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Resources and Tools: Lease Abstract Glossary
O
Offset Rights: The right of a tenant to make a deduction from rental
payments in an amount equal to that expended by the tenant to make a payment which
is the obligation of the landlord, often due to a landlord default. Although
offset rights are not common in leases, some larger and/or more sophisticated
tenants will require such a clause in their lease as a protection if they are
required to perform an obligation which should have been performed by the
landlord pursuant to a lease. EXAMPLE:
ABC Tenant's
lease at Operating Expenses: Amounts which are paid to operate and maintain income
producing property. As opposed to non-recurring capital expenditures,
Operating Expenses are typically recurring expenditures. Operating Expenses
are usually paid by the landlord and may be subject to reimbursement by the
tenant via Expense Recoveries. However, in certain instances, particularly
with buildings occupied by a single tenant, the tenant may be required to pay
some or all operating expenses directly to the vendor. Option: A right granted to either the landlord or tenant to purchase or lease
property at a specified time, at specified terms and under defined
circumstances. Options typically granted via lease documentation include
renewal options, expansion options, contraction options, termination options,
rights of first offer, rights of first refusal,
relocation options and purchase options. Outlot: A freestanding building site
within or adjacent to a shopping center. Examples of outlots
include gas stations, restaurants or banks. Also called a 'Pad'. EXAMPLE: ABC Restaurant Corp. likes the
location of Ellipsis Mall as potential site for one of it's
restaurants. However, none of the restaurants within their chain are located
within an enclosed mall; rather, they prefer freestanding buildings with
separate parking and ingress and egress directly from main streets
surrounding the mall. They sign a lease with the Landlord of Ellipsis Mall to
lease the land at the southeast corner of the property owned by the Landlord,
upon which they will build one of their restaurants. The site upon which the
restaurant will be built is an Outlot. Overage Percentage: The percentage which is multiplied by Gross Sales in the
calculation of Overage (i.e., Percentage) Rent. EXAMPLE:
ABC Retail Tenant
signs a five-year lease which requires ABC to pay Base Rent of $50,000/year
plus Percentage Rent in an amount of 4% of Gross Sales in excess of
$1,250,000. The Overage Percentage in this example is 4%. Overage Rent: Rent paid by a retail tenant which is based upon a
percentage of Gross Sales in excess of a specified dollar amount (the
Breakpoint). Also called 'Percentage Rent'. EXAMPLE:
ABC Retail Tenant
signs a five-year lease which requires ABC to pay Base Rent of $50,000/year
plus Percentage Rent in an amount of 4% of Gross Sales in excess of
$1,250,000. During the third lease year, Gross Sales of ABC equal $1,400,000.
ABC would be required to pay Overage Rent of $6,000 (calculated as
[($1,400,000 - $1,250,000) x 4%]). P
Pad:
A freestanding building site within or adjacent to a shopping center.
Examples of pads include gas stations, restaurants or banks. Also called an 'Outlot'. EXAMPLE: See example for 'Outlot'. Parking Ratio: The ratio calculated as the number of parking spaces
available per one thousand square feet of rentable area. EXAMPLE: ABC Tenant executes a lease for
5,000 sq. ft. of space at Pass Through: A reimbursement by the tenant to the landlord for expenses
of a property which are originally paid by the landlord. The mechanics for
calculation of the Pass Through will depend upon whether the lease is a Gross
Lease or a Net Lease. Also called an 'Expense Recovery'. EXAMPLE: See example for 'Expense
Recovery'. Percentage in Lieu: Rent paid by a retail tenant and calculated as a
percentage of Gross Sales which is paid by the tenant in lieu of Base Rent.
Percentage in Lieu clauses are sometimes included in retail leases to offer
the tenant rent relief if Gross Sales fall below a certain level or if an
anchor tenant fails to continuously operate within their premises. EXAMPLE:
ABC Retail Tenant
signs a five-year lease which requires ABC to pay Base Rent of $50,000/year
plus Percentage Rent in an amount of 4% of Gross Sales in excess of
$1,250,000. The lease also contains a Percentage in Lieu clause, whereby if
Gross Sales fall below $750,000, ABC may pay, in lieu of Base Rent and
Percentage Rent, 4% of Gross Sales until such time as Gross Sales exceed
$750,000. Percentage Rent: Rent paid by a retail tenant which is based upon a
percentage of Gross Sales in excess of a specified dollar amount (the
Breakpoint). Also called 'Overage Rent'. EXAMPLE: See example for 'Overage Rent'. Percentage Rent Breakpoint: In retail leases, the amount which Gross Sales
must exceed before a tenant is required to begin paying percentage rent.
Breakpoints may be 'natural' or an arbitrary dollar amount. A 'natural'
breakpoint reflects the amount of Gross Sales which, when multiplied by the
Overage Percentage, equals Base Rent (stated differently, a natural
breakpoint is calculated as Base Rent divided by the Overage Percentage). If
a breakpoint is not natural, then the amount of the breakpoint (stated as an
absolute Gross Sales amount or Gross Sales per square foot) is arbitrarily
determined based upon negotiation between the landlord and tenant. EXAMPLE: See example for 'Breakpoint'. Porter's Wage: The hourly wage rate, as published by the appropriate
labor union, currently being paid for the services of porters. The wage rate
to be used in the calculation of a Porter's Wage Adjustment is specified in
the lease, and may vary based upon a number of factors, including whether the
wage rate includes or excludes fringe benefits. Porter's Wage Adjustment: An increase (and sometimes decrease) in the Rent
required to be paid by a tenant based upon changes in the Porter's Wage over
a specified time period. The adjustment is typically calculated by
multiplying the change in the Porter's Wage rate by a tenant's net rentable
area, and then multiplying that product by a defined factor (i.e.,
penny-for-penny; penny-and-a-half for penny). Porter's Wage Adjustments are
most typically found in leases for the EXAMPLE: ABC Tenant signs a five-year
lease for 1,000 sq. ft. which requires ABC to pay Base Rent of $20,000/annum
and, in lieu of an Operating Expense Recovery, a Porter's Wage Adjustment based
upon the increase in the Porter's Wage, including fringes, over the wage rate
for the year in which the lease commenced on a penny and one-half per penny
basis. After the first year, the published wage rate has increased from
$21.00/hour to $21.75/hour. The Porter's Wage Adjustment beginning in the
second lease year would be $1,125/annum (calculated as [($21.75 - $21.00) x
1,000 sq. ft. x 1.5]). Promotional Fund: A fund established by the landlord of a retail property
whereby tenants are required to make specified contributions to the fund for
the purpose of promotion of the property. The fund is managed by the
landlord. EXAMPLE: See example for 'Media Fund'. Property Insurance: Insurance which covers losses occurring from fire,
explosion and other perils. When obtained by the landlord, the property being
insured is the building itself. When obtained by the tenant, the property
being insured is typically leasehold improvements and personal property of
the tenant. The coverage amount is often stated as a percentage of
replacement cost or replacement value. See also 'All-Risk Insurance'. EXAMPLE: See example for 'All-Risk
Insurance'. Proportionate Share: The percentage of reimbursable expenses to be reimbursed
by a tenant to the landlord. EXAMPLE: ABC Tenant's lease at Pro-rata Share: The percentage which, when multiplied by reimbursable
expenses (less an Expense Stop if a Gross Lease), equals the amount to be
reimbursed by a tenant to the landlord for Expense Recoveries. Typically, the
percentage is calculated by dividing the net rentable area of a tenant's
leased premises by the net rentable area of the building, although this is
not always the case. EXAMPLE: ABC Tenant's lease at Purchase Option: The right granted to a tenant to purchase a building
(typically the building for which they are currently in occupancy) at a
specified time in the future and for a specified price. EXAMPLE: ABC Industrial Tenant signs a
ten-year lease for 100% of the rentable area in a building located within Q
Quiet Enjoyment: The right of a tenant to occupy their leased premises
free from disturbance. EXAMPLE:
ABC Tenant's
lease for space on the second floor of |
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