-
§1031
[Top]
-
 IRC Code §1031 Exchange:
Simply put, a 1031 Tax-Deferred Exchange allows you to dispose of investment property and
acquire "like-kind" properties while deferring federal capital gains taxes. It allows you
to reinvest sales proceeds that would otherwise be paid to the government in the form of taxes.
-
IRC Code §1031 Information:
See separate article located at: IRC Code 1031.
-
§ 1031 Exchange:
Section 1031 is the section of the tax code that governs tax treatment of certain types of
investment real estate transactions. There are several types of § 1031 exchange methods
commonly used today, including delayed, simultaneous, and reverse exchanges.
-
Accommodator:
A Qualified Intermediary who enters into a contract to assist the exchanger to effect a tax
deferred exchange. The Qualified Intermediary (also known as an Accommodator) substitutes
in place of the Exchanger and assumes the responsibility of transferring the Relinquished
Property to a buyer and completes the exchange by purchasing the Replacement Property
from a seller before transferring the Replacement Property to the Exchanger. The Intermediary
maintains the exchange trust accounts to be sure that the funds are beyond the constructive
receipt of the exchanger. Also described as a Facilitator or an Intermediary, an Accommodator
cannot be the taxpayer or a related party.
-
Accommodating Party:
In an exchange of properties there is always a person or entity that steps in to accommodate
or facilitate the exchange transaction. This is necessary even in a simultaneous exchange
without an exchange company involved. Occasionally, the seller of the replacement property
or the buyer of the Relinquished Property will agree to act as an accommodating party to
complete the exchange. Depending on how the transaction is structured, the accommodating
party may incur additional liability in their efforts to assist in the exchange.
-
Adjusted Basis:
The adjusted basis is equal to the purchase price plus capital improvements less
depreciation. Transactions involving exchanges, gifts, probates, and receiving property
from a trust can have an impact on calculating the property's adjusted basis.
-
Boot:
Boot is any type of property received in an exchange that is not like kind, such as cash,
mortgage notes, a boat or a can of anchovies. The Exchanger pays taxes on the boot to
the extent of recognized gain.
-
Capital Gain:
Generally speaking, this is the difference between the sales price of the relinquished property
less selling expenses and the adjusted basis of the property.
-
Constructive Receipt:
The critical question in a delayed exchange is whether the Exchanger has control over the
proceeds during the exchange period. Any type of account to maintain exchange proceeds must
substantially limit and restrict the Exchanger's control to avoid having the exchange disallowed.
-
Delayed Exchange:
Also called non-simultaneous, Starker or deferred, a delayed exchange is when the Replacement
Property is received after the transfer of the Relinquished Property. All potential Replacement
Properties must be identified within 45 days from the transfer of the Relinquished Property and
the Exchanger must receive all Replacement Properties within 180 days or the due date of
the Exchanger's tax return, whichever occurs first.
-
Direct Deeding:
At the direction of the Accommodator, title passes directly to the ultimate owners without the
Accommodator being in the chain of title.
-
Identification Period:
Within forty-five days from the close of the Relinquished Property the Replacement Property
must be identified by one of the three adopted rules:
- Up to three properties of any value;
- If over three properties, the aggregate fair market
value of the replacement property can only be 200 percent of the
fair market value of the relinquished property; or
- If the aggregate fair market value of the replacement property is over 200
percent, 95 percent of the identified property must be acquired.
-
Improvement Exchange:
Also called a build to suit exchange. In this type of exchange transaction the replacement property
needs capital improvements before the exchanger takes title. To avoid the receipt of Boot, the
Facilitator will take title to the Replacement Property during the construction phase. The
property is transferred to the Exchanger when the improvements are complete. If all of the
funds are used at the end of the 180 day period the property can be transferred and the
exchange will be valid. This is true even if the improvements are not completed.
-
Like Kind Property:
Refers to the nature of the property the Exchanger gives up or receives in the exchange,
such as real property for real property. It does not have to be similar in use such as raw land
for raw land. The land could be exchanged for any other real property that will be used in a
trade or business or held for investment.
-
Passive Activities:
Any activity that involves the conduct of any trade or business in which the taxpayer does
not materially participate. Losses from passive activities generally are deductible only to the
extent of passive income.
-
Realized Gain:
Refers to gain that is not necessarily taxed. In a successful exchange the gain is realized but
not recognized and therefore not taxed.
-
Recognized Gain:
Refers to the amount of gain which is subject to tax when property is disposed of at a gain or
profit in a taxable transfer.
-
Relinquished / Replacement Property:
The property given up / acquired by the exchanger in the § 1031 exchange transaction.
-
Reverse Exchange:
An exchange where the Exchanger acquires or gains control of the Replacement
Property before disposing of the Relinquished Property.
-
Simultaneous Exchange:
Also referred to as a concurrent exchange when the Exchanger transfers out of the
Relinquished Property and receives the Replacement Property at the same time.
-
A
[Top]
-
ad valorem:
(According to value) which refers to the value of property used in the computation of taxes.
-
as-is:
The existing condition of real estate, prior to any improvements contemplated under a lease.
-
assignment:
The transfer of leasehold interest in a property to a second party.
-
attorn:
To transfer to another or to agree to recognize a new owner of a property and
to pay them rent.
-
B
[Top]
-
BOCA:
Building Officials Conference of America, which writes the guidelines for basic,
community building codes.
-
BOMA:
Building Owners and Managers Association which, among other things, established
widely-accepted methods of computing square footage in commercial buildings.
NOTE: Not use by all developers.
-
base rent:
The minimum monthly rent, usually computed on a per-square-foot-per-year basis,
due under the lease (see percentage rent).
-
base year:
A specific year of a lease against which certain rent escalations and additional
expense reimbursements to landlord may be calculated.
-
building standard:
A list of materials and finishes used in the the build-out, repair or restoration of a tenant's suite.
-
build-out:
Refers to the interior construction of a tenant's space whether new construction or the
reconfiguration of existing space.
-
build-to-suit
A customized design and build approach to a tenant's space usually resulting in a single
occupant building which is then leased or sold to the tenant.
-
C
[Top]
-
CCIM:
Certified Commercial Investment Member. An internationally prestigious real estate designation
from the CCIM Institute based in Chicago, IL. Formerlly know as the Commercial Investment
Real Estate Institute or CIREI, CCIM's are among an elite corps of more than 9,000 professionals
who hold the CCIM designation across North America and more than 30 countries. A Certified
Commercial Investment Member (CCIM) is a recognized expert in the disciplines of commercial
and investment real estate, and is an invaluable resource to the commercial real estate owner,
investor, and user. For further information visit: www.ccim.com.
-
certificate of occupancy "CofO":
Presented by city building department to landlord or tenant after completion of
tenant improvements and satisfactory inspections by city building department inspectors.
-
commercial property:
Other than residential. Owned or leased property such as office, research, retail
and industrial properties.
-
commercial real estate advocate:
James T. Saint, CCIM, MRICS is a commercial real estate advocate specializing in tenant, corporate,
or private investor consulting and advisory services for medium sized real estate projects through-out
the Western United States and internationally. In addition, Saint provides services as a real estate
advocate by helping to resolve real estate problems.
-
commission:
The fee paid to a real estate broker as procuring cause and/or for his or her services
rendered in a real estate transaction. May be paid by either party in a transaction;
it is usually governed by a prior written agreement.
-
common area maintenance (CAM):
An additional, annual charge often assessed to tenants for maintenance of the
property's "common area", such as its entryways, hallways or bathrooms.
-
construction management:
Construction supervision by a qualified manager.
-
Contact Us Form: Web mail form used for contacting Halo CRE LLC.
-
contract documents:
The complete set of drawings, specifications, bidding instructions, construction
agreement, etc. used in the construction industry. The AIA (American Institute of
Architects) standard forms are routinely used, but are not mandatory.
-
CPI:
(Consumer Price Index) A measure of inflation as determined by the US federal
government by using a "basket of goods". Used in leases as an impartial benchmark
for the calculation of escalations.
-
CRE:
abbreviation for Commercial Real Estate.
-
D
[Top]
-
demising wall:
The wall which separates a tenant's suite from another tenant's suite, or building
common areas. In most cases, a demising wall will be constructed from floor to
either the building roof deck or floor deck. The wall may also be a fire rated wall
(see "partition wall").
-
DBA:
The abbreviation for "doing business as".
-
deal:
The state of agreement both parties are looking for.
-
E
[Top]
-
eminent domain:
The right of a government entity to take (condemn) property with just compensation
for the public good.
-
escalation:
The mechanism in a lease which increases the rent, usually annually. May be set forth
in fixed steps, tied to increases in operating expense, or to increases in the Consumer
Price Index (CPI).
-
estoppel certificate:
A statement concerning the status of an agreement, (usually a lease) and the performance
of obligations under the agreement. A third party such as a lender, relies on the statement
(which is usually unilaterally executed by the tenant) for such things as making a loan on property.
-
F
[Top]
-
fair market value (FMV):
The price which the market would bring, over a reasonable period of time, for a property for sale or for lease.
-
flex space:
A building providing use flexibility between office, and other uses such as manufacturing,
laboratory, warehouse, etc. Usually provides high bays and relocation flexibility for overhead
doors and other entrances.
-
force majeure:
(An uncontrollable force) an event outside the reasonable control of the parties to a
contract such as an "Act of God", war, riots or strikes which would prevents the parties
from complying with the provisions of an agreement.
-
G
[Top]
-
go-dark:
The condition that results from a tenant's closing its business, even though the lease
is still in effect. Lease language may provide a means for a landlord to void a lease and
take back the leased premises if the tenant ceases to operate its business at that location.
-
grey shell:
The purpose is to give the prospective owner or tenant a customizable "shell" in which to create
an ideal commercial space that best suits their particular business, and generally consists of an
unfinished interior and lacking heating, ventilating, and air conditioning (HVAC), and usually
without lighting, plumbing, ceilings, elevators, or interior walls. A gray shell is ready for warm
shell or vanilla shell improvements as well as tenant improvements (TI's), which are to be
completed by the owner after taking delivery of the property or tenant once the lease agreement
has been negotiated and executed.
-
grey shell - additional concerns:
Like many real estate terms and phrases, practical use and meanings of those terms associated
with shell leases (e.g., vanilla shell, base shell, cold shell, warm shell, etc.) differ by location and
situation, sometimes even within the same region or municipal area. As they say, the devil is in the
details. The lease or sales contract should clearly and exactly specify the degree to which construction
of any sort of "shell" or "box" building has been or will be completed prior to tenant occupancy. As either
a tenant or landlord, you should not assume that the other party's definitions of shell lease terminology
are the same as yours. Get it in writing, and make sure you understand and agree with all the terms and
conditions of the shell lease agreement before you sign. If necessary, have a real estate attorney review
the contract prior to its execution.
-
gross lease:
Commonly specifies one rental amount inclusive of rent, taxes, utilities, maintenance,
etc. associated with the rental of a property.
-
gross square feet:
Usually refers to gross area of a building by measuring from the outside of its exterior
walls and including all vertical penetrations, such as elevator shafts. Also includes
basement space.
-
ground lease:
A long-term lease of land, entered into by a tenant to construct a building (at its expense)
from which to conduct its business.
-
H
[Top]
-
Halo CRE LLC:
Commercial real estate company specializing in corporate, private investor or tenant
consulting and advisory services for medium sized real estate projects through-out the Western United States.
-
HVAC:
Acronym for heating, ventilation and air conditioning.
-
hold over:
The condition that results when a tenancy exists beyond the end of the term of a lease.
-
I
[Top]
-
improvements:
See "leasehold improvements".
-
J
[Top]
-
James T. Saint, CCIM
Commercial Real Estate Advocate™ specializing in tenant, corporate, or private investor
consulting and advisory services for medium sized real estate projects through-out the Western United States.
-
K
[Top]
-
L
[Top]
-
lease commencement date:
The date upon which the lease commences and the obligations of the parties
begins (see also "rent commencement date").
-
leasehold improvements:
Construction or improvements for the purpose of preparing the premises for the
conduct of tenant's business. Improvements permanently attach to the premises
unless they are trade fixtures, and they remain with the premises after the end of
term of the lease.
-
letter of attornment:
see "attorn".
-
lien waiver:
A waiver of mechanic's lien rights signed by a general contractor and his subcontractors.
-
load factor:
The amount of square footage is a lease, in addition to a tenant's usable square footage,
which represents tenant's pro rata share of the building's common area/s. May also
be referred to as a percentage of building's rentable square feet.
-
M
[Top]
-
mechanic's lien:
A claim provided for under state statutes securing the priority of payment for the value of
work and materials furnished in the construction or repair of real property.
-
month-to-month:
A lease for a specific period of time, usually one month, which automatically renews itself
for the same period of time, unless landlord or tenant provide notice to terminate.
-
MRICS:
Member of the Royal Institution of Chartered Surveyors (RICS). The Royal Institution of
Chartered Surveyors (RICS), with headquarters in London, UK is the leading organization of
its kind in the world for more than 100,000 professionals in property, land, construction
and related environmental issues. The designation of MRICS is a badge of achievement
and the professionals who carry it are expected to show the highest level of
accomplishment throughout their career. For further information visit:
www.ricsamericas.org.
-
N
[Top]
-
Net or NNN:
See net lease or triple-net below.
-
net lease:
Structured such that a base rent for a rental property is paid to landlord. In addition,
other charges such as utilities and building property taxes, insurance and maintenance
are also payable by tenant. Sometimes referred to as net, triple net or absolute net lease.
-
notice of commencement:
Legal notice to the county's register of deeds that remodeling or improvements will be undertaken
at an address.
-
notice of furnishing:
Legal notice by a subcontractor or supplier that it furnished labor or materials, subsequent
to the notice of commencement, thereby establishing the legal right to be paid for the services
rendered.
-
O
[Top]
-
operating expenses:
The costs associated with operating income producing property usually before interest and
income tax expense, but including property taxes, insurance, repairs and maintenance,
replacement reserves.
-
option:
A term in a lease for the rights either tenant or landlord may have with respect to one another,
usually with stipulations regarding timing of those rights.
-
P
[Top]
-
partition wall:
A wall constructed to create work areas such as offices or conference rooms. Depending on
security needs, a partition wall may not be constructed to the roof or floor decking, but may
terminate at lower point such as a suspended ceiling.
-
party wall:
Usually located in a fraternity house.
-
pass-through expense:
An expense associated with tenancy in which landlord "passes through" to tenant certain
increases in building operating expenses occurring after a base year in the lease.
-
percentage rent:
Provides for a rent to be paid as a percentage of retail sales, usually quarterly or annually.
Often coupled with a base rent.
-
planned unit development (PUD):
A zoning category in which each of the proposed buildings or uses are approved in advance
as a part of a parcel's overall use. Usually preserves large common or open areas on a site.
-
premises:
In commercial real estate, the description of the leasehold and the specific square footage for
which the parties enter into a lease.
-
punch list: A list of incomplete or unacceptable construction
items which upon remedy and completion will usually complete the obligations of the contractor
under a construction contract.
-
Q
[Top]
-
R
[Top]
-
Real Estate Advocate™:
Halo CRE's James T. Saint, CCIM, MRICS is licensed to act as an agent for another person or
business that results in non-commission driven advice provided soley in the client's best
interests. With this unique advocacy retainer relationship that transcends the norm,
Halo CRE places the client's long term financial objectives as the primary motivation of
any real estate analysis and decisions.
-
real estate broker:
A person licensed to act as an agent for another person or business to negotiate a lease
or purchase of a leasehold or property, respectively, for a fee.
-
real property:
The land and anything permanently attached to the land such as buildings, parking lots,
landscaping, or other items which would otherwise be classified personal property if
not attached, excluding fixtures designed to be removable and reusable (see "trade fixtures").
-
Registration Form:
Web mail form used to register with the Halo CRE Web Site Data Base and receive a free gift.
-
renewal option:
Lease language that provides the means for tenant to give landlord notice of its
intent to renew (extend) the lease.
-
rent commencement date:
The date upon which the rent and usually the term of the lease begins. May be different from
the lease commencement date when certain obligations must be fulfilled such as the construction
of tenant improvements.
-
rentable area:
Denotes the number of square feet in a commercial building deemed to be rentable, according to
BOMA. May include a common area load factor or allowance for building amenities such as common
area hallways and lavatories.
-
RICS:
Royal Institution of Chartered Surveyors (RICS) with headquarters in London, UK is the leading organization
of its kind in the world for more than 100,000 professionals in property, land, construction and related
environmental issues. For further information visit:
www.ricsamericas.org.
-
S
[Top]
-
sale-leaseback:
A financing arrangement usually designed to raise capital for the property owner or obtain
favorable income tax results.
-
security deposit: Generally, a deposit of money by a tenant
with a landlord to secure performance of a lease.
-
setback:
Zoning requirement that requires a building or an improvement to be set back a certain number
of feet from the property line.
-
shell space:
The interior condition of either a new or existing building without improvements or finishes. Typically
denotes floor, windows, walls and roof of an enclosed premises. May include some electrical or
plumbing improvements, but not demising walls.
-
shell leasing:
Shell leasing and its various forms (warm, cold, base, etc.) are used primarily in commercial real estate,
but are gaining popularity in upscale condominiums and townhouses and other high-end residential real
estate transactions. The idea is to attract either tenants or buyers, or both, by offering customizable living
units. Financial incentives in the form of tenant (or buyer) improvement allowances afford new residents
the opportunity to select nearly all aspects of interior decor, including relatively large projects such as
plumbing and fixtures, wiring, and interior walls.
-
special assessment:
Any special charge levied against real property for public improvements the benefit the assessed property.
-
subordination agreement:
An agreement by which the tenant agrees to the priority of a mortgage over the leasehold interest,
or other claim held by the tenant on the property.
-
substantial completion:
The point during construction at which the contractor is ready to turn the property over to the
tenant or client for acceptance and final punch list. Usually occurs upon the issuance of a
certificate of occupancy.
-
T
[Top]
-
tenant representation:
Arrangement whereby a prospective tenant engages a real estate broker as its exclusive agent
in negotiating a lease for commercial space. Also know as a "buyer's broker."
-
tenant's use clause:
Lease language which specifies the business activities tenant will engage in at the leased premises.
-
trade fixtures:
Certain fixtures installed at the premises which are unique to tenant's business, and which may
generally be removed by tenant at the end of the term of the lease.
-
triple net or NNN:
Generally refers to the requirement for the lessee to pay for its share of the property's taxes,
insurance and operating expenses.
-
U
[Top]
-
usable square feet:
Denotes the number of square feet in a commercial building or suite deemed to be usable by BOMA.
-
V
[Top]
-
vanilla box or vanilla shell:
The interior condition of either a new or existing building or suite in which the limited tenant improvements
generally consist of heating/cooling with delivery systems, lighting, electrical switches and
outlets, lavatories, a finished ceiling, walls that are prepped for painting, and a concrete slab
floor or in some cases a dirt floor. Also called a "white box".
-
W
[Top]
-
Web Site Registration Form:
Web mail form used to register with the Halo CRE Web Site Data Base and receive a free gift for registering.
-
white box:
The interior condition of either a new or existing building or suite in which the limited tenant improvements
generally consist of heating/cooling with delivery systems, lighting, electrical switches and
outlets, lavatories, a finished ceiling, walls that are prepped for painting, and a concrete slab
floor or in some cases a dirt floor. Also called a "vanilla box or vanilla shell".
-
X
[Top]
-
Y
[Top]
-
Z
[Top]
|
