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Glossary of retail leasing terms

Word on the retail street.


  • Often and commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.

Absolute net

  • Lease requiring tenant to pay in addition to base rent all costs associated with the operation, repair and maintenance of the building, all real estate taxes and utilities, including repair and maintenance of the building’s structure and roof. Often the tenant is directly responsible, both for all such costs, and for the active handling of the items themselves.

“As-is” condition

  • The acceptance of the premises in its existing condition by the tenant at the time the lease commences. This would include any physical defects.

Base rent

  • The minimum rent due to the landlord. Typically, it is a fixed amount. This is a face, quoted, contract amount of periodic rent. The annual base rate is the amount upon which escalations are calculated.

Common area

  • The retail common area is the area of a shopping center shared by all of the tenants, such as sidewalks, parking lots, service corridors, etc.

Common area maintenance (CAM)

  • Charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. CAM charges are common in shopping centers. Tenants are charged for parking lot maintenance, snow removal and utilities.


  • Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses, cabling expenses or other monies expended to influence or persuade the tenant to sign a lease.

Drive-time approach

  • An approach to estimating the trade area (and sales/revenue potential) for a given retail establishment or center based on  the central place theory concept of range and how far people are willing to travel to obtain retail goods as defined by drive time or mileage.

Effective rent

  • The average per square foot rent paid by the tenant over the term of a lease. Takes into account only free rent and stepped rents. Does not include allowances, space pockets, free parking and other similar landlord concessions.

Expansion option

  • A right granted by the landlord to the tenant whereby the tenant has the option(s) to add more space to its premises pursuant to the terms of the option(s).

Extension option

  • An agreed continuation of occupancy under the same conditions, as opposed to a renewal, which implies new terms or conditions. In a lease, it is a right granted by the landlord to the tenant whereby the tenant has the option to extend the lease for an ad.

Fair market rent

  • The rent which would be normally agreed upon by a willing landlord and tenant in an “arm’s length transaction” for a specific property at a given time, even though the actual rent may be different. In a lease, the term “fair market rent” is defined in a number of different ways and is subject to extensive negotiation and interpretation.

First generation space

  • Generally refers to new space that is currently available for lease and has never before been occupied by a tenant.

Fixed lease

  • A lease in which the lessee pays a fixed rental amount for the duration of the lease.

Free rent/Rent concessions

  • A concession granted by a landlord to a tenant whereby the tenant is excused from paying rent for a stated period during the lease term.

Full service lease

  • A lease in which the stated rent includes the operating expenses and taxes for the building. Same as Gross Lease. Opposite of Net Lease.

Ground lease

  • A lease of land only (either vacant or exclusive of any buildings on it). Usually a net lease on a long term basis (30+ years). Ground rent should not be charged back to the tenant as an operating expense.


  • (Heating, Ventilation, Air Conditioning) A general term encompassing any system designed to heat and cool a building in its entirety, as opposed to a space heater.

Letter of intent (LOI)

  • There are potentially multiple uses of this term. Generally a written statement that two parties to a prospective transaction (buyer/seller or lessor/lessee) intend to proceed to a final agreement in good faith on stated principal business terms of the deal to be entered into. This meaning applies when executed by both parties. Alternatively such a document may be signed only by one party and is then an indication of a willingness to enter into agreement on the stated terms and conditions. To avoid legal issues regarding offer and acceptance and thus formation of a binding contract, care should be taken to include a clause stating that there is not a specific offer and no intent to be a legally binding obligation. However, an obligation to continue to negotiate in good faith to conclusion can be created.

Occupancy cost

  • The actual dollars paid out by the tenant to occupy the space. It can be expressed in either pre-tax or after-tax dollars.

Pass throughs

  • Refers to the tenant’s pro rata share of operating expenses (i.e. taxes, utilities, repairs) paid in addition to the base rent.

Percentage lease

  • Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant’s gross sales as a component of rent. There is usually a base rent amount to which “percentage” rent is then added. This type of clause is most often found in retail leases.

Renewal option

  • The right of a tenant to renew (extend the term of) a lease for a stated period of time at a rent to be determined (i.e. 9.5% of “fair market rent”).

Rent concession (Free rent)

  • A period of free rent given to the tenant by the lessor.

Second generation or secondary space

  • Refers to previously occupied space that becomes available for lease, either directly from the landlord or as sublease space.

Tenant improvements (TI’s)

  • Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling and be paid for by the landlord, tenant or part by each.

Tenant improvement (“TI”) allowance or work letter

  • Defines the fixed amount of money contributed by the landlord toward tenant improvements. The tenant pays any of the costs that exceed this amount. Also commonly referred to as “Tenant Finish Allowance.”

Trade fixtures

  • Personal property that is attached to a structure (i.e. the walls of the leased premises) that are used in the business. Since this property is part of the business and not deemed to be part of the real estate, it is typically removable upon lease termination.

Triple net (NNN) lease

  • A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities and maintenances. There are also “Net Leases” and “NN” (double net) leases, depending upon the degree to which the tenant is responsible for operating costs.
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Retail Leasing Guide

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