Lease Terms Dictionary
Lease terminology is frustrating to most people. In fact, without a cheat-sheet, most people have a hard time understanding the terms of their lease. I've created this reference as a dictionary of most commercial lease terms that you will need to know to read and understand leases.
ABC Contingency - A contingency which permits the tenant of a lease to terminate the lease in the event that the tenant fails to obtain a liquor license for the Premises.
Additional Rent - All amounts that are due to be paid to the Landlord by the Tenant in the Lease that are not Base Rent.
Alterations - Changes in the physical structure, layout, or non-trivial changes to the appearance or decoration of the Premises.
Assignment - Transfer of the rights and benefits of the Lease from one party to another.
Assignment Clause - Portion of the Lease which controls under what circumstances a tenant may transfer its rights under the Lease to a third party.
Attornment - The act of a Tenant recognizing a third party as the new Landlord under a Lease; usually occurs as the result of a foreclosure by Landlord's lender.
Build out - The initial construction undertaken when the Tenant and Landlord first enter into the Lease to prepare the Premises for Tenant's operations.
CAM - See Common Area Maintenance.
Common Area Maintenance - The charges incurred for those portions of a building used and enjoyed in common by all tenants of a multi-tenant building, i.e., charges to maintain and operate elevators, shared receptionist, janitorial, building maintenance, garbage collection.
Condemnation - Often referred to as "eminent domain," it is the act of a government (either federal, state, or municipal) taking property of a private citizen for a public good.
Clawback - A Clause which permits Landlord to terminate a right or concession in a Lease upon the occurrence of an event, usually upon the occurrence of an assignment of the Lease or a Sublease.
Demised Premises - See Premises.
Estoppel Certificate - A short document issued by a Tenant certifying that certain things are true with respect to the Lease that the Tenant has signed. Usually issued by Tenants at Landlord's request because Landlord is seeking to sell its building, or refinance its building.
Exclusive Use - The exclusive right of a Tenant to operate a certain type of business (or sell a certain type of product or products) in the entire building owned by Landlord and the right to prevent Landlord from leasing to a competitor.
Free Rent Period - The period of the Lease Term, usually beginning on the lease signing date, during which Tenant is not required to pay Base Rent (and perhaps CAM). Usually the time during which Tenant performs its Build out.
"Good Guy" Clause - Clause in a personal guaranty which creates unlimited personal liability for the Guarantor until such time as the Tenant actually surrenders the Premises to the Landlord. Following the surrender of the Premises to the Landlord, the personal liability of the Guarantor is limited.
Guaranty - Document which causes the personal signing the document to be personally liable for any and all amounts which are required to be paid under the Lease and requires the person signing to perform any acts required by the Tenant to be performed under the Lease.
Hold Over - The act of the Tenant remaining in the Premises after the expiration of the Lease Term.
Limited Guaranty - A Guaranty in which the liability of the person signing the Guaranty is limited in amount, duration or both.
Mechanic's Lien - A lien (think like mortgage) which is placed upon real property by a contractor or a person providing materials to a contractor for any work or materials performed or used in the subject real property.
Operating Expenses - The expenses that Landlord incurs in the operation and maintenance of the building in which the Premises is located. Usually these are required in the Lease to be reimbursed to Landlord by Tenant.
Pass Throughs - All amounts paid by Landlord which the Landlord requires reimbursement from Tenant.
Premises - The physical space over which a Tenant is granted dominion and control by a Landlord under a Lease.
Recapture - Clause which permits a Landlord to terminate the Lease and take back the Premises from Tenant upon the occurrence of a specific trigger (usually an Assignment of the Lease).
Renewal Term - An extension of the initial Term of the Lease, extending the initial Term of the Lease for a specified additional period.
Restoration - Clause in a Lease which requires the Tenant to place the Premises back in a certain condition upon the Tenant vacating the Premise and surrendering the Premises back to Landlord. May require the Tenant to perform construction to place the Premises in such pre-determined condition.
Security Deposit - Amount of money Tenant posts with Landlord at the commencement of the Lease Term which secures Tenant's performance under the Lease and payment of all amounts required to be paid under the Lease. Security Deposit can be applied to any underpayments by Tenant and Security Deposit, less any permitted deductions, is returned to Tenant at expiration of Term.
Sublease - A contractual relationship whereby a Tenant under a Lease, in turn, Leases the Tenant's Premises to another party, called a Sub-Tenant. All right to occupy the Premises is transferred to the Sub-Tenant upon entering into the Sublease.
Subordination - The act of agreeing to reduce the priority of a party's rights to another party. In the context of a Lease, a Tenant will agree to subordinate their interest in the Premises to Landlord's Lender, which is likely a requirement that Landlord's Lender has imposed on Landlord prior to funding the loan to Landlord.
Tenant Improvement Allowance - An amount of money which Landlord will pay Tenant or Tenant's contractor to reduce the costs of the Build Out.
Term - The duration of the Lease.
Triple Net - Term which refers to the obligation of Tenant to reimburse Landlord for Landlord's insurance premiums on the building in which the Premises is located, Landlord's real property taxes owed on the Premises, and the operating expenses expended by Landlord for the Premises. Used interchangeably with Pass-Throughs and CAM.
Use - The manner in which the Tenant may use the Premises and the business(es) which Tenant is permitted to conduct in the Premises during the Term of the Lease.
Waiver of Subrogation - Clause which extinguishes the rights of Landlord and Tenant's insurers to seek reimbursement from each other in the event of a casualty based upon the fault of either the Tenant or Landlord. Both the Landlord's insurer and Tenant's insurer are limited to only their premium payments to offset the cost of disbursements.