Glossary of Useful Retail Leasing Terms

In the following section, we have defined some of the most commonly used terms in the real estate industry, as referenced in the previous sections of this leasing tool kit. Read on to familiarize yourself with these terms as you progress through your leasing journey.

All | # 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
Architecture and Engineering (A&E)
Architects are responsible for design services, project oversight, administration, and visual and technical aspects of the job. Only architects who are registered with a governing body are allowed to “stamp” construction documents for submission to the municipality in which the project is located. Stamped drawings are required to obtain a building permit.

Engineers are responsible for the sizing and design of certain systems within the space; the mechanical, electrical and plumbing (“MEP”) systems and the roof and structure of a premises. Like architects, engineers must be registered by a governing body to create MEP plans for permit submission. Architects work closely with engineers to ensure the design execution (safety, quality, etc.) of the job. These professionals communicate and support each other to complete the project successfully. Your feedback is important, and you should be consulted along each step of the way.

Building Load, Core Factor, Load Factor
The ratio between the rented and usable space in a commercial building, a load factor is calculated by dividing the rentable square footage by the usable square footage.

The act of going door-to-door in a neighborhood to initiate conversation with local members of the community in order to obtain a better sense of the true character, challenges, and strengths of a particular area, especially as it relates to the current and prospective retail landscape.

Certificate of Occupancy
A document issued by your local government certifying compliance with building codes and stating the premise is ready for occupancy.

Cold Dark Shell
New construction retail space is often referred to as a Cold Dark Shell because there are no MEP systems. In other words, no lighting, no HVAC, no bathrooms, no life safety, no finishes. Bare bones. Typically, the space is barren except for a concrete floor, open ceiling, walls, and entry/egress with utilities “stubbed” to the space.

Common Area Maintenance (CAM)
CAM charges are the costs your business pay for the upkeep of the common areas (like roof, structural elements, walkways, and common restrooms) in a commercial building. This includes maintenance, repairs, and operating costs like snow removal and landscaping. When you lease in a multi-tenant commercial building, you almost always have to pay for a portion of the building’s CAM charges.

Common Victualler License (CV)
A CV is a license issued by a city or town that allows a food service business that is cooking, preparing, and serving food to lawfully operate. This is one of the most standard licenses or permits that every restaurant needs.

Comps is an abbreviation for “comparable,” referring to comparable financial deal terms. In retail, comps are used to assess a space’s or property’s value by comparing it to similar spaces or properties (with similar building types, uses, size space, etc.) and enforce key decisions making around what is “market” or current/normal for a certain trade area.

Concept Deck
A presentation (ideally done in PowerPoint or PDF format) of your project and its goals. The concept deck provides background information, a general vision of your idea, and supporting information that will help bring your project to life. See Concept Deck Outline on GSP website.

Construction Drawings (see also Permit Set)
Construction Drawings are the minimal set of drawings required by the local jurisdiction to obtain a construction permit. The permit set typically includes floor plans, elevations, MEPs, sections, and a site plan.

Cost-plus contracts are often used if the party who is developing the contract has budgetary restrictions or if the scope of the work can’t be accurately estimated in advance. These contracts are created for a contractor to be reimbursed for almost every expense incurred on a project.

Delivery Conditions
The condition of the Premises when Tenant takes receipt of the space from Landlord.

Design Development Drawings
Design Development Drawings are generated to define the size, function and configuration of spaces, the operation or use of equipment, and the materials for all the principal building structures and systems.

Fair Market Rent (FMR or FMV)
The “proposed” market rent for most Option Terms, which is often determined by Comps, as discussed earlier in the glossary

FF&E refers to Furniture, Fixtures and Equipment.

First-Generation (1st Gen)
Refers to newly constructed commercial space that has never been customized for a tenant. This means you are starting from zero and building on a blank canvas. First-gen spaces allow you to select where you place walls, power, duct work, etc.

Gross Sales
All sales and receipts collected by the business.

Guaranteed Maximum Price (GMP)
In a Guaranteed Maximum Price (GMP) contract, the customer agrees to reimburse the contractor for materials, labor, and the contractor’s fee. The GMP is the maximum price the customer is willing to pay for the project, meaning the contractor is responsible for any cost overages beyond the maximum price unless there are changes to the project design or original scope. This sort of construction arrangement/contract is very uncommon in the retail context.

Hard Costs
Hard costs are associated with physical building construction of a project.
  • Construction materials and labor
  • Including MEP systems, finishes, etc.
  • Immovable FF&E

Labor Harmony or Union Labor Requirements
Labor Harmony clauses are included in lease agreements to outline obligations designed to reduce the risk of labor disputes or shift the responsibility and economic impact of disputes (if/when they occur) to tenants. Almost every sophisticated Landlord will require Labor Harmony in lease agreements. Labor Harmony is different from requiring Union Labor for your work. Make sure to clarify with your broker, attorney, or trusted adviser.

Letter of Intent (LOI)
An LOI is a written document that describes the basic terms of the lease (also known as a “lease proposal” or “term sheet”) and is often signed by the landlord and tenant before proceeding to the lease. This document tends to be only a few pages long and addresses threshold provisions such as rental economics, length of term, condition of the space, permitting use(s), and timeline.

Mechanical, Electrical and Plumbing (MEP), MEP Systems
In building design and construction, MEP stands for “mechanical, electrical, and plumbing.” MEP design is critical for planning, decision-making, documentation, performance- and cost-estimation, construction, and operating/maintaining the resulting facilities.

Natural Breakpoint
The point at which gross sales exceed the annual base rent divided by a TBD percentage that the tenant agrees to pay in percentage rent. Example: If the base rent is $60,000 and the TBD percentage is 6.0 percent, the natural breakpoint would be $1,000,000.

Net Charges or Nets
Net charges are included in leases where the tenant is required to pay a portion, or all, of the taxes, fees, and maintenance costs for a property.

A single net lease requires the tenant to pay only the property taxes in addition to rent.

With a double net lease, the tenant pays rent plus the property taxes as well as insurance premiums.

A triple net lease requires the tenant to pay rent plus all three additional expenses.

Having no legal or binding force. A non-binding contract will almost always include language that reads “this contract is non-binding.” For example, a Letter of Intent is most typically a non-binding contract.

Option Term(s), Terms of Lease, Lease Terms, Initial Terms
One of the more important characteristics of a brick-and-mortar retail lease is the Term of the Lease. The duration of the lease can range from a few years to 10+ years depending on the overall deal structure (condition of the space, economics, investment, etc.). The tenant should always ask for option(s) to extend the initial Term of the Lease, which the tenant may elect to exercise under certain conditions, assuming it is not in default of the lease during the initial Term. The Option Term(s) is typically one or two option periods of various durations, typically not longer than the initial term of lease.

The Profit and Loss statement (P&L) is a financial document that summarizes revenues, costs, and expenses incurred during a given time period (quarterly/yearly). This document provides information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both.

A Profit and Loss statement is also referred to as an income statement, a statement of profit and loss, an income and expense statement, or a statement of financial results.

Percentage Rent
An alternative form of rent paid by a tenant that is based on the tenant’s gross sales from a given premises.

This form of rent is often in addition or in lieu of traditional base rent. The most typical % rent structure is an arbitrary or market percentage of sales paid over a natural breakpoint, the point at which the tenant is paying said percentage of sales in base rent. The “breakpoint” is not always a simple formula as demonstrated below and can be structured, like the % of sales, in many forms.

Basic example: Tenant is paying $50,000 in annual base rent and 5% in percentage rent over a natural breakpoint. The tenant does $1,200,000 in sales for the year. They pay 5% of every dollar over the natural breakpoint of $1,000,000 ($50,000 / .05), so $1,200,000-$1,000,000 = $200,000 x .05 = $10,000 in Percentage Rent. If the tenant does not reach the breakpoint, natural or fixed, they do not pay Percentage Rent.

Permit Set or Construction Drawings
A permit set is the minimal set of drawings required by the local jurisdiction in order to obtain a construction permit. The permit set typically includes floor plans, elevations, MEP sections, and a site plan.

Premise Plan
A fancy word for floor plan or space plan.

Rent Abatement
Rent abatement is an agreement between the landlord and tenant that provides a period of free or discounted rent. This usually happens during the first few months of the lease during tenant’s ramp up, construction, or permitting period.

Rent Commencement
The rent commencement date is when the tenant’s first month of rent is officially due. This usually happens when the Landlord delivers the property (or, “the keys”) to a tenant, subject always to the rent abatement period, if any.

Rentable SF
Rentable square footage is a tenant’s usable square footage plus a portion of the building’s shared square footage. This calculation is typical for office leases, less so for retail leases.

Schematic Drawings
Schematic drawings are the first step in an architect’s design process, where project requirements and goals are determined. The architect then takes this information and develops rough drawings of floor plans, elevations, and illustrative sketches or computer renderings.

Second-Generation (2nd Gen)
Refers to a space previously occupied by a restaurant or other retailer, which can be repurposed by a subsequent tenant. Second-generation spaces are highly recommended for businesses who are opening their first brick and mortar restaurant because it is often a more affordable option with less time (and third parties) between lease signing and open for business.

Small Business Administration (SBA)
The Small Business Administration/SBA supports small businesses in guaranteeing loans. It sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions.

Social Media Scheduling Platforms
A social media scheduling platform or automation tool enables you to be proactive and strategic about planning, scheduling, and editing your content ahead of time. Planning your social content in advance will save you time, money, and errors.

Soft Costs
Soft costs are associated with the planning, permitting, and financing of a construction project.
  • Architectural and engineering fees
  • Legal fees, permits, and taxes, property and construction insurance
  • Movable furniture, fixtures and equipment (“FF&E”)
  • Marketing, advertising
  • Initial staffing and pre-opening costs
  • Inventory
  • Working Capital

Sources & Uses of Funds
A document (usually a spreadsheet with two columns) that details where the project budget funds are coming from (owner equity, investors, bank debt) and how the funds will be spent (hard costs, soft costs, etc.). See Sources & Uses of Funds template on GSP website.

Special Permit or Variance
A special permit or variance is required when a property owner’s (or tenant’s) planned use of the premises deviates from local zoning law. If a special permit or variance is granted, it acts as a waiver to some aspect of the zoning law or other regulations.

Square Footage (SF)
A square foot is a unit of measurement of surface. It is most frequently used to quantify space in a commercial lease.

Tenant Improvement Allowance (TIA)
TIA is a pre-negotiated sum of money a landlord will provide the tenant to help cover a portion of construction costs.
  • TIA is usually expressed by dollars per square footage – i.e.: $30.00 per square foot on a 3,000 sf = $90,000
  • The tenant should be prepared to pay construction expenses upfront and be reimbursed later by landlord through TIA (not more frequently than every 30 days)
  • TIAs are almost always negotiable and are often determined by condition of the Premises (e.g., new construction often requires a larger TIA from the Landlord)
TIAs are usually only applicable for construction costs (i.e., hard costs) associated with improvements to the space; not design fees, attorney fees, furniture, or movable equipment.

Time & Materials (T&M)
A Time and Materials (T&M) contract includes a quote for a fixed hourly wage plus the cost of materials for a construction job.

Type I Kitchen Exhaust
Type I kitchen exhausts or hoods are used with appliances that are used to cook greasy foods or over cooking that can produce smoke. Type I hoods are often located above deep fryers, cook tops, open-flame stoves, conveyor pizza ovens, char broilers, and more. This type of exhaust is mandated by building/health code.

Type II Kitchen Exhaust
Type II kitchen exhausts or hoods focus on kitchen equipment that does not produce excess smoke or grease (dishwashers, ovens, pasta cookers, etc.) but may still need exhaust for steam, hot air, or odors.

Usable SF
Usable square footage is anything within the boundaries of the floor or unit. It does not include common areas of a building (lobbies, common restrooms, stairwells, storage rooms, and shared hallway). In sum, it’s a retail tenant’s exclusive space.

Vanilla Box
Retail space improved from a Cold Dark Shell with basic occupancy requirements including basic lighting grid, bathroom, HVAC, life safety, and limited finishes. Usually, this is space that was previously inhabited by a previous retail tenant or pop-up user. Vanilla Box is NOT used to describe a former restaurant space.

Working Capital
Cash available to meet your current, short-term obligations or day-to-day operations, especially as you open for business.