Chapter 9: Income-Producing Properties: Leases, Rents, and the Market for Space

A collection of vocabulary terms and foundational concepts regarding income-producing property types, lease structures, and market analysis based on Chapter 9 materials.

Single-family houses

Individual, detached residential units developed in subdivision tracts.

Multifamily properties

Residential properties differentiated by their location and the size of the structure.

Equilibrium Market Rental Rate

The price point determined by the intersection of the supply and demand curves for space.

Market Rent

The price paid by a potential tenant to lease a particular type of space under current market conditions, influenced by factors like the national economy and local supply and demand.

Lessor

The property owner who assigns rights, duties, and responsibilities in a lease document.

Lessee

The tenant who receives rights to use space in exchange for fulfilling responsibilities defined in a lease document.

Base rent

The initial rent amount that must be paid under the lease contract, also known as minimum rent.

Flat rent

A lease arrangement where rents remain the same for the entire term of the lease.

Step-up rent

A lease clause providing that rent will increase at specified time intervals and in specific amounts during the term of the lease.

Indexed rent

A method to adjust rents using a specified index as the basis for the adjustment.

Gross (full-service) lease

A lease where the tenant pays rent only, and the property owner provides all services and pays all operating expenses.

Modified (full-service) lease

A lease where the owner provides all services but recovers specific identified expenses from the tenant, such as taxes and insurance, in exchange for a lower base rent.

Single net lease

A lease where the tenant pays rent and all operating expenses identified in the lease agreement.

Double net (net, net) lease

A lease where the tenant pays rent and all operating expenses directly, and the owner passes through nonoperating expenses.

Triple net (net, net, net) lease

A lease where the tenant pays rent, operating expenses, nonoperating expenses, and certain recurring capital outlays for repairs, alterations, and modifications to the interior space.

Common area maintenance (CAM)

Charges where tenants pay a pro rata share of expenses required to maintain common areas in a campus or mall.

Effective rent

A value used for comparing leasing alternatives, calculated by finding the present value of the expected net rental stream and determining an equivalent level annuity over the lease term.

Percentage rent clause

A retail lease provision that ties a portion of the rental payments to the sales performance of the tenant.

Breakpoint sales level

The specific sales threshold in a retail lease at which percentage rent (overage rent) begins to apply.

Anchor Tenants

Large, lead tenants in a retail center (such as grocery or home furnishing stores) that drive traffic to the site, as opposed to smaller in-line shop tenants.

Loss to lease

A financial reflection of the fact that existing leases on units may have been made in previous periods at rates different from current market rents.

Net Operating Income (NOI)

The total income remaining after subtracting operating expenses and $CAPEX$/improvement allowances from Effective Gross Income.

Estoppels

A general content item of a lease involving a legal statement that prevents a person from asserting something contrary to what is implied by a previous action or statement.

Concessions

Tenant inducements such as moving allowances, free or discounted rent, and buyouts of existing leases.