Glossary of Commercial Leasing Terms with Practice Pointers

• Jurisdiction: United States
• Publication year: 2022

Glossary of Commercial Leasing Terms with Practice Pointers¹

Abandonment—The complete relinquishment of all right, title, claim and possession to a premises coupled with an intention to no longer honor any further contractual obligations. Abandonment of the premises will typically give rise to a default under the lease.

A disclaimer of any interest by the bankruptcy trustee or debtor in burdensome or inconsequential property. Once property has been "abandoned," it is no longer property of the estate, and parties with a security interest in the property may proceed against it.

Abatement of Rent—A reduction, decrease, diminution or suspension of the payment of rent by a tenant usually either by agreement, such as at the beginning of the term, or due to the landlord's failure to provide services or repairs or satisfy some other contractual obligation.

Abatement Periods—Periods in a lease during which the landlord does not charge rental payments and/or additional rentals such as operating expenses, taxes and electrical charges.

Practice pointer: The abatement period continues until certain events occur. The most common abatement period is a free-rent period, which typically runs from one date to another date as set forth in the lease. A construction period abatement typically runs from the rental term commencement until a certain event such as substantial completion of the premises or the earlier occupancy of the premises by the tenant. Another typical abatement period is the operating abatement, which typically follows the construction abatement period and is a free-rent period intended to assist the tenant starting up operations. Such abatement periods may run seriatim may be parallel or interdependent.

"Absolutely Net Fixed Minimum Rent"—Term utilized to reflect tenant's absolute obligation to: (1) pay the fixed minimum rent and all additional costs such as insurance, real estate taxes, water and sewer assessments, operating expenses and service contracts; (2) perform all owner-type obligations (such as maintenance, repair, replacement, fire and casualty restoration or replacement); and (3) comply with all laws and governmental requirements for the life of the lease. The obligations to pay and perform survive all events, including fire, casualty, acts of God and condemnation and changes in laws, even those that prevent occupancy or use of the property. An absolutely net lease form of transaction generally is implemented for the ground and/or improvements and is utilized for financing and securitization purposes.

Absolutely Net Lease—This is also known as a "net, net, net or triple net" lease. This is a less common lease option that is more rigid and binding than a triple net lease and may require the tenant to rebuild the building after a casualty or even continue to pay rent after the building has been condemned. Aptly called the "hell or high water lease," tenants have the obligations for the building no matter what happens and under all circumstances. The three nets are generally equated with: (1) operating and maintenance expenses, (2) taxes and (3) insurance. Having the tenant pay all three would be a "triple net" lease. The banking and financial worlds use the term to mean that the landlord gets a fixed rental amount under "absolutely" all conditions, including in the event of destruction of the property and where the tenant pays for all costs, expenses, maintenance, legal compliance, repair, taxes and insurance. See also, Triple Net Lease.

Abstention—Decision by a bankruptcy court not to hear a particular civil proceeding on the finding that it is in the interest of justice or in the interest of comity with state courts or state law. A bankruptcy court must abstain from a hearing involving a noncore proceeding based on a cause created by state law, where such cause is actually pending and can be timely adjudicated in a forum of appropriate jurisdiction. The bankruptcy court may abstain from hearing an entire bankruptcy case on the finding that the interest of both creditors and the debtor will be served by dismissal of the petition.

Abuse—Grounds for dismissing a Chapter 7 consumer case. Abuse can be found in one of two ways: first, through an unrebutted presumption of abuse, arising under the means test; and second, on general grounds, including bad faith.

Accelerated Depreciation of Amortization—A tax or financial reporting convention that recognizes a greater than straight-line amount of portions of capital disbursements as expense deductions earlier in the deployment of the asset rather than ratably over (for instance) its useful life.

Practice pointer: Sometimes this acceleration of depreciation reflects an accelerated loss of value such as that of software and computers that may become obsolete long before they wear out. Other instances when this acceleration of expensing of capital disbursements is used include when the government feels the need to stimulate or incentivize investment or capital outlays to encourage investment or sectors of the economy.

Acceleration of Rent Clause—Moving up the time when rent is due to before the contractually stated installment date. These clauses are usually triggered when a tenant is found to be in default of its lease obligations. Rent may be accelerated either by a contract provision or by statute.² The failure to have a rent acceleration provision may trigger the rule of non-apportionment of rent.

ACORD 25—Standardized certificate of liability insurance form issued by the Association for Cooperative Operations Research and Development (ACORD). It shows various types of general, automobile, and umbrella liability coverage and workers comprehension and employer's liability and amounts for each. It is issued for information only and confers no rights upon the certificate holder other than that contained in the insurance policy itself.

ACORD 27—Standardized certificate of commercial property insurance form issued by the Association for Cooperative Operations Research and Development (ACORD). It contains an area on the form for inserting the types and amounts of property coverage protecting the insured and any other additional interests. It is issued for information only and confers no rights upon the certificate holder other than that contained in the insurance policy itself.

ACORD 28—Standardized certificate of commercial property insurance form issued by the Association for Cooperative Operations Research and Development (ACORD). Like the ACORD 27, it contains an area on the form for types and amounts of property coverage protecting the insured and any other additional interests but is more comprehensive than the ACORD 27 in its descriptions and categories and also contains areas for business income and rental value coverage, blanket equipment breakdown, ordinance of law, earth movement, flood, and wind/hail coverage (which are normally excluded from traditional "all risk" type coverages), and enumerates terrorism insurance and mold coverage. It is a much more detailed and comprehensive version of prior forms. It is issued for information only and confers no rights upon the certificate holder other than that contained in the insurance policy itself.

Active Income—Income received or produced by efforts of a taxpayer in pursuit of the taxpayer's principal or main and regular occupation.

Active Negligence—A broad term for those actions that do not rise to the level of willful or gross negligence. For example, active negligence may result from an action or affirmative act of an uninsured party if a tenant were to leave exposed wires in a premises during a tenant build-out or alteration resulting in a fire.

"Acts of God"—Actions or activities caused exclusively by natural or physical events or disasters leading to delays or suspension of lease obligations or injury or damages to the lease parties. These misfortunes or accidents are usually not easily preventable. See also, Force Majeure.

Actual Eviction—The landlord's act of wrongfully ousting the tenant from its physical possession of the leased premises. If the tenant's ouster is from a portion of the premises, the eviction is partial actual eviction. If the tenant is ousted from the entire premises, the eviction is a total actual eviction.

ADA—See Americans with Disabilities Act (ADA).

Additional Connectible Electrical Load (ACEL) Survey—The survey of electricity usage by a tenant in a space in a building, conducted after the first survey, which determines benchmark initial electrical usage by a tenant. The electrical engineer conducting the ACEL survey compares the schedule of electrical connected load reported in the original survey with the current electrical equipment found within the surveyed premises. This type of survey adds to the schedule new electric consuming equipment and measures its consumption. The surveyor is not required to remove from the survey equipment that was included in the earlier survey but has since been retired, removed or no longer used.

Practice pointer: To be fair, the new survey should add new equipment and remove any equipment that is no longer connected or used or that has been removed from the premises. This type of electrical survey will always indicate an artificially increasing load and increasing consumption, which of course results in higher electrical cost to the tenant. This is neither fair nor ethical. When encountered, this type of clause needs to be neutered.

Additional Insured—Party who receives similar but less than full protection under a commercial general liability (CGL) policy as the named insured. The additional insured has none of the obligations under the CGL policy and is not responsible for paying premiums. An additional insured has relatively easy and direct access to the named insured's policy.

Additional Named Insured—A party who is treated as a named insured for CGL policy coverage and exclusions, but who does not receive the same benefits as an...