Triple Net Lease Glossary

A type of triple net lease where the tenant is responsible for all expenses related to the property, including insurance, taxes, and maintenance.

The value of a property or asset, taking into account depreciation and wear and tear.

An additional document or clause that is added to a lease agreement to modify or clarify its terms.

The fixed rent amount that a tenant pays to the landlord for the use of the property.

The initial year of a lease term used to calculate the tenant's pro-rata share of expenses.

The expenses incurred to maintain common areas in a property such as lobbies, parking lots, and other shared spaces.

The expenses related to the acquisition or improvement of long-term assets, such as buildings or equipment.

A capital gain refers to the profit that an investor makes from the sale of an investment property that has appreciated in value over time. This capital gain is typically subject to taxes, but by utilizing a 1031 exchange, investors can defer those taxes by reinvesting the proceeds from the sale into another like-kind property.

To qualify for a 1031 exchange, the new property must be similar in nature and purpose to the old property, and the entire proceeds from the sale must be reinvested into the new property. By deferring the capital gains taxes through a 1031 exchange, investors can continue to grow their real estate investments without having to pay taxes on the gains until they sell the new property.

A capital gain or loss refers to the difference between the amount paid for a property and the amount received when it is sold. If the selling price is higher than the purchase price, the taxpayer has a capital gain, and if the selling price is lower than the purchase price, the taxpayer has a capital loss.

In a 1031 exchange, the capital gain or loss on the relinquished property is deferred rather than realized, meaning that the taxpayer does not have to pay taxes on the gain or loss at the time of the sale. Instead, the gain or loss is carried forward and applied to the replacement property acquired in the exchange. This can provide significant tax benefits to taxpayers who are looking to sell one property and acquire another.

Capital Gain Tax refers to the tax imposed on the profit realized from the sale of an asset that has increased in value over time. In the context of a 1031 exchange, a capital gain tax would apply to the difference between the sale price of the original property and its adjusted basis (i.e., the original cost plus any capital improvements made during ownership).

However, if the property owner uses the proceeds from the sale of the original property to acquire a like-kind replacement property through a 1031 exchange, they may be able to defer paying capital gain taxes on the sale of the original property until the sale of the replacement property. This allows them to reinvest the full sale proceeds into the new property, thus maximizing their investment potential.

The ratio used to determine the value of an income-producing property based on its net operating income.

A clause in a lease agreement that outlines specific circumstances under which either party may terminate the lease.

Debt service refers to the amount of money required to make mortgage payments on a property, including principal and interest.

When a property owner decides to participate in a 1031 exchange, they may choose to use some or all of the proceeds from the sale of their property to acquire a replacement property. If they choose to finance the replacement property with a mortgage, the debt service on that mortgage is an important factor to consider.

The debt service is typically calculated on a monthly basis and is based on the outstanding principal balance of the mortgage, as well as the interest rate and loan term. Property owners should carefully consider the debt service of any potential replacement property to ensure that it is manageable and fits within their overall investment strategy.

A breach of the terms of a lease agreement, such as failure to pay rent or maintain the property.

A type of lease where the tenant is responsible for two of the three primary expenses, typically taxes and insurance, while the landlord is responsible for maintenance.

The right to use a portion of another person's property for a specific purpose, such as a shared driveway.

The total amount of rent paid over the lease term, taking into account any rent concessions or incentives.

A clause in a lease agreement that allows for rent increases over the term of the lease.

A legal document signed by the tenant that confirms the terms of the lease agreement and any outstanding obligations.

A clause in a lease agreement that restricts the landlord from leasing space to another tenant engaged in the same business or industry.

A predetermined maximum amount that a landlord will pay towards certain expenses, with the tenant responsible for any expenses exceeding that amount.

The price that a property would sell for under normal market conditions.

The amount of rent that remains constant throughout the lease term.

A clause in a lease agreement that excuses the parties from performing their obligations in the event of unforeseeable circumstances beyond their control.

A type of lease where the landlord is responsible for all expenses related to the property, including CAM, taxes, insurance, and maintenance.

A type of lease where the landlord is responsible for all expenses related to the property, including CAM, taxes, insurance, and maintenance.

A type of lease where the tenant leases the land and is responsible for constructing the building and paying for all associated expenses.

Heating, ventilation, and air conditioning systems.

For land or buildings, improvements (also known as capital improvements) are the expenses of permanently upgrading your property rather than maintaining or repairing it. Instead of taking a deduction for the cost of improvements in the year paid, you add the cost of the improvements to the basis of the property. If the property you improved is a building that is being depreciated, you must depreciate the improvements over the same useful life as the building.

A type of lease where the rent is tied to a specific index, such as the Consumer Price Index or the Producer Price Index.

The owner or manager of a property who leases it to a tenant.

A fee charged to the tenant for late payment of rent.

A contract between a landlord and tenant that sets forth the terms and conditions of a rental agreement.

Any alterations or improvements made to a property by the tenant, typically with the landlord's approval.

The tenant who leases a property from the landlord.

The landlord who leases a property to the tenant.

A financial instrument used to guarantee payment to the landlord, typically issued by a bank on behalf of the tenant.

The upkeep and repair of a property.

The rent that a property could command under normal market conditions.

A type of lease where the tenant is responsible for some of the expenses related to the property, but the landlord pays for others, typically CAM and taxes.

A lease in which the tenant is responsible for paying operating expenses, such as property taxes, insurance, and maintenance.

The income generated by a property after deducting operating expenses but before deducting debt service.

A clause in a lease agreement that ensures the tenant's lease will not be terminated if the landlord defaults on their mortgage.

The costs associated with operating a property, such as utilities, maintenance, and management fees.

A clause in a lease agreement that gives the tenant the right to renew the lease for an additional term.

Rent that is calculated as a percentage of the tenant's gross sales.

A legal promise by an individual to pay for the tenant's obligations under the lease agreement.

The specific area of the property that the tenant leases.

The portion of expenses that a tenant is responsible for paying, typically based on the square footage of their leased space.

The management and operation of a property, including leasing, maintenance, and accounting.

A tax levied by the government on the assessed value of a property.

A clause in a lease agreement that allows the landlord to terminate the lease and take back possession of the property under certain circumstances.

A clause in a lease agreement that gives the tenant the option to renew the lease for an additional term.

Payment made by a tenant to the owner of a property in exchange for the right to use and occupy the property.

A temporary suspension or reduction of rent, typically granted to the tenant in the event of property damage or other disruptions.

The date on which the tenant is obligated to begin paying rent.

The total square footage of a property that is available for lease, including common areas.

The total square footage of a property that is available for lease, including common areas.

A transaction where the owner of a property sells it to a buyer and then leases it back from the buyer.

A sum of money paid by a tenant to a landlord to cover any damages or unpaid rent at the end of the lease.

A legal agreement between the landlord, tenant, and lender that outlines the rights of each party in the event of default.

The measurement of the area of a property.

A lease agreement between a tenant and a third party for a portion of the leased space.

A clause in a lease agreement that makes the tenant's lease subordinate to the landlord's mortgage.

The individual or entity who leases the property from the landlord.

The amount of money that the landlord agrees to spend on improvements to the leased space.

A lease in which the tenant pays for all of the property’s operating expenses, including property taxes, insurance, and maintenance

A type of lease where the landlord provides a fully equipped and furnished space to the tenant.

A set of laws that govern commercial transactions, including leases.

A clause in a lease agreement that specifies how the tenant may use the leased space.

The services necessary for the operation of a property, such as water, electricity, and gas.

The percentage of available space in a property that is not leased.

A relinquishment of a right or claim, typically granted by one party to another.

A guarantee that a rental property is fit for human habitation and meets certain minimum standards.

A document that outlines the specific improvements or alterations that the landlord will make to the leased space.

The return on an investment, typically expressed as a percentage of the initial investment.

The regulation of land use by a local government, including restrictions on the types of activities that may take place in a particular area.

Anchor tenant is the tenant that acts as the primary draw to a commercial property. It is usually the largest tenant in a shopping center or retail development. A common example is a grocery store.