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Lease Definitions & Terms

C

Capitalization

The process of ascertaining the value of a property by the use of a proper investment rate of return and the net income expected to be produced by the property. The formula of net annual income divided by proper capitalization rate is express: Income/Rate=Value.


Cash flow

The net operating income of a property minus its debt service.
Cash-on-cash return. A Percentage figure arrived at by dividing the cash flow from a property by the total investment in the property and multiplying by 100. Also call Cash yield.


Certificate of insurance

A certificate issued by an insurance company or its agent. It verifies that a certain insurance policy is in effect for stated amounts and coverage and names those insured.


Channeling

Cutting, chipping or routing a prescribed sectional area in a linear pattern on any surface, usually in concrete or plaster.


Class A Building

classification system; defined by BOMA as the most prestigious buildings competing for premier office users with above average rental rates for the area along with high-quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence


Class B Building

classification; defined by BOMA as buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area and the systems are adequate, but the building does not compete with Class A at the same price.


Class C Building

classification; defined by BOMA as buildings competing for tenants requiring functional space at rents below the average for the area.


Clear span

The amount of floor area clear of interference from columns.


Common areas

Areas used by two or more tenants and/or third parties and not under the control of any one tenant.


Condemnation

The taking of private property for public use, with adequate compensation to the owner, under the right of eminent domain.


Consideration

Anything of value given by one party to induce another to enter into a contract. It may be money, personal services or even "love and affection."


Construction allowance

The amount a Landlord contributes to the cost of construction and/or alteration necessary to prepare a space for a tenant's occupancy. This is usually an established amount, but is negotiable.


Construction cost

Total expense, plus normal overhead and profit, that must be paid for the job in question.


Constructive eviction

Any disturbance by the landlord of the tenant's possession of leased premises, whereby they are rendered unsuitable for occupancy (the purpose for which they were leased). In such a case, the tenant is not liable for further payment of rent.


Constructive notice

Notice given to the world by the recording of documents with a public official. Al persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them.


Contract documents

Documents consisting of the agreement and the conditions of the contract (general, supplementary and other conditions). They include the drawings, the specifications, all addenda issued prior to execution of the contract and all modifications thereto. A modification is (1) a written amendment to the contract signed by both parties; (2) a written interpretation issued by the architect in the form of a drawing or otherwise; (3) a change order; or (4) a written order issued by the architect for a minor change in the work.


Contractor

An individual and/or firm used in performing work on construction projects. There are different classes of contractors, which are normally listed under the heading of subcontractors. The function of the subcontractor is to perform a particular task only under the direction and coordination of the general contractor, who takes on the responsibility of managing the project in accordance with the construction documents. The general contractor is normally selected through bidding procedures and is totally responsible for completion of the project in a skillful manner that is acceptable to both architect and owner. However, the general contractor may be persecuted to handle all work within a particular project. This is usually the case for multistory office buildings where the general contractor is the same for all tenant space construction. The contractor also could be contracted on a time-and-material basis, which may or may not have an upset maximum.


Cost approach

The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the replacement cost of the building, less depreciation.