GLOSSARY OF TERMS - O

The fiduciary relationship obligates an broker/agent to act in good faith at all times, obeying the principal's instructions in accordance with the contract. However, that obedience is not absolute. The agent may not obey instructions that are unlawful or unethical. Because illegal acts do not serve the principal's best interests, obeying such instructions violates the broker/agent's duty of loyalty. On the other hand, an agent who exceeds the authority assigned in the contract will be liable for any losses that the principal suffers as a result.

Operating Expenses and Taxes

Two essential components of a valid contract; a "meeting of the minds."

The difference between the demand for office space and the supply of office space by property type, submarket, sector, or user classification in a given geographic market.

Amount deducted by the tenant to equal to costs incurred by the tenant in performing an obligation of the landlord under the lease. Most commercial leases unequivocally prohibit the tenant from having a right to offset. Such right would relinquish control of the property to the tenant and could render the property unfinancable.

Multiple agents allowed to market a property. Only selling agent (the one that was the procuring cause of sale or lease) is entitled to a commission. Seller retains right to sell independently.

Cash outlays necessary to operate and maintain a property. Examples of operating expenses include real estate taxes, property insurance, property management and maintenance expenses, utilities, and legal or accounting expenses. Operating expenses do not include capital expenditures, debt service, or cost recovery.

Most property owners will provide a new (to the building) tenant with at least one (1) extension option similar in length to the initial term. To exercise, tenants must provide advance notice of intent and not be in default. Some property owners will try to pre-set future term rates; others will agree to define it as market value for like-kind properties at the time of extension. Options always favor the tenant. Guaranteed expansion options are rare even to the largest of tenants. Rights of first refusal subject to (other) existing tenant(s) lease options are more commonplace. Owners might give the option to expand if a tenant guarantees to take it; sometimes called a "put".

A retail property type usually located in rural or occasionally in tourist locations, outlet centers consist mostly of manufacturers' outlet stores selling their own brands at a discount. These centers are typically not anchored. A strip configuration is most common, although some are enclosed malls, and others can be arranged in a village cluster.

In reference to commercial real estate, oversupply is a stock or supply of a given commercial property type that is greater than that which can be cleared under prevailing prices levels and market conditions (excess supply). Also, a phase of the real estate market cycle denoting that period of time in which commercial real estate markets become saturated due to overbuilding.