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Sales Category: In the calculation of Percentage Rent for retail tenants, the classification of Gross Sales based upon the type of merchandise/service sold. Some retail leases define multiple Sale Categories and apply different Percentage Rent calculation mechanics to each category.

EXAMPLE: ABC Video Tenant operates a video rental store at Ellipsis Mall. ABC's lease provides a different Percentage Rent calculation mechanism based upon two different Sales Categories - Gross Sales from video rentals versus Gross Sales from the sale and repair of video equipment.

Sales Kick-Out Clause: A retail lease provision whereby the landlord has the right to terminate a tenant's lease in the event that the tenant does not achieve a particular level of Gross Sales.

EXAMPLE: ABC Retail Tenant would like to lease space at Ellipsis Mall. The Landlord is concerned that the product mix offered by ABC does not fit in well with the general theme of the mall and that ABC will therefore have trouble succeeding. However, the Landlord agrees to execute a five-year lease so long as the Landlord retains the right to terminate (kick-out) ABC is ABC's Gross Sales fall below $200,000/annum.

Security Deposit: A deposit made by a tenant, in the form of cash, letter of credit or both, to secure the tenant's performance of its monetary obligations under a lease and to offset damages due to tenant's negligence.

EXAMPLE: As a condition to leasing space in Ellipsis Tower, ABC Tenant is required to provide a cash security deposit equal to two months Base Rent. The Landlord retains the right to apply this deposit against any past due rent amounts, at which time ABC must replenish the deposit to its original amount or be in default under the lease.

Self-Insurance: The right of a tenant or landlord to set aside funds to protect against losses rather than purchasing insurance for such protection. In many leases, Self-Insurance is allowed only if the tenant or landlord can meet pre-defined net worth requirements.

EXAMPLE: ABC Tenant's lease requires ABC to maintain Liability and All-Risk Insurance throughout the lease term with a reputable insurance company. However, the lease also gives ABC the option to self-insure so long as ABC or it's parent company maintain an ongoing net worth in excess of $500 million.

Service Contract: A contract entered into with a third party for the provision of building services, such as janitorial, landscaping, elevator maintenance and building management.

Shopping Center: A group of retail stores with a common parking area designed to accommodate the shopping needs of a geographical market area. Categories of Shopping Centers include Regional Malls, Community Centers, Neighborhood Centers, Discount Centers and Power Centers.

Signage: The right of a tenant to provide identification of their company name or the name of key employees on or within a building. Signage types include monument, facade, building lobby, floor lobby, suite entry and lobby directory.

Stacking Plan: A floor-by-floor, graphical representation of each suite within a building, the tenant occupying each non-vacant suite, and the suite number and square footage of each suite. On many stacking plans, expiration dates are also provided (such dates are often color coded to provide a "quick-view" of the occupancy exposure within a building).

Sublease: A lease executed by a tenant (the 'Sub-Lessor') to another lessee (the 'Sub-Lessee') for a term equal to or shorter than that held by the tenant under it's original lease with the landlord. In most subleases, the original tenant remains primarily liable to the landlord for the performance of lease obligations, including the payment of Base Rent and Additional Rent, and the Sub-Lessee is liable for payment of sublease rent to the Sub-Lessor. Subleases usually require landlord consent.

EXAMPLE: ABC Tenant is leasing 10,000 sq. ft. in Ellipsis Tower, of which 2,500 sq. ft. is not currently being used for business purposes. In accordance with their lease, ABC sends written notification to the Landlord of their intent to sublease the 2,500 sq. ft. to XYZ Company. The Landlord grants their consent to the sublease, which provides for sublease rent in the amount of $15.00/sq. ft./year. XYZ Company (the Sub-Lessee) makes the required sublease payments to ABC Tenant (the Sub-Lessor), and ABC Tenant continues to make its required rental payment to Landlord pursuant to the original lease.

Sublease Profits: Consideration received by a Sub-Lessor from a Sub-Lessee under a Sublease with is greater than the consideration payable by the Sub-Lessor (i.e., tenant) to the landlord under the original lease. In many subleases, the Sub-Lessor is required to share some or all of the Sublease Profits received with the original landlord.

EXAMPLE: ABC Tenant has subleased 2,500 sq. ft. to XYZ Company. Pursuant to the sublease, XYZ is required to make sublease rental payments of $15.00/sq. ft./year. Pursuant to the original lease, ABC is making rent payments to the Landlord equal to $13.00/sq. ft./year. The Sublease Profit recognized by ABC is $5,000/year [($15.00 - $13.00) x 2,500 sq. ft.]. If ABC's lease with the Landlord so requires, ABC might be required to share some or all of this Sublease Profit with the Landlord.

Subordination: The process by which a person or entity's claims are ranked below the claims of another party. In a lease transaction, the claims of a tenant against a landlord are often ranked below those of a mortgagee or a ground lessor; however, certain larger tenants will require subordination from a mortgagee or ground lessor. While subordination language is included in most leases, some leases obligate a landlord to obtain a 'Subordination, Non-Disturbance and Attornment Agreement', whereby either the tenant or the mortgagee/ground lessor will formally agree to subordinate their claims to those of the other party.

EXAMPLE: ABC Industrial Tenant's lease contains a right to purchase the building for which they occupy 100% of the rentable area for a price of $2,500,000. The lease also contains a clause requiring ABC to subordinate their lease to any existing or future mortgages, and makes no mention of non-disturbance rights. Lender One forecloses on their $2,750,000 first mortgage. Because ABC's lease is subordinate to the first mortgage and ABC has a purchase option for a price which is less than the loan amount, Lender One elects to eliminate ABC Industrial Tenant's lease.

Subrogation: The substitution of one person into the place of another with regards to a legal right or claim. Subrogation is often described as "stepping into another's shoes". With regards to lease transactions, subrogation is typically found in insurance clauses, whereby the insurance company is given the right to 'step into the shoes' of the party to whom they have provided compensation in order to recover the amount of the loss from the legally liable party, often via a lawsuit.

EXAMPLE: ABC Tenant's lease requires them to obtain Liability Insurance equal to $3,000,000 for death/occurrence, $3,000,000 for injury/occurrence and $1,000,000 for damage/occurrence. A visitor enters ABC's premises, slips and falls on a floor tile and sustains substantial bodily injury. The visitor sues ABC for negligence which resulted in the injury. Because ABC maintains Liability Insurance, their coverage is sufficient to pay the damages resulting from this occurrence. In addition, because the lease gave the insurance company subrogation rights, the insurance company initiated a lawsuit against the tile manufacturer for the production of faulty tiles which resulted in the claim.