C

Cancellation Option: The option to terminate, either partially or entirely, a leasehold interest prior to the stated Expiration Date. In some cancellations, the lease requires the terminating party to pay a fee for the right to cancel.

EXAMPLE: ABC Tenant signs a five-year lease which gives them the right to terminate the lease after 3 years upon 6 months notice to the Landlord and payment of a cancellation fee equal to 3 months of Base Rent at the date of cancellation. The clause in the lease specifying this right is a Cancellation clause.

Cap: The maximum amount which is required to be paid by a tenant for a charge which, in the calculation of such charge, includes a component which is outside of the tenant's control. As an example, caps may be applied to expense recoveries, CPI adjustments and porter's wage adjustments. Caps may be expressed as an absolute dollar amount, an amount per square foot or a percentage increase.

EXAMPLE: ABC Tenant's lease requires ABC to pay 5% (their pro-rata share) of recoverable expenses in excess of $10.00/sq. ft., with a cap on the reimbursement of $2.50/sq. ft. If recoverable expenses exceed $12.50/sq. ft., ABC Tenant will not be required to pay their pro-rata share of the excess because of the $2.50/sq. ft. Cap.

Capital Expenditure: An improvement (as opposed to a repair) to a fixed asset which will increase the value or useful life of that asset. A capital expenditure is typically amortized or depreciated over the useful life of the asset, as opposed to a repair, which is expensed in the year incurred.

EXAMPLE: The Landlord of Ellipsis Retail Center has received numerous complaints from tenant that the roof is leaking. Rather than patch the roof where necessary, the Landlord decides to replace the entire roof. The cost of replacing the roof is a Capital Expenditure (as opposed to the cost of patching the roof, which would have been a repair).

Casualty: The complete or partial destruction of property as the result of a sudden or unexpected event, such as a flood, fire, storm, etc. Leases typically include casualty clauses which identify the rights of the landlord and tenant in the event of a casualty. These rights are often times based upon whether the casualty event causes either partial or complete destruction, and include rights to terminate, rent reduction/abatement and time to repair.

Certificate of Insurance: A document provided by an insurance company which indicates that a landlord or tenant's insurance policy is in effect and the levels of coverage contained within the policy. Leases often require the tenant and/or the landlord to provide such a certificate to the other party on an annual basis as evidence that the coverage required pursuant to the lease has been obtained and is in effect.

Commencement Date: The date upon which the landlord and tenant's rights and obligations pursuant to a lease begin.

Common Area: That portion of a property which is available for use by all tenants over which the landlord retains control and liability.

Common Area Maintenance: The operating expenses incurred by a landlord to maintain the common areas. CAM charges, as they are typically called, may be recovered from tenants on a pro-rata basis and/or included in Base Rent via the addition of an Add-On Factor to the square footage of the leased premises.

Concession: Item(s) of economic benefit granted from a landlord to a tenant to induce the tenant to enter into a lease transaction. Typical concessions include rent abatements/free rent, moving allowances, lease buyouts, above standard tenant improvement allowances and space plan/drawing allowances.

EXAMPLE: To induce ABC Tenant to execute a lease at Ellipsis Tower, the Landlord offers ABC a $2.00/sq. ft. moving allowance, $5.00/sq. ft. above standard tenant improvement allowance and a 3 month abatement of Base Rent. Each of these items granted to ABC by the Landlord is a Concession.

Condemnation: The taking of private property by the government for public use through the process of eminent domain.

EXAMPLE: A governmental agency has decided to build an interstate highway which will run over the land upon which Ellipsis Tower has been built. The government uses their power of eminent domain to take the property via the Condemnation process, and pays the Landlord an 'award' to compensate the Landlord for the taking.

Consumer Price Index: An index published monthly by the U.S. Bureau of Labor Statistics which measures the inflation/deflation in the prices of specified goods and services. The index may vary based upon location (national average vs. regional index), type of consumer (all urban consumers vs. wage earners and clerical workers), goods and services included (all items vs. specifically defined goods and services) and base index period (i.e., the starting point for measurement of the index, stated as 100.0).

Consumer Price Index Adjustment: An increase (and sometimes decrease) in the Rent required to be paid by a tenant based upon changes in the Consumer Price Index over a specified time period.

EXAMPLE: ABC Tenant signs a five-year lease which requires ABC to pay Base Rent of $20,000/annum plus annual increases based upon the increase in the Consumer Price Index over the index for the month and year for which the lease commenced. After the first year, the CPI has increased 3.5%. The Consumer Price Index Adjustment beginning in the second lease year would be $700/annum.

Continuous Operations Clause: A clause in a retail tenant's lease which obligates the tenant to remain open for business throughout the term of its lease. This is not to be confused with a Business Hours clause, which specifies the hours during which a tenant is required to remain open for business. A continuous operation clause helps to avoid a situation where a tenant closes its store but continues to pay rent, potentially resulting in no percentage rent and lower traffic and sales for other tenants.

EXAMPLE: ABC Retail Tenant signs a lease at Ellipsis Mall which requires them to continuously operate their business throughout their 10-year lease term. After three years, ABC is not happy with customer traffic at the mall and decides to discontinue operating. ABC would be in default of their lease pursuant to the Continuous Operations Clause.

Contraction Option: The option of a tenant or landlord to reduce the amount of space leased by such tenant. A contraction option often defines the premises subject to reduction, the notification and effective dates of contraction, the impact on Rent and any contraction fee required to be paid by the party exercising the option. An Auto-Contraction option is a form of Contraction Option whereby the size of the premises is reduced automatically on the effective date without any notification requirement.

EXAMPLE: ABC Tenant signs a 10-year lease at Ellipsis Tower for 20,000 rentable square feet on the 6th floor and 5,000 rentable square feet on the 7th floor. The lease gives ABC the option to terminate their lease for only the 7th floor space after five years upon 6 months notice to Landlord and payment of a contraction fee equal to the unamortized dollars spent by the Landlord for tenant improvements and leasing commissions for such space. The right to terminate the lease for the 7th floor space only is a Contraction Option.

Co-Tenancy: A clause in a retail tenant's lease which provides remedies to a tenant in the event that another tenant, typically an anchor or major tenant, ceases its operations at the property.

EXAMPLE: ABC Retail Tenant is concerned that traffic at Ellipsis Mall will be adversely affected if BIG Anchor Tenant ceases their operations at the mall. To alleviate this concern, ABC negotiates in their lease a Co-Tenancy clause, whereby if BIG Anchor Tenant ceases operations, ABC Retail Tenant may terminate their lease at Ellipsis Mall.