Glossary60 terms
Net lease, defined.
The vocabulary of single-tenant net lease, from absolute NNN to WALT, written for owners and buyers.
- 1031 Exchange
- A tax-deferral strategy under IRC Section 1031 that lets investors reinvest real property sale proceeds into like-kind property without recognizing gain.
- Absolute NNN Lease
- A net lease where the tenant pays every property cost, including roof, structure, and capital replacements, leaving the landlord with no expense obligations.
- Assignment and Subletting
- Lease provisions governing whether the tenant can transfer the lease or sublease the space to another party, and whether the original tenant stays liable.
- AUV (Average Unit Volume)
- The average annual sales per location for a restaurant or retail brand.
- Blend-and-Extend
- A lease modification where the landlord grants a rent adjustment in exchange for the tenant extending the lease term.
- Boot
- Cash or other non-like-kind value received in a 1031 exchange, which is taxable to the extent of the gain.
- Build-to-Suit
- A development where the landlord constructs a building to a specific tenant's specifications, and the tenant signs a long-term lease before or during construction.
- CAM (Common Area Maintenance)
- Charges paid by tenants for operating and maintaining shared areas such as parking lots, landscaping, and lighting.
- Cap Rate (Capitalization Rate)
- A property's annual net operating income divided by its purchase price, expressed as a percentage.
- Co-Tenancy Clause
- A lease provision that reduces rent or allows termination if specified anchor tenants or occupancy levels at a center are not maintained.
- Continuous Operation Clause
- A lease covenant requiring the tenant to keep the business open and operating during specified hours for the lease term.
- Corporate Guarantee
- A lease guarantee from the tenant's parent company, putting the parent's balance sheet behind the rent obligation.
- Credit Tenant Lease (CTL)
- A lease to a creditworthy tenant, typically financed with a loan sized primarily on the tenant's credit and the rent stream rather than on property value.
- Debt Yield
- Net operating income divided by the loan amount, showing the lender's return if it had to take the property.
- Delaware Statutory Trust (DST)
- A trust structure that lets multiple investors own fractional interests in real estate, which the IRS treats as eligible replacement property in a 1031 exchange.
- Depreciation (Cost Recovery)
- A tax deduction that lets owners recover the cost of a building, not land, over its IRS-defined useful life.
- DSCR (Debt Service Coverage Ratio)
- Net operating income divided by annual debt service; lenders use it to measure whether property income comfortably covers loan payments.
- Estoppel Certificate
- A signed tenant statement confirming key lease facts, such as rent, term, defaults, and amendments, that buyers and lenders rely on.
- Exchange Period (180 Days)
- The deadline to close on replacement property in a 1031 exchange: 180 days after selling, or the tax return due date if earlier.
- Exclusivity Clause
- A lease provision that prevents the landlord from leasing other space in the same property or center to a competing business.
- FDD (Franchise Disclosure Document)
- A disclosure document franchisors must give prospective franchisees under the FTC Franchise Rule, covering fees, financials, litigation, and unit data in 23 items.
- FDD Item 19 (Financial Performance Representations)
- The FDD section where a franchisor may disclose unit-level sales, costs, or profits; it is optional but common among larger systems.
- FDD Item 20 (Outlets and Franchisee Information)
- The FDD section showing unit counts, openings, transfers, closures, and terminations for the franchise system over the past three years.
- FDD Item 21 (Financial Statements)
- The FDD section containing the franchisor's audited financial statements, typically for the last three fiscal years.
- Fee Simple
- Full ownership of both the land and the building, as opposed to owning only the land under a ground lease.
- Franchisee Guarantee
- A lease backed by a franchise operator and sometimes its owners, rather than by the franchise brand's corporate parent.
- Go-Dark Clause (Dark Store)
- A lease provision allowing the tenant to stop operating in the property while still paying rent.
- Ground Lease
- A long-term lease of land only, where the tenant builds and owns the improvements during the term.
- Holdover
- When a tenant stays in possession after the lease expires without a new agreement, usually at an elevated holdover rent.
- Identification Period (45 Days)
- The 45-day window after closing the relinquished property during which a 1031 exchanger must formally identify replacement properties in writing.
- Investment Grade
- A credit rating of BBB- or higher from S&P or Fitch, or Baa3 or higher from Moody's, indicating relatively low default risk.
- Kick-Out Clause
- A lease provision letting the tenant, or sometimes the landlord, terminate early if a stated condition is met, such as sales falling below a threshold.
- Landlord Responsibilities
- The property obligations a lease leaves with the owner, such as roof, structure, parking lot, or capital replacements.
- Lease Term Remaining
- The number of years left in the primary lease term before any renewal options, a major driver of net lease pricing.
- LTV (Loan-to-Value)
- The loan amount divided by the property's appraised value or purchase price.
- Master Lease
- A single lease covering multiple properties leased to the same tenant, with one rent obligation and cross-defaulted terms.
- Net Lease REIT
- A real estate investment trust that primarily owns single-tenant properties leased on long-term net leases.
- Net Operating Income (NOI)
- Property income after operating expenses but before debt service, depreciation, and income taxes.
- NN Lease (Double Net Lease)
- A lease where the tenant pays taxes and insurance, but the landlord keeps some maintenance duties, typically roof and structure.
- NNN Lease (Triple Net Lease)
- A lease where the tenant pays base rent plus the property's real estate taxes, insurance, and maintenance costs.
- Occupancy Cost Ratio
- A tenant's total occupancy costs, including rent, taxes, insurance, and CAM, divided by its gross sales at that location.
- Outparcel
- A separate parcel at the edge of a shopping center, typically along the main road, used for freestanding tenants like restaurants and banks.
- Pad Site
- A prepared parcel ready for a single freestanding building, often within or adjacent to a shopping center; frequently used interchangeably with outparcel.
- Percentage Rent
- Additional rent equal to a percentage of the tenant's gross sales above a set breakpoint.
- Qualified Intermediary (QI)
- An independent party that holds sale proceeds and documents a 1031 exchange so the investor never has actual or constructive receipt of the funds.
- Radius Restriction
- A lease clause prohibiting the tenant from opening another competing store within a set distance of the leased property.
- REA (Reciprocal Easement Agreement)
- A recorded agreement among parcel owners in a shopping center governing shared access, parking, signage, use restrictions, and common area costs.
- Recapture Clause
- A lease right letting the landlord terminate the lease and take back the space, typically when the tenant goes dark or tries to assign or sublet.
- Renewal Options
- Tenant rights to extend the lease for additional periods, typically on pre-set terms and rent increases.
- Rent Bumps (Rent Escalations)
- Scheduled increases in base rent, either as fixed percentages, fixed dollar amounts, or tied to inflation, during the lease term or options.
- Rent Commencement Date
- The date the tenant begins paying rent, which may differ from the lease signing date or the date the tenant takes possession.
- Rent Coverage (EBITDAR Coverage)
- A tenant's store-level earnings before interest, taxes, depreciation, amortization, and rent, divided by rent; it shows how comfortably the location pays its rent.
- Reverse 1031 Exchange
- A 1031 exchange where the replacement property is acquired before the relinquished property is sold, using an exchange accommodation titleholder.
- Right of First Offer (ROFO)
- A tenant's right to make an offer to buy the property before the landlord markets it to others.
- Right of First Refusal (ROFR)
- A tenant's right to match a third-party offer to buy the property before the landlord can sell to that buyer.
- Roof and Structure
- A common landlord obligation in NN leases covering repair and replacement of the building's roof, foundation, and structural elements.
- Sale-Leaseback
- A transaction where a company sells real estate it occupies to an investor and simultaneously signs a long-term lease to stay.
- SNDA (Subordination, Non-Disturbance and Attornment Agreement)
- An agreement among lender, landlord, and tenant that subordinates the lease to the mortgage while protecting the tenant's occupancy if the lender forecloses.
- Tenant-in-Common (TIC)
- A form of co-ownership where each investor holds an undivided fractional interest in the same property and can sell or exchange it separately.
- WALT (Weighted Average Lease Term)
- The average remaining lease term across a portfolio, weighted by each lease's rent or square footage.