EARNEST MONEY: A sum of money paid by a buyer at the time of entering a contract to indicate the intention and ability of the buyer to carry out the contract. Normally such earnest money is applied against the purchase price.
EASEMENT: A right to use the property of another created by grant, reservation, agreement, prescription, or necessary implication. It is either for the benefit of land appurtenant, such as the right to cross A to get to B, or in gross, such as a public utility easement.
ECONOMIC FEASIBILITY: A project’s feasibility in terms of costs and revenue with excess revenue establishing the degree of feasibility.
ECONOMIC RENT: Calculations or analysis to determine market rental value of a property at any given time, even though the actual rent may be different.
EFFECTIVE RENT: The rental rate actually achieved by the landlord after deducting the value of tenant improvements and other concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.
EFFICIENCY FACTOR: The number resulting from dividing the Usable Area by the Gross Building Area in an office building, providing a benchmark measurement for the economic efficiency of that building’s use as an office building.
EMINENT DOMAIN: A right of the government to acquire private property for a public use by condemnation, in return for just compensation. (See also Condemnation.)
ENCROACHMENT: Generally, a structure that extends impermissibly over a property line, easement boundary, or building setback line.
ENCUMBRANCE: Any right to, or interest in, real property that may exist in one other than the owner but which will not prevent the transfer of fee title. A claim, lien, charge, or liability attached to and binding real property.
ENVIRONMENTAL IMPACT REPORT: A report generally prepared by an independent company in accordance with federal, state, and local laws detailing the probable environmental effect of a development on the surrounding area.
EQUITY: The value of one’s interest in a property, consisting of its fair market value less any outstanding debt or other encumbrances.
EQUITY KICKER: Also called a participation loan. Under this kind of loan the lender gets not only interest payments and principal repaid, but also the right to share in the net cash flow, profits, and/or sale proceeds of a building. Equity participation is generally required for riskier deals or in return for lower rates.
EQUITY PARTICIPATION: The participation by a lender in the equity ownership of a project as one of the conditions for granting a loan. Used by financial institutions to partially offset the effects of inflation.
Typically occurs when lending standards are tight or the risk is unusually high. (See also Equity Kicker.)
EQUITY OF REDEMPTION: Properly, the right to pay off the mortgage lien in default by payment of the principal, interest, and costs due. Not the same as the redemption period after a foreclosure sale, which is a right established by statute.
ESCALATION CLAUSE: A clause in a lease providing for increased rent at a future time. May be accomplished by several means such as: (1) Fixed increase – A provision that calls for a definite, periodic rental increase; (2) Cost of living – A clause that ties the rent to a government cost of living index with periodic adjustments as the index changes; or (3) Direct expense – Rent adjustments based on changes in expenses paid by the landlord such as tax increases, increased maintenance costs, etc.
Typically used in leases subject to price control regulation to allow the landlord to collect the maximum amount permitted by law.
ESCROW AGREEMENT: A written agreement usually made between a buyer, seller, and escrow agent. The escrow agreement sets forth the basic obligations of the parties, describes the objects deposited in escrow, and instructs the escrow agent concerning the disposition of the objects deposited.
ESTOPPEL CERTIFICATE: A statement concerning the status of an agreement and the performance of obligations under the agreement relied upon by a third party, including a prospective lender or purchaser. In the context of a lease, a statement by a tenant identifying that the lease is in effect, and certifying that no rent has been prepaid and that there are no known outstanding defaults by the landlord (except those specified).
EXCLUSIVE LISTING: A written agreement between a real estate broker and a building owner, in which the owner promises to pay a fee or commission to the broker if specified real property is sold or leased during a stated period. The broker may or may not be the cause of the sale or lease.
EXPENSE STOP: A provision in a lease establishing the maximum level of operating expense(s) to be paid by the landlord. Expenses beyond this level are to be reimbursed by the tenant. May be applied to specific expenses only (e.g. property taxes or insurance).