and FHLMC (more than $207,000 as of 1/1/96). Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.


A contract between the owner of real property, called the lessor, and another person referred to as the lessee, covering all conditions by which the lessee may occupy and use the property.

Lease With Option To Purchase

A lease where the lessee has the option to purchase the leased property. The terms of the purchase option must be set forth in the lease.

Legal Description

The geographical identification of a parcel of land.


A hold or claim on the property of another to satisfy an unpaid debt or obligation.

Life Time Cap

Life time cap governs the maximum amount the interest rate increase or decrease over the life of the loan.

Listing Contract

An agreement between a homeowner and a licensed real estate broker that authorizes the broker to market the property for sale during a given time period.

Loan Origination Fee

A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan.

Loan to Value Ratio LTV

The ratio of a mortgage loan principal to the property's appraised value or its sales price, whichever is lower. Loan-to-value ratios vary depending upon the individual lender's policy.

Lock in Rate

A commitment made by a lender to make a mortgage loan at a specified rate, pending loan approval, on or prior to a specified date.

Market Value

The highest price a buyer will pay for a property and the lowest price the seller will accept in a typical market.


The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Mechanics Lien

A lien created by statute on a specific property for labor or materials contributed to an improvement on that property.


A lien on real estate given by the buyer to secure money borrowed to purchase the real estate.

Mortgage Broker

An individual or company that obtains mortgages for others by finding lending institutions, insurance companies or private sources to lend the money. The mortgage broker may also handle collections and disbursements.

Mortgage Insurance

A policy that provides protection for the lender in case of default and or which guarantees repayment of the loan if the borrower becomes disabled or dies.

Mortgage Insurance Premium MIP

Insurance from FHA to the lender against incurring a loss on account of the borrower's default.

Multiple Listing

A listing taken by a member of an organization of brokers, whereby all members have an opportunity to find a buyer.

NAR National Association of Realtors

The largest trade association in the country serving over 700,000 Realtors. The purpose of the association is to enhance the ability and opportunity of its members to conduct business successfully and ethically and to promote the preservation of the right to own, transfer and use real property.

Negative Amortization

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Non Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Notary Public

One who is authorized by federal or local government to attest authentic signatures and administer oaths.


A written instrument acknowledging a debt and promising payment.


A proposal to purchase real estate at a particular price, subject to other specified terms and conditions. Acceptance of the offer by the seller creates a purchase contract. A counteroffer is a different offer made in response to the initial offer.

Origination Fee

Application fee(s) for processing a proposed mortgage.


A right given, for consideration, to purchase or lease property upon stipulated terms within a specific period of time.

Periodic Caps

Periodic caps limit the change per adjustment period of a loan.

PITI Payment

A loan payment that combines Principal, Interest, Taxes and Insurance.


A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

PMI Private Mortgage Insurance

Insurance issued to a lender to protect it against loss on a defaulted mortgage loan. Its use is usually limited to loans with high loan-to-value ratios, generally in excess of 80%. The borrower pays the premiums.


An amount equal to one percent of the loan amount paid to a lender for making the loan. A lender may charge the borrower several points in order to provide the loan.

Power of Attorney

A legal document authorizing one person to act on behalf of another.


A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form, but are not necessarily imposed in many states.

Primary Mortgage Market

Lenders making mortgage loans directly to borrowers such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary market such as FNMA or GNMA.


Getting pre-qualified for a loan is a free process and normally takes between 15 minutes to an hour on the phone. The lender will ask you some basic questions about your household income, time on the job, credit history, down payment and personal savings. You should get pre-qualified before looking for properties so you and your real estate agent know in what price range to start looking.


One of the parties to a transaction. For example, the buyer and seller are principals in the purchase of real property. Also the amount of debt, not counting interest, left on a loan.

Purchase Agreement

An agreement between buyer and seller denoting price and terms of the sale.

Rate Caps

Rate caps limit how much the interest rate can move up or down.

Real Estate Agent

A licensed person who works under the direction of a broker selling and renting real estate.

Real Estate Broker

A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.


A Realtor is a real estate professional who is a member of the National Association of Realtors and subscribes to its strict Code of Ethics. This professional is committed to protecting and promoting private ownership of real property, establishing and maintaining high professional standards of practice, and creating unity in the National Association of Realtors organization and respect for the real estate profession.


The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.


Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.


Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Restrictive Covenants

Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer.

Reverse Annuity Mortgage RAM

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: the document issued by the mortgagee when the mortgage loan is paid in full.

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Seller's Market

More buyers than sellers.

Shared Appreciation Mortgage SAM

A mortgage in which a borrower receives a below-market interest rate in return for which the lender or investor, receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.

Special Assessments

A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.


A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land.


Ownership of real property. Title is transferred from one party to another through a document called a deed.

Title Insurance

Protection for lenders and homeowners against financial loss resulting from legal defects in or other claims against the property's title. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and or seller.

Title Search

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.


A property interest held by one person for the benefit of another.


A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another.

Truth In Lending

A federal law requiring disclosure of the APR-Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.


The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA or US Department of Veterans Affairs

A federal agency designed and operated to help veterans enter the housing market. The VA assists veterans in terms of low or no down payment, mortgage qualifications assistance and low interest rates.

VA Loan

A mortgage loan guaranteed by the US Department of Veterans Affairs against loss to the lender and made through a private lender.

Variable Interest Rate

A fluctuating interest rate which can go up or down depending on the going market rate.


To relinquish, or abandon. To forego a right to enforce or require anything.

Wraparound Mortgage

Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

Zoning Ordinances

The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

Commercial Real Estate Terms

Absolute Net

Lease requiring tenant to pay in addition to base rent all costs associated with the operation, repair and maintenance of the building, all real estate taxes, and utilities including repair and maintenance of the building's structure and roof. Often the tenant is directly responsible both for all such costs and for the active handling of the items themselves. Distinguished from Triple Net (see below) by tenant's responsibility for maintenance and repair of the building structure and roof.


Americans With Disabilities Act passed by Congress in 1994 with intent to provide persons with disabilities accommodations and access equal to or similar to that of the general public.

Additional Rent

Any amounts due under a lease that are in addition to base rent. Most common form is operating expense increases.


Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.


A set dollar amount provided by the Landlord under a lease to be used by the Tenant for a specific purpose. Examples include allowances for tenant improvements, moving expenses design fees, etc. If the expense exceeds the allowance amount, such excess is the Tenant's responsibility. If the expense is less than the allowance, the savings are retained by the Landlord unless their agreement specifies otherwise.

Alternative Workspace

Term embodies numerous concepts related to utilization of space including telecommuting, hotelling, office sharing and open office plans.


Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments. May also be used in a lease where the landlord incurs costs for additional tenant improvements which are effectively treated as a debt and repaid by tenant over the term of the lease.


A transfer to another of any property, real or personal, or any rights or estates in said property. Common assignments are of leases, mortgages, deeds of trust, but the general term encompasses all transfers of title.

Base Building

The existing shell condition of a building prior to the installation of tenant improvements. This condition varies from building to building, landlord to landlord, and generally involves the level of finish above the ceiling grid.

Base Rent

A specific amount used either as a minimum rent in a lease (retail) which uses a percentage of sales or overage for additional rent or sets a base onto which is added expenses and taxes in a net lease or increases in those items in a fully serviced lease.

Base Year

The 12 month period upon which a direct expense escalation of rent is based. Typically the calendar year the lease commences.


Building Owners and Managers Association. BOMA publishes the definition of rentable and useable area, which is used to determine the square footage leased in most commercial office buildings.

CAM Charges

Common Area Maintenance charges. Those charges levied on or the expenses incurred in maintaining the common areas of a building.


Moving people from one workspace to another within the leased premises. Usually involves relocation of furniture, phones, and the like and can be very expensive and time consuming. A high churn rate is to be avoided.


Those areas (hallways, corridors, etc.) in an office space that are used to travel between offices, cubicles and the like.

Commencement Date

The date on which a lease begins. This is typically but not always the day on which the tenant takes possession of the leased space, which usually occurs upon substantial completion of the tenant improvements. (See occupancy Date).


Class is usually used in conjunction with an office property and refers to the quality of property. Class definitions fall with the following guidelines. Class A+: Landmark quality, high-rise building with prime central business district location (the best of the Class A buildings). Class A: Generally 100,000 sf or larger (five or more floors), concrete and steel construction, built since 1980, business/support amenities, strong identifiable location/access. Class B: Renovated and in good locations. Newer building are smaller in size, wood frame construction, and/or in non-prime location. Class C: Older, unrenovated of any size in average to fair condition.

Common Area

Common area is the area used in common by the tenants of an office building. Common area includes building and elevator lobbies, restrooms and the corridor leading from an elevator lobby to a tenant space.

Contingent Fees

Fees to be paid only in the event of a future occurrence. Examples include: Attorneys (especially in negligence cases) paid based on winning the suit and collecting damages; and a broker's commission paid only upon closing the sale of a piece of property.

Certificate of Occupancy COO

A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied.

Demised Area

The walled off and secured area of a leased space, separated from spaces leased to others (by a "demising" wall). Also measured as useable area. Discount Rate or the rate of interest used in a present value analysis representing the "time value of money".

Effective Rent

The average per square foot rent paid by the tenant over the term of a lease. Takes into account only free rent and stepped rents. Does not include allowances, space pockets, free parking and other similar landlord concessions.

Effective Useable Area

Excludes those areas within the Useable Space (see below) that the tenant pays rent on but effectively cannot use such as columns and sharply angled spaces.

Equivalent Level Rate ELR

The ELR is the flat rate per square foot that, if paid each year in nominal dollars, will equal the same total present value as a proposed lease's variable cash flows. The ELR is calculated by discounting all cash flows to a net present value per square foot and then amortizing this lump sum amount evenly over the term of the lease on a cost per square foot basis.


A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as: (1) fixed increases -- a clause which calls for a definite, periodic rental increase; (2) cost of living -- a clause which ties the rent to a government cost of living index, with periodic adjustments as the index changes; (3) direct expense -- the rent adjusted according to changes in the expenses of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.

Estoppel Certificate

An instrument which itself prevents individuals from later asserting facts different from those contained in the document. Often required by the buyer of an office building. The tenant and landlord both sign the estoppel certificate, confirming the lease and pertinent facts thereto. Thereafter, neither party may make claims to the contrary.

Expansion Option

A right granted by the landlord to the tenant whereby the tenant has the option(s) to add more space to its premises pursuant to the terms of the option(s).

Expense Stop

A fixed amount (typically per square foot) in a lease where the tenant is responsible for all building operating expenses and taxes in excess of said amount.

Extension Option

An agreed continuation of occupancy under the same conditions, as opposed to a renewal, which implies new terms or conditions. In a lease, it is a right granted by the landlord to the tenant whereby the tenant has the option to extend the lease for an ad.

Fair Market Rent

The rent which would be normally agreed upon by a willing landlord and tenant in an "arm's length transaction" for a specific property at a given time, even though the actual rent may be different. In a lease, the term "fair market rent" is defined in a number of different ways and is subject to extensive negotiation and interpretation.

Free Rent

A concession granted by a landlord to a tenant whereby the tenant is excused from paying rent for a stated period during the lease term.

Fully Serviced Lease

A lease in which the stated rent includes the operating expenses and taxes for the building. Same as Gross Lease. Opposite of Net Lease.

Gross Lease

A lease in which the stated rent includes the operating expenses of the building. Same as Fully Serviced Lease. Opposite of Net Lease.

Gross Up

An adjustment made to operating expenses to account for the occupancy level in a building. When operating expenses are "grossed up", it means that the building's variable expenses have been adjusted upwards to the level that those expenses would be incurred if the building was fully occupied (typically 95%).

Ground Lease

A lease of land only, (either vacant or exclusive of any buildings on it). Usually a net lease on a long term basis (30 years+). Ground rent should not be charged back to the tenant as an operating expense.


An alternative workspace concept where rather than having an assigned exclusive workspace, an employee accesses one space, perhaps being one of many such spaces in common with others on an as needed basis, and otherwise works outside of the office.


(Another usage is what those members of an office relocation committee are entitled to after going through a relocation or office redesign, making use of a commercial shelter offering food, lodging, etc.; preferably in some warm spot like Hawaii.)


Heating, Ventilation, Air Conditioning. A general term encompassing any system designed to heat and cool a building in its entirety, as opposed to a space heater.

Landlord Lessor

The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).

Lease Term

The specific period of time in which the Landlord grants to the tenant the right to possession of real estate.

Lessee Tenant

The party to whom a lease (the right to possession) is given in return for a consideration (rent).

Lessor Landlord

The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).

Letter of Intent

There are potentially multiple uses of this term. Generally a written statement that two parties to a prospective transaction (buyer/seller or lessor/lessee) intend to proceed to a final agreement in good faith on stated principal business terms of the deal to be entered into. This meaning applies when executed by both parties. Alternatively such a document may be signed only by one party and is then an indication of a willingness to enter into agreement on the stated terms and conditions. To avoid legal issues regarding offer and acceptance and thus formation of a binding contract, care should be taken to include a clause stating that there is not a specific offer and no intent to be a legally binding obligation. However, an obligation to continue to negotiate in good faith to conclusion can be created.

Load Factor

In a lease, the load factor is the multiplier to a tenant's useable space that accounts for the tenant's proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.). The load factor is usually expressed as a percentage and ranges from a low of 5% for a full tenant to as high as 15% for a multi-tenant floor. Subtracting one (1) from the quotient of the rentable area divided by the useable area yields the Load Factor. At times confused with the "loss factor" which is the total rentable are of the full floor less the useable area divided by the rentable area. (If a full floor broken up into multiple tenancies has a useable area of 18,000 s.f. and a rentable area of 20,000 s.f., the load factor is 11.1% and the loss factor is 10%.

Master Lease

A lease controlling subsequent leases. May cover more property than subsequent leases. For example: "A" leases an office building, containing ten offices, to "B". "B" subsequently subleases the ten offices individually. The ten subleases from "B" as sublessor are controlled by the lease from "A" to "B" (master lease).

Net Lease

(See also "Triple Net"). Today this generally indicates a lease in which the stated rent excludes the insurance, utilities, operating expenses and real estate taxes for the building. The tenant is then responsible for the payment of these costs either directly or as additional rent. Opposite of Gross or Fully Serviced Lease.

Net Present Value NPV

The calculation of NPV takes into account both the netting of cost and benefits and the time value of money. See Present Value.

Net Rentable Area

(Same as Rentable Area). The area (square footage) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards. Net Rentable area includes the tenant's premises plus an allocation of the common area directly benefiting the tenant, such as restrooms, common corridors, mechanical and janitor's rooms and the elevator lobby on the tenant's floor.


So long as lease is not in default, its rights to occupancy under the lease will not be disturbed by the lessor or it's successors or assigns.

Occupancy Cost

Any cost or charge incurred by a tenant pursuant to its lease, such as rent, operating expense increases, parking charges, moving expenses, remodeling costs, etc.

Occupancy Date

Unless specifically stated otherwise in the lease, it is the date on which the tenant takes possession of its leased premises. (See also "Commencement Date").

Operating Expenses

The cost of operating an office building, such as janitorial, management fees, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for replacement of items which periodically wear out. Should not include capital expenses such as roof replacement nor expenses associated with the production of income such as leasing commissions and legal fees.

Owners Representative

An agent who is an advocate for the owner and/or landlord.

Pass Throughs

An increase in operating expenses over the base year amount that is billed to the tenant as additional rent. See escalation.


Typically the entire rentable area leased by lessee. Sometimes used to designate solely the useable area leased by lessee, i.e. that for which the lessee has exclusive occupancy as opposed to the common areas.

Present Value

The present value is the amount that must be invested now to produce the known future value. For any sum invested at a given interest rate, the amount one would receive at the end of the period can be determined by taking the investment times one (1) plus the interest rate of the period to the power of the period. For example, if $10 is invested in an interest rate of 10% for one year, the investment would grow to $11 at the end of the year. It follows, then, that $11 one year from now is worth $10 today; that is $10 is the present value of $11.

Reasonable Consent

A standard applied in a lease (most often in a sublease clause) which limits the landlord's ability to withhold consent in its sole discretion. If a reasonable person would give consent to an action given the circumstances, so must the landlord.

Renewal Option

The right of a tenant to renew (extend the term of) a lease for a stated period of time at a rent to be determined (i.e. 9.5% of "fair market rent").


Consideration paid for the occupancy and use of real property. Also a general term covering any consideration (not only money).

Rentable Area

The (square footage) for which rent can be charged. Generally it is the gross area of the full floor less the area of all vertical penetrations (elevator shafts, stairwells, mechanical shafts etc.) Rentable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.

Rental Rate

The amount of Rent paid for the occupancy and use of real property. Typically stated on a per square foot per month or per year basis.

Request For Proposal RFP

A document typically issued by a tenant's agent to an owner(s) of real property, inviting the owner(s) to submit a proposal to the tenant for the leasing of a vacant space. The RFP sets forth the specific areas of concern to the tenant, such as the space in question, the lease term, expansion and renewal options, rental rate, and tenant improvements and other allowances to be provided by the owner.

Right of First Offer or First Opportunity

A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. Unlike under a Right of First Refusal, the owner is not required to have a legitimate offer which the tenant can then match or refuse. If the tenant refuses to make an offer or if the parties cannot agree on terms, the property can then be sold or leased to a third party.

Right of First Refusal

A right, usually given by an owner to a tenant, which gives the tenant a first chance to buy the property or lease a portion of the property if the owner decides to sell or lease. The owner must have a legitimate offer which the tenant can match or refuse. If the tenant refuses, the property can then be sold or leased to the offeror.

Right of Offset

A specific clause in a lease where the tenant has the right to deduct from the rent certain costs which are due to the tenant from the landlord. Included may be the costs incurred by tenant to cure defaults of the landlord, after notice and failure by landlord to cure the defaults. These are called "self help".

Space Planning

Term is often loosely used. Most often it is the planning of the layout of the interior space of a building to meet the needs of the user. Can also include detailed interior design and preparation of construction drawings. Space planning and interior design only need not be licensed architects. Preparation of construction drawings for permit have to be prepared by architects licensed in the jurisdiction.

Space Pocket

A portion of a leased premises that is set aside to accommodate future growth on the part of the tenant. The space pocket is typically fully improved at the commencement of the lease and no rent is due on the pocketed area until the earlier of "actual use" or a specified future date.


A lease, under which the lessor is the lessee of a prior lease of the same property. The sublease may be different in terms from the original lease, but cannot contain a greater property interest. Example: "A" leases to "B" for five years. "B" may sublease to "C" for three years, but not for six years. (Rent can be greater or less than that in the prior lease.)


To make subject or junior to.

Substantial Completionly used in reference to the construction of tenant improvements (TIs). The tenant's premises is typically deemed to be substantially completed when all of the TIs for the premises have been completed in accordance with plans and specifications previously approved by the tenant. Sometimes used to define the commencement date of a lease.

Tenant Lessee

A holder of an interest in property for a specific term under a lease or other rental agreement (generally a right to occupancy and use).

Tenant Improvements TI

Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and be paid for by the landlord, tenant or part by each.

Tenant Representative

An agent who is an advocate for the tenant.

Triple Net

A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property leases, such as taxes, insurance, maintenance, utilities, cleaning etc. The terms "net net", "net net net", "triple net", and other such repetitions are used.


Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory, if any. Turnkey tenant improvements are provided at the landlord's expense according to plans and specifications previously agreed upon by the parties. Unlike an allowance where the tenant pays for costs in excess of the allowance amount, the landlord bears the risk of construction in a turnkey situation.

Value Engineering

Process by which costs can be decreased or benefits can be added to an undertaking or project through redesign, prioritization or other similar actions.

Useable Area

The secured area (square footage)occupied exclusively by tenant within a tenant's leased space. The useable area times the load factor for common area results in rentable area on which rent is charged. Useable area can be measured in many ways, but the most common measurement for office buildings is according to BOMA standards.

Virtual Office

An office that moves with the person. Typically used in a sales organization where the salespeople are given portable computers, modems, and cellular phones in return for having their offices taken away.

Vertical Transportation

Elevators, stairs or escalators moving people or freight between floors in a building.

Work Letter

Specifications for tenant improvements usually attached to a lease and/or letter of intent. The work letter provides the basis for working drawings and contractor pricing and may allocate costs between the parties. Also establishes critical dates for approval of drawings and processes.

Working Drawings

Drawings prepared by a licensed architect and used by contractors in the construction of tenant improvements. Shows all architectural detail such as electric, plumbing, partitions, etc.

Ad Valorem Tax

An Ad valorem tax is a tax based on the assessed value of real estate or personal property. In other words ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenues for state and municipal governments.

An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). The alternative to ad valorem taxation is a fixed rate tax, where the tax base is the quantity of something, regardless of its price.

Ad Valorem is latin for "According to value".

Adverse Possession

In real estate law, adverse possession is a means of acquiring title to someone else's real property without compensation.

Adverse possession requires the actual, hostile, notorious, visible, exclusive, and continuous possession of the property, and some jurisdictions further require that the possession be made under a claim of title. Simply, this means that those who are attempting to claim the property are occupying it exclusively (keeping out others) and openly as if it were their own property. Some jurisdictions permit accidental adverse possession as could occur with a surveying error. Generally, the openly hostile possession must be continuous (although not necessarily constant) without permission or challenge from the lawful owner, for a fixed statutory period in order to gain title. Where the property is of a type ordinarily only occupied during certain times (such as a summer cottage), the adverse possessor may only need to be in exclusive, open, hostile possession during those successive useful periods.

This is sometime called "squatters' rights". If the squatter abandons the property for a period, or if the rightful owner effectively removes the squatter's access even temporarily during the statutory time period, the "clock" usually starts running. However, one squatter may pass along continuous possession to another squatter, known as "tacking", until the adverse possession period is complete. A lawful owner may also restart the "clock" by giving temporary permission for the occupation of the property, thus defeating the necessary "continuous and hostile" element. Evidence that a "squatter" paid rent to the owner would defeat adverse possession for that period.

Once the statute of limitations has expired for evicting the trespassers, and assuming the legal owner has done nothing to halt the process, the successful adverse possessors acquire equitable title to the land, to the extent it was actually possessed (e.g., just the part they occupied, not necessarily everything on the legal owner's deed). At that point they no longer need to continuously, exclusively or openly occupy any part of the land because they now own it. However, to become the legal owners of record (helpful to have a deed for future transactions), they may bring an action in land court to "quiet title" of record in their names on the former owner's property.

Adverse possession does not typically work against property owned by a government agency. It also fails to give any rights if the land is registered under a Torrens title registration system.

Life Estate

A life estate, at common law is an estate in real property that ends at death. Although it is technically a tenancy (the holder is called a life tenant), it is treated the same as a fee simple with respect to the constraints upon its use for the duration of the estate.

Since it ends at death, and the owner of the life estate cannot leave it to his heirs or convey a larger interest in the land than what the owner actually owns, a life estate is not an estate of inheritance. Life estates are measured either by the life of the owner of the estate, or by the life of some other person; these latter are called life estates pur autre vie, Law French for "during someone else's life." A life estate pur autre vie is most commonly created in one of two circumstances.

- First, when the owner of property conveys his interest in that property to another person, for the life of a third person. For example if Joey conveys Blackacre to Rachel during the life of Monica, then Rachel owns the land for as long as Monica lives; if Rachel dies before Monica, Rachel's heirs will inherit the land, and will continue to own it for as long as Monica lives.

- Second, if Joey conveys Blackacre to Monica for life, Monica can then sell the life estate to Rachel. Again, Rachel and Rachel's heirs will own the land for as long as Monica lives

- In either scenario, once Monica dies, the ownership of the land will revert to Joey. If Joey has died, ownership will revert to Joey's heirs. The right to succeed to ownership of the property upon the expiration of the life estate is called a remainder.

The early common law did not recognize a life estate in personal property, but such interests were cognizable in equity. Thus, although life estates in real estate are still created today, the life estate is more commonly used in trust instruments, typically in an attempt to minimize the effect of the inheritance tax or other taxes on transfers of wealth.