A glossary of commercial real estate terms is included in this site for the information of real estate salespeople and the public.   A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Abatement: An agreed rent free period occurring most often at the beginning of a tenancy but which may occur at any time by agreement between the landlord and tenant. Above Building Standard: Improvements to leased space made specifically for a tenant whose requirements go beyond the normal standard of construction at the property. Absorption/Absorption Rate: Surveys of commercial space and apartments are conducted on a regular periodic basis by private organizations and by government to determine the rate at which existing empty space and new construction is being taken up by the market. The rate is determined as a percentage of the entire inventory and, by comparison with past rates, the trend in the market can be tracked and forecast. A positive absorption is where the market vacancy rate is declining and a negative absorption is where the vacancy rate is increasing. Abstract of Title: A written summary of the chain of ownerships, liens, mortgages and other encumbrances for individual parcels of real estate available from the Registry of Deeds. Access Flooring: A “false” floor in commercial space to allow access to electrical and computer wiring and for other utilities. Additional Rent: Any rent charged above the base rent such as the common area maintenance costs. Adjusted Cost Base: Commonly used in calculations for capital gains tax, it is the purchase price of a property plus the “soft costs” plus capital improvements made to it. Ad Valorem: A method of taxation based on a property's value. Agreement of Purchase and Sale: A contract between the seller of property and the buyer to transfer title. Although generally subject to conditions such as financing, the contract is binding on the parties. Agreement For Sale: An alternative method of financing the purchase of real estate commonly found in the sale of businesses and property being sold within a family. The buyer agrees to pay the purchase price with interest in instalments over time and when the amount is paid, the seller transfers the title to the buyer. Amount of $1: One of the “six functions of a dollar”. See Future Worth. Amount of $1 per period: One of the “six functions of a dollar”. See Future Worth per Period. Amortization/Amortization Period: The gradual repayment of debt with interest in instalments over time. The payment amounts are calculated for the period of time it will take to pay off the loan such as 10 years or 20 years called the amortization period. Anchor Tenant: A major tenant in a shopping centre such as a national grocery or department store. Appraisal: A written opinion of value at a particular time based upon examination of reliable data by a qualified person. Appreciation: Increase in value from any cause. Appurtenances: Rights and physical items which are passed on to a buyer of land such as easements, rights of way and buildings. As Builts: Architectural or design drawings of the building and its systems to show its actual construction as opposed to the original design. Assessment: The value of real estate set by government for taxation purposes. Typically, a provincial government appraiser, called an assessor, determines the assessed value and the municipality charges a property tax rate against that amount. Assignment: Where one party to a contract transfers all the rights and responsibilities of that contract to another person. Assignments can be for leases and mortgages where either party may assign their interest. (See Sublet.) Assumption Agreement: A buyer of real estate may, by agreement with the seller and the seller's lender, take over the rights and responsibilities of the existing mortgage on the property. B Balloon Mortgage/Payment: A large payment of part or all of the principal either during or at the end of the amortization period. The payment is made in addition to the regular payments and is part of the overall calculation of interest and the repayment plan. Base Rent: The fixed rent expressed as a dollar value per square foot which represents the landlord's return on investment; payment for certain capital costs and replacements; and for debt service. In addition, the tenant will generally also pay a share of the operating costs of the property, taxes and utilities. Base Year: Generally the first year of a tenancy where the total of operating costs and taxes are used as a guide or a “stop” for future years' increases. For example, the lease may limit (cap) cost increases to 5% of the base year costs for each subsequent year of the lease. Blanket Mortgage: A loan secured by a number of different properties. Blended Payments: Repayments of a loan in instalments which are part principal and part interest. Generally, the payment amounts are the same throughout the term but at the beginning of the amortization period the proportion of interest is much higher than the principal. This proportion gradually reverses during the amortization period so that at the end, the proportion of principal is much higher than the interest. Book Value: A value for real estate and other assets used in financial statements. It is generally the purchase price plus capital improvements less depreciation. For depreciation purposes, the land and buildings are separately valued. Breakpoint: A commonly used threshold amount of gross sales that a store in a shopping centre earns before a percentage rent becomes payable in addition to the base rent. Building Classifications: Office buildings are classified according to their building standard, facilities, age and location within a community. Opinions of classification are subjective and frequently argument provoking. They reflect national standards rather than simple comparison within a single community so the best building in a community does not make it automatically Class A. Trophy Buildings - architecturally unique and have outstanding management, location and facilities. They have the best quality materials and are occupied by prestige tenants. Only found in major cities. Class A Buildings - High quality space and management with good design in a prime location. Generally newer properties with style although totally renovated properties can be in this class. They attract the good quality tenants and generally command the highest rents if there are no Trophy buildings. Class B Buildings - good quality buildings with more utilitarian design such as a modest entrance lobby and narrower hallways. Generally older than Class A buildings. Class C Buildings - an outdated property offering basic facilities and having little intrinsic appeal for tenants. Suited to small or startup companies where image is not important. Class D Buildings - very basic office space and facilities with low level of services. Most often a “walk-up” from the street and may be above a retail business. Building Residual Technique: A method of determining a capitalization rate by calculating the net income attributable to the land and deducting it from the net operating income. The balance is the income attributable to the building. Building Standard: Landlords provide a specification list of all the minimum standards of design and quality expected of the finished space. It is a guide to a tenant how to complete any leasehold improvements and sets the standard for any work the landlord may do. Typical building standards are the size and finish of internal and external doors, lighting and floor finishes. Business Occupancy Tax/Business Assessment: A municipal tax on businesses based on the assessed value of the leased space. The tax is most often charged direct to the tenant but in some municipalities the tax is charged to the landlord who recovers the amount from the tenant. Typically, it is calculated by applying the commercial tax rate against half the assessed value. Not all municipalities charge businesses in this way. C CAM/Common Area Maintenance: Costs of maintaining a commercial property including cleaning, grounds maintenance and repairs which are generally passed on to tenants in the form of additional rent. Taxes and capital costs are not considered maintenance although they, too, can be passed onto the tenants. CBD/The Central Business District: The downtown location for most of the high rise office buildings and institutional properties which command the highest rents. Capitalization: Converting anticipated future income into present value. A method of appraisal using the net income from an investment and applying a factor or discount rate or rate of return to find today's value. Cap.Rate/Capitalization Rate: Any rate or percentage which may be used by investors to determine value from the net income from an investment. It may be a rate which an individual investor decides or an average overall figure which the market may be using at any time. Cap. Rates vary according to individual investors' requirements, the state of the economy and interest rates, the nature of the investment and its location, supply and demand. CCA/Capital Cost Allowance: Income property depreciates over time and Revenue Canada recognizes this fact by allowing investors to “expense” a percentage of the asset each year which effectively reduces the taxable income. There is a wide range of CCAs rates for real estate and other assets. CMHC: A federal government department that facilitates the availability of homes to Canadians through the National Housing Act. They do this by providing mortgage insurance on private homes and apartment buildings; the Mortgage Backed Securities Program; and in-depth surveys and data collection for the housing industry. Capital Expenses/Expenditures: The cost of buying assets or upgrading assets which are intended to produce income. Capital Gain/Loss: The difference between the net proceeds of a sale of property less the purchase price and its costs of purchase. For taxation purposes, the purchase price and appropriate closing costs is referred to as the “adjusted cost base”. Cashflow: Whatever income is left to an investor after all expenses and costs have been paid. Cash-on-Cash Return: The result of dividing the annual net income from an investment by the cash invested in it. Also called the “equity dividend rate”. Churn Rate: The rate at which a property is reconfigured to allow for changing tenancies or changing business needs. In an investment property it can also mean the rate at which tenants change. Chargeback System: A method of allocating the operating costs of a building to the various occupiers or tenants on the basis of specific use or proportion of space occupied. Closed Mortgage: A mortgage that does not provide for repayment prior to maturity. If a borrower wants to close the mortgage early, the lender may levy a charge. Collateral Mortgage: Part of a lending package where the loan may be secured by a promissary note and real estate. The loan may not be intended for the purchase of real estate so the borrower pledges real estate already owned. Commitment: See “Mortgage Commitment”. Construction Loan: Temporary financing for the developer for the period of property construction. The loan is made in installments according to the value of the structure as it is completed. On lease-up, the loan is repaid with new regular mortgage financing. Convertible Loan: A mortgage where the lender may choose to convert some or all of the debt into part ownership of the investment. CPI/Consumer Price Index: Statistics Canada carry out surveys of the cost of living increases at regular intervals across the country. Some commercial leases allow the base rent to increase in step with the published annual rate. Cost Approach: A method of determining the value of real estate by adding the value of the land to the current cost of reproduction less depreciation. Co-operative: Real estate which is owned jointly by a group of people called “members”. They do not have individual ownership of any parts of the property or build any personal equity but have exclusive use and enjoyment of some of it. Typically used for residential properties although there are some commercial co-ops. Condominium: A form of real estate ownership where the owner has freehold interest in a particular unit and shared use of common areas with the other owners. Most commonly apartments and houses but there are also commercial condominiums. Concessions: See Tenant Incentives. Conventional Mortgage: A loan secured by real estate which is no more than 75% of its appraised value or the purchase price, whichever is less. D Default: Failure to fulfill a promise such as non payment of mortgage installments. Debt Service: Repayment of a loan with interest in installments. Debt/Equity Ratio: The percentage rate shown when the total loan on an investment is divided by the total investment made by the borrower. Deficiency Judgement: The borrower may be personally liable for money still owed after the lender has foreclosed on real estate pledged for a loan. The lender may ask the court for a deficiency judgement to enforce collection. Demising Walls: Any wall that separates a tenant's space from a neighbour or common area. Depreciation: Any devaluation of an asset from whatever cause. Discounted Cashflow: A method of appraising income property by applying a discount rate to future income. Discounting: The opposite of compounding, it is a percentage rate used to find the present value of future income. Discharge: To pay off a debt entirely. In real estate mortgages, the lender provides a certificate which the borrower registers in order to cancel the mortgage lien. Downpayment: The buyers initial investment in an investment. E Economic Rent: Market value of rental property as opposed to rents actually being received. Effective Gross Income: The Potential Gross Income of an investment property less an allowance for vacancy and bad debt. Effective Interest Rate: In two or more mortgages on a single property the interest rates are likely to be different. By calculation, the effective rate (or averaged rate) for the total of all loans can be determined. Environmental Assessment: Investors and lenders for commercial properties need assurance that the land is clear of any possible toxic or contaminated soil such as an oil or gas spill. An assessment of a site may be carried out by qualified engineers as follows - Phase I, visual site inspection and historical review of the property and its uses. Phase II, subsurface investigation, sampling and testing of soil and water. Phase III, determining the extent of contamination, the likely source, and remedial action recommendation. Equitable Mortgage: A mortgage that pledges the borrowers interest in the real estate without conveying the title. Equity: That amount of money left after deducting all debts against a property from its market value. Equity Dividend Rate: See Cash-on-Cash Return Escalation: Provision in a lease to allow the rent and/or the operating costs to increase during the term. Typical escalation clauses are based on the Consumer Price Index or actual operating cost increases. Estoppel Certificate: Tenants and others may be asked to sign a statement that confirms the details of their tenancy and rent position as of a particular date. It provides some warranty to a new owner or lender that there is no undisclosed tenancy dispute with the existing landlord and that the leases are all in force. Exclusive Agency: An agreement between a landlord/owner and a real estate brokerage to offer space for rent or for sale. All negotiations must be conducted through that brokerage and commission will be paid for any tenant or buyer found during the listing regardless of the source. Co-operation with other brokerages is handled by the Listing Brokerage who may share commission. Expense Passthrough: Any property expenses that the landlord may recover from the tenants which are permitted under the lease. Expense Caps/Stops: A protection provided in the lease for landlords against large, unexpected increases in operating costs so that the tenants pay their proportionate amount above a predetermined figure. F Face Rent: The asking rent. Facilities Manager: A person who is in charge of the general operation of a commercial or institutional property with particular concentration on the building systems and structure. First Mortgage: A loan secured by real estate which is the first one registered at the Registry of Deeds. First Refusal: A right given to a tenant or a buyer to lease a particular space or buy a particular property before it is offered to others. Typically, a tenant may plan to expand in the future and the right guarantees that if the adjoining space becomes available, there will be the opportunity to lease it before anyone else. Fixed Costs/Expenses: The operating costs of a property which change very little according to the level of occupancy such as taxes and insurance premiums. Fixed Rate Mortgage: A loan secured by real estate where the interest rate remains the same throughout the term. Flex Space: A building which allows for multiple and varied uses. Typically, it has high ceilings, loading docks and load bearing floors. Tenants can use the same space for their own particular needs which may vary from manufacturing to showroom to offices in varying degrees according to the development of the company. Flip: A quick resale of a property. Floating Rate Mortgage: A loan secured by real estate where the interest rate may vary during the term at the option of the lender to reflect current market interest rates. Also called variable rate mortgage. Floor Plate: An architectural floor plan of a commercial building which shows the vertical penetrations, pillars and dimensions. The floor plate can be a deciding factor for tenants who may have special needs for size, configuration or access to windows. Foreclosure: An action by the lender against a borrower who has defaulted on the mortgage agreement. The lender obtains title to the real estate by removing any claims to title the borrower may have which then clears the way for a sale to satisfy the debt. Freehold: The highest form of ownership of real estate. Sometimes called “fee simple”. Full Service Rent/Fully Serviced Lease: A form of gross rent where the tenant pays an agreed all-in figure to include base rent, operating costs, cleaning and taxes to building standard. The tenant pays business occupancy tax and any costs for services above building standard. Also, the lease may allow the landlord to recover increased costs after the first year over the base year amount. Future Worth/Amount of $1: One of the “six functions of a dollar”. It is the amount to which one dollar will grow in a given period of time including accumulated interest at a given rate. Future Worth per Period/Amount of $1 per Period: One of the “six functions of a dollar”. The amount to which a series of one dollar installments will grow in a given number of periods with interest at a given rate. G General Use Property: An investment property well suited to many different tenants so that vacancies may be readily filled without major reconstruction. GAAP/Generally Accepted Accounting Principles: Standards of accounting practices for financial statements to allow universal comprehension. The accrual basis is an example of GAAP. Going Concern Value: The value of a business and its assets in its operating mode as opposed to the asset value of a company which has closed its operations. Goods and Services Tax: A federal tax charged on nearly all purchases of commodities and services including commercial rents and professional fees. Goodwill: The difference between the market value of a business and the value of its assets. Most often attributable to the success and public image of the business and its owner. Graduated Payment Mortgage: A loan secured by real estate where the early repayments are low and which increase over time. Gross Debt Service Ratio: The percentage of a person's gross annual income which the lender uses as a maximum affordable amount for payment of annual mortgage principal, interest, taxes and sometimes heat. Gross Lease: An all-in rent for space where the landlord pays for all operating costs and sometimes the utilities. Gross Rent Multiplier: A “rule of thumb” method of appraising income property. The annual gross rent is multiplied by a number which the investor believes represents a satisfactory return on investment. Ground Lease: A lease of land to a developer to allow construction of a building. Generally the leases are long term such as 20 years or more and at the end of the lease the land and improvements revert to the landlord. H Hard Costs/Direct Costs: Those costs in a development project that represent payment for materials and construction as opposed to soft costs which may be for fees. High Ratio Mortgage: A loan secured by real estate which exceeds 75% of its value or purchase price whichever is less. By law, all high ratio loans for residential properties must be insured against default. Highest and Best Use: A principle of real estate appraisal which assumes the best, most profitable use of land as opposed to its actual use at the time of the appraisal. Hold Over: A tenant who remains in possession after the lease has ended. HVAC: An acronym for the environmental systems in a building - “Heating, Ventilating and Air Conditioning”. I Income Approach: One of the three methods of appraisal for investment properties. It calculates net operating income and applies a capitalization rate to determine value. Income Stream: The total of all sources of income for an investment property. Interest: A “rent” for the use of other people's money. Interest Only Loan: Any loan where only the interest is payable until the principal becomes due at the end of the term. IRD/Interest Rate Differential: When a borrower closes a mortgage before the end of the term and if interest rates have been falling since the term began, the lender will be unable to lend the money again to another borrower at the same rate as the original loan. The lender may charge the borrower for this loss. IRR/Internal Rate of Return: A measure of the financial performance for a particular property investment. The actual interest earned by capital while invested in the property. J Joint and Several: If a debt is incurred by two or more people “jointly and severally” and one person fails to pay their share then the others must make up the deficiency. Joint Venture: Two or more organizations combine to carry out a business project such as development of an investment or commercial property. Typically a developer will partner with a business owner to construct a special building for the operation of that business. Judicial Sale: A court ordered sale of a property that was used as security for a loan on which there has been default. L Landlord: The owner or owner's representative who has the authority to lease space in the building and collect rents. Lease: A contract which gives one party the possession of the other's real estate for a specified period of time under certain terms and conditions and in exchange for rent. Land Residual: In an appraisal, it is that amount left after income attributable to buildings has been deducted from the property's net operating income. Leaseback: An investor may buy a property and lease it back to the seller. Also, an investor may construct a property specially for a tenant who then leases it rather than buys it. The purpose of this first idea is to provide the seller with cashflow without having to sell and leave the place of business. In the second situation, the tenant gets the property needed for the business without affecting the ability to borrow for business purposes. In both cases, the investor has a long-term tenant. Leasehold Improvements: Additions and alterations made to leased space for a particular tenant's needs. Typically, it is the construction of offices - walls, doors, lighting and wiring. It is generally at the tenant's cost but the landlord often agrees to make a contribution as part of the lease negotiations and may or may not add the amortized amount to the rent. The improvements may remain at the end of the lease at the landlord's option. Leasehold Mortgage: A loan secured by leased land. Lessee: The tenant. Lessor: The landlord. Letter of Credit: A commitment from a bank to honour a draft or demand for payment of a debt. Sometimes used as an alternative to a cash security deposit. Letter of Intent: An agreement between parties to enter a final contract based upon the terms of the letter. Leverage: Borrowing money to buy an investment. Also borrowing money using the value of one investment as security to buy another. Lien: A debt registered against property title such as a mechanic's lien; judgements; conditional sale liens; and taxes. Limited Partnership: A form of investment group where the initiators or “general partners” seek out other investors called “limited partners” as an alternative to a mortgage. The general partners are responsible for the overall management of the project and may be personally liable for any debts. The limited partners share the profits but have no liability beyond their original investment. Liquidity: The ability to turn an investment or assets into cash. A liquid investment is easily converted but an illiquid investment is harder. Listing Agreement: An agreement where the owner of real estate gives authority to a real estate brokerage to offer the property for sale under certain terms and conditions. Loan Constant/Mortgage Constant: A factor based on interest rates and amortization periods which is used against the principal of a loan to determine the repayment amounts. The factors are found in amortization tables. Loan Coverage: The ability of an investment to pay the mortgage expressed as a ratio of the net operating income and the repayment amount. The ratio is determined by dividing the net income by the debt service. A 1:1 ratio provides just enough and 2:1 would offer the lender a confidence in the investment's ability to pay. Loan to Value Ratio: The ratio of the loan to the appraised value of the real estate (or the purchase price, whichever is less) expressed as a percentage. A 75% loan on a $200,000 property would be would therefore be $150,000. Low Rise: An office building less than 4 storeys high. M Market Data Approach: One of the three approaches to value used by appraisers which involves comparison with the sale of similar properties in the same locality sold recently. Market Rent: The rent most likely to be received on the open market with all parties acting prudently and knowledgeably of similar transactions in recent times. Market Value: The highest price a property would be likely to sell for if fully exposed to the market for a reasonable period of time with the buyer and seller acting prudently and knowledgeably and without undue pressure. Master Lease/Head Lease: A lease held with a landlord which is the subject of sub-leases to other tenants. An example is a business centre which leases space from a landlord and then sub-leases offices to other tenants. Maturity Date: The last day of mortgage term. Mechanic's Lien: A contractor's or subcontractor's unpaid invoice for improvements to real estate may be registered as a debt or lien on the property title to ensure payment. Metes and Bounds: A written legal description of land which begins with a reference point (such as a survey marker) and describes it by angles and distances to other reference points. Mid-Rise: An office building between 4 storeys and 8 storeys high (sometimes up to 25 storeys in the Central Business Districts of large cities). Mill Rate: A municipal tax rate charged per $1,000 of the assessed value. Mortgage: A loan secured by real estate. Mortgage Backed Securities Program: An investment program run by CMHC for small investors to be involved in the mortgage market. Mortgage Commitment: A promise by a lender to lend money on the security of real estate on certain terms and conditions. Mortgage Broker: A person who, for a fee, arranges loans secured by real estate. Mortgage Term: The period of time that money is lent on the security of real estate. The terms and conditions of the loan such as the interest rate may not change during this time and on maturity the money may either be repaid or renegotiated for another term. Mortgage Trust: A form of R.E.I.T. to provide financing for property investments. Mortgagee: The lender of money using real estate as security for the loan. Mortgagor: The borrower of money using real estate as security for the loan. MURB: Multiple Unit Residential Building. An almost extinct expression used in the 'seventies to describe apartment buildings eligible for certain tax concessions. N N.E.R./Net Effective Rent: That rent, generally expressed as a value per square foot, left over to a landlord after all operating expenses, leasing fees and tenant incentives have been paid or accounted for. It may be expressed as a figure before or after debt service and/or tax. Net Leases: There is no finite definition of net leases and the expressions “net lease”; “double net lease” and “triple net lease” have different meanings for many in the industry. Some would say that a net lease refers to the tenant's responsibility to pay a base rent plus an apportionment of the operating expenses of the building. A net net lease is where the tenant pays the insurance and taxes in addition to the base rent and operating expenses. A triple net lease is where the tenant pays for all operating expenses, insurance, repairs and capital expenses in addition to the base rent. Net Rentable Area: A BOMA Standard of Office Building Measurement used to calculate tenants' share of operating costs. The floor area is reduced by all vertical penetrations, such as stairways but supporting pillars and common areas are included. The result is the net rentable area. For a total rentable area of the building, all floor areas are totaled. N.O.I./Net Operating Income: For appraisal purposes of an investment property, the gross potential income is calculated and deductions are made for estimated bad debt and vacancy to produce the effective gross income. The operating costs are then totaled and deducted from the effective gross income and the balance is the net operating income. N.P.V./Net Present Value: Non-recourse Loans: In the event of default, the lender may foreclose and sell a property used as security for the loan. If there is still a balance owing and the loan is “non recourse”, the lender may not pursue the borrower personally for the balance of the debt. Non-compete Clause: A clause in a lease which protects the tenant from the landlord leasing space to a competing company in the same building. O Open Mortgage: A mortgage agreement where the borrower may repay the principal or paret of the principal at any time without penalty. Open End Mortgage: A mortgage agreement where the borrower may obtain additional financing from the same lender at a later date but no more than the original amount. Operating Expenses: The costs of running the property ranging from repairs and maintenance to security, utilities, insurance, management and property taxes. Generally these costs are charged to the tenants in proportion to the space they occupy in the building. Origination Fee: A lenders fee for evaluating the loan proposal. Overall Capitalization Rate: A market percentage rate which may be applied to the net operating income of a property to determine its value. An appraiser reviews the sale of similar properties and determines each rate by dividing the Net Operating Income by the sale price. The result of the review will be to determine the market rate rather than any particular investor's rate. Open Listing: An agreement between a seller and a real estate brokerage to offer a property for sale. In contrast to an exclusive listing, the seller may also appoint other brokerages and reserves the right to sell it privately without paying any commission. The agreement is informal and may not be in writing. P Parking Ratio/Index: Dividing the rentable area of a building by the number of parking spaces produces a standard form of parking ratio used by developers, leasing agents and municipal planners. Partial Payment: One of the “six functions of $1". The amount of periodic payment required to pay for principal and interest on a one dollar loan for a given period of time at a given interest rate. Participation: Additional payments made to the lender during the term based upon the level of the financial performance of the investment. Participation Loan: Two or more lenders share in a loan and hold joint interest in the real estate that is used as collateral. Pass-throughs: Any operating costs which the landlord may charge to tenants. Percentage Rent: Rent paid by a retail tenant which is a percentage of the gross sales. The rent may be a straight percentage figure or it may have a base rent and the percentage rent may only become payable after an agreed sales figure has been reached. Performance Holdback: Any part of a loan that is held back by the lender until certain conditions have been fulfilled such as a percentage of the property leased or a rental income amount. Phantom Gain: If an investor increases the value of a property and takes some of the equity out by remortgaging, there is a capital gain which may not be payable until the property is eventually sold. If the property then drops in value and is sold at a loss, there may be a taxable amount for the profits taken earlier. Also, if an investment property has a non recourse loan and is foreclosed and the sale does not recover the principal owed, the borrower is deemed to have been forgiven the loss which may be a taxable amount. Portable Mortgage: An option in a mortgage which allows the borrower who is selling one property to transfer the balance of the current loan and its interest rate to another property. Potential Gross Income: The annual income which could be derived from an investment property if it was leased at market rents and had no vacancy or bad debt. See “Effective Gross Income”. Power of Sale: The lender's right by law or mortgage contract to advertise and sell the real estate used as security for a loan in the event of default. P.I.T.H.: Principal, Interest, Taxes, Heat. Prepayment Charge: A fee charged by a lender when the borrower pays some or all of the principal earlier than agreed in the mortgage contract. Present Value: Today's worth of money to be received in the future. Present Worth of $1: One of the “six functions of $1" where a discount rate is used to determine the today's value of future income. Present Worth of $1 per period: One of the “six functions of $1". The value of a series of future $1 payments for a given period of time discounted at a specific rate. Principal: The amount borrowed.. Also, the person who is represented in a client, agent relationship. Property Assessment: The value attributed to real estate for taxation purposes. Promissary Note: An unconditional promise to pay a ceratin amount of money on demand or by a fixed date. Punch List: A list of defects, incomplete or unsatisfactory work provided to the contractor and the landlord after the contractor has notified the new construction is substantially complete. Q Quitclaim Deed: A deed which passes title to another without any warranty of its validity. The most common uses are in divorce cases when one spouse gives up any claim to title of the family home to the other spouse or when a borrower gives up any claims to title to the lender as an alternative to foreclosure. R Real Estate: Land as nature provided it plus all man made improvements. Real Property: Real estate plus the intangible rights. R.E.I.T./Real Estate Investment Trust: A investment vehicle for real estate where the property is held in a trust for the investors who are called participants. The advantage to the participants is that they own a definable part of the real estate rather than shares in a company and may therefore receive added tax advantages. The trustees are developers and investors themselves and they can raise large amounts of capital to purchase real estate investments without using traditional lending institutions. R.E.O./Real Estate Owned: Property which has been foreclosed or acquired by a lender in satisfaction of a debt. Recapture: During the term of an investment, the owners may receive a number of tax benefits such as Capital Cost Allowances. In some circumstances, the benefits or a portion of them, may be recoverable by Revenue Canada on the sale of the property. Recourse Loan: If there is default on a loan secured by collateral, such as real estate, the lender may foreclose and sell the property to satisfy the debt. In a recourse loan, the borrower is personally responsible in the event the sale does not satisfy the debt. Recoveries: Any operating expenses and other costs that the landlord may recover from the tenants. Refinancing: To pay off a loan and then reborrow money under new terms and conditions from the same lender or another one. Renewal Option: The borrower's right to extend the loan beyond the original term so long as it is in the mortgage agreement. Rent Commencement Date: The day rent payments are incurred - not always the same as occupation day. Rental Concession: A rent free period at the beginning or during the tenancy which is one of several possible Tenant Incentives to encourage a person to enter a lease Rentable Area: A BOMA Standard of Office Building measurement where a tenant's “usable area” (within the demising walls) is added to the tenant's proportion of the common areas such as stairways and hallways. Rent-up Period: The time it takes from completion of new construction to achieve full or nearly full occupancy. Residual Technique: An appraisal method for investment properties where the land and buildings are separately valued using different capitalization rates. RFP/Request for Proposal: Any company seeking a contractor for a project may produce a detailed description of the job and ask selected contractors to bid on it. It may also be a tenant's request to one or more landlords of suitable properties to offer space to a new tenant on the terms outlined in the RFP. Its purpose in the first instance is to get the best deal for the company seeking a contractor and in the second instance it is to get the best deal for the tenant. Rule of 72: A method of determining how much time it will take money invested at a certain compound interest rate to double in value. The time is calculated by dividing 72 by the interest rate. Reserve Fund: An amount of money set aside for future repairs and replacements of equipment. Typically, an investor may make regular payments into a special savings account which is calculated to produce the required amount over a certain period of time. Replacement Cost: The cost of building a property which is a suitable substitute for the original. Reproduction Cost: The cost or building a property which is an exact replica of the original. Risk: The degree of possibility that an expected event will happen. The level of risk in investments determines the interest rate that an investor will require. R/U Rentable/Usable Ratio: A BOMA Standard of Office Building measurement. The conversion factor, when applied to Usable Area, gives the Rentable Area of office space and is the basis for the calculation of the total rent and the tenant's proportion of operating costs. S Second Mortgage: A loan secured by real estate which is registered next after a first mortgage. It is the date of registration that decides the priority of all mortgages. Security: A form of guarantee for a loan in addition to the personal promise to pay. The security of the loan gives confidence to the lender and allows for lower interest rates because the risk is lower. In real estate mortgages, the security (or collateral) is the property and in chattel mortgages it may be a car, boat, mobile home etc. In default, the lender can force a sale to recover the balance of the debt or it may be forfeit to the lender. Security Deposit: An amount of money to indicate good faith in completing a contract. In real estate, the money is generally held in trust by the seller or landlord's real estate brokerage. Service Rent/Income: Additional rent charged for a tenant's use of services such as security. Also called “miscellaneous income”. Shared Appreciation Mortgage: A loan secured by real estate where the lender may share in the increase in value of the property at a future date by the borrower paying an agreed percentage of the increase. Sheriff's Sale/Judicial Sale: A court ordered sale of real estate which was the security for a loan. The order is part of the foreclosure process and the sale is handled by the sheriff's office. Sinking Fund: One of the “six functions of $1" where it is determined how much money must be deposited periodically to amount to $1 over a given period of time. Typically, an investor may save money from net income for a future repair such as a new roof. Six Functions of $1: A series of calculations and tables which help determine amortization of loans, present worth of future income, and growth of money using compounding and discounting techniques. Soft Costs: The costs of a building project that are not seen as an integral part of the construction including architectural fees, legal fees and building permits. Space Plan: A layout plan for the use of leased space designed especially for the tenant. It shows how the tenant's business will fit into the space and may include positions of walls and doors, furniture, lighting and wiring. It may also be used for cost estimates and for landlord approval. Special Assessment: A tax assessment for municipal services such as water, sewerage and sidewalks which are for the benefit of a particular district. Special Use Property: A property not easily adapted for use other than its original purpose such as a church. Standby Loan Commitment: A promise by a lender to finance an investment of construction project if an earlier commitment from another lender does not materialize. Step-up Lease: Rent payments are increased at predetermined intervals during the term. Sublease: A tenancy where the tenant rents space from a person who has rented the same space from a landlord. The sub-tenant has no relationship with the landlord and pays rent to the first tenant (or head tenant). Not all leases permit sub-leasing but there may be certain common law considerations which give tenants a legal right to do so. Subordination Agreement: The tenant accepts the leased space subject to any prior claims to the title of the property such as a mortgagee. Switching: A borrower's right on completion of a mortgage term to assign the loan to another lender and payout the first lender. Syndication: A person who creates a business or investment opportunity may invite others to invest in it. The investment group may have a form of ownership call a syndicate. T Tax Base: The total of all property assessments for taxable properties within a municipality. Tax Lien: By federal statute, property taxes have priority over other registered liens in the event of foreclosure and sale. Tenant: A person who takes possession of another's real estate for a period of time under certain terms and conditions in exchange for consideration. Tenant at Will: An arrangement between a landlord and a tenant for occupancy of real estate for an undetermined period and which may be terminated with notice. TIs/Tenant Incentives: Anything of value which is provided to the tenant as an encouragement to enter a lease. Typically, it can be a rent concession, moving costs, leasehold improvements allowance or just plain cash. Tenant Improvements: See “Leasehold Improvements”. Term: See “Mortgage Term”. Term Mortgage: A loan secured by real estate where only interest is paid during the term and the principal is paid at the end of the term. Time Value of Money: Money which is to be paid in the future is worth less than money paid today. Using this concept, appraisers and investors may determine the value or possible purchase price of an investment by discounting future income using a market discount rate or their own preferred discount rate. Torrens Title: A system of government land registration where the chain of title can be examined for possible defects. It is commonly used in Canada, particularly the west. Trade Fixtures: Anything which is attached to the property which was for the particular use of the tenant such as display cabinets. Depending on the lease, either party may have the option to leave them or take them on termination of the tenancy. Traffic Count: A record of the number of cars or people that pass a particular point at particular times. It may be used for municipal planning purposes and as a guide to retail tenants to estimate potential business income. Triple Net Rent: A rent on commercial space where the tenant pays a base rent and is responsible for all other operating costs, insurance, repairs, taxes and capital expenses. See “Net Rent”. Trust: An arrangement where the owner of assets and investments (the beneficiary) hands over the administration to a third party (the trustee) who has specific fiduciary duties. Typically, it is for taxation purposes but it may also be for politicians and others who may be perceived to be in a conflict of interest in their employment. Turn Key: The preparation of leased space to the level that a tenant may move in without having to do any construction or finish work. The tenant receives a finished product, ready for occupancy. Generally, the landlord will arrange for the work to be carried out with a contractor in consultation with the tenant. The landlord will pay for the work and may recover the cost or part of the cost by amortizing the amount over the term of the lease in the form of increased rent. U Underwriter: The person or company that accepts insurance or mortgage risk. Unencumbered: Free of all liens, debts and claims related to real estate title. Usable Area: A BOMA Standard of Office Building measurement which is the total area within the demising walls of leased space. Expressed in square feet it is used in conjunction with “Rentable Area” to determine the amount to be charged for rent and operating expenses. V Vacancy: For vacancy survey purposes, it is any space which is available for lease except that which is available as a sublease. Vacancy Allowance/Factor: A percentage rate for an estimated quantity of vacancy for a particular property. It is part of the appraisal process and market figures are used together with a figure for bad debt to reduce the gross potential rent to gross effective rent. Variable Expenses: Those operating expenses which may vary according to the occupancy of a building such as cleaning. Variable Rate Mortgage: The lender may change the interest rate on a loan according to market conditions. Payments may stay the same but the amount of principal repayment varies with the interest rate. Vendor Take-Back: A form of financing where the seller foregoes some of the purchase price at closing and receives the balance in installments over time. It may also be secured by a first or subsequent mortgage. Virgin Space: Investment real estate which has never been leased before. W WACC: Weighted Average Cost of Capital. Wraparound Mortgage: A second mortgagee assumes the responsibilities of the first mortgage as part of the agreement to lend the money. Y Yield: The total return from an investment over the time it is owned.

 

 

 

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