Chapter 5 Flashcards
Gross lease
The landlord (i.e., lessor) pays all of the operating expenses
Net lease
The tenant (i.e., lessee) pays all of the operating expenses
Flat rental lease
A lease with a specified level of rent that continues throughout the lease term
Graduated rental lease
A lease that provides for specified changes in rent at one or more points during the lease term
Step-up lease
The payments increase at specified intervals
Step-down lease
The payments decrease at specified intervals
Revaluation lease
A lease that provides for periodic rent adjustments based
on the market rental rate of the space. This is sometimes accomplished
through appraisal or arbitration
Index lease
A lease, usually for a long term, that provides for periodic rent
adjustments based on the change in an economic index, e.g., a cost-of-living
index
Percentage lease
A lease in which the rent or some portion of the rent represents a specified percentage of the volume of business, productivity, or use
achieved by the tenant
Contract rent
The actual rental income specified in a lease
Scheduled rent
Income due under existing leases
Market rent
The most probable rent that a property should bring in a
competitive and open market under all conditions requisite to a fair leas
transaction, the lessee and lessor each acting prudently and knowledgeably, and assuming the rent is not affected by undue stimulus
Effective rent
Total base rent, or minimum rent stipulated in a lease
Deficit rent
The amount by which market rent exceeds contract rent at the
time of the appraisal
Excess rent
The amount by which contract rent exceeds market rent
at the time of the appraisal
Percentage rent
Rental income received in accordance with the terms of a
percentage lease
Overage rent
The percentage rent paid over and above the guaranteed
minimum rent or base rent
Operating expenses
The periodic expenditures necessary to maintain the
real estate and continue production of the effective gross income
Fixed expenses
Operating expenses such as property taxes and insurance
that generally do not vary with occupancy and that prudent management will
pay for whether the property is occupied or vacant
Operating Statement Workflow Chart:
Variable expenses
Operating expenses that generally vary with the level of
occupancy or the extent of services provided
Replacement allowance
An allowance that provides for the periodic replacement of [short-lived] building components that wear out more rapidly than the building itself and must be replaced during the building’s economic life
Net operating income (NOI or Io)
The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted
Mortgage debt service (Im)
The annualized periodic payment for interest on and retirement of the principal of a mortgage loan
Pre-tax cash flow (PTCF)
The portion of net operating income that remains after total mortgage debt service is paid but before income tax on operations is deducted
Operating expense ratio (OER)
The ratio of total operating expenses to
effective gross income (TOE / EGI); the complement of the net income ratio, i.e.,
OER = 1 − NIR
Net income ratio (NIR)
The ratio of net operating income to effective gross
income (NOI / EGI); the complement of the operating expense ratio, i.e.,
NIR = 1 − OER
