Commercial Property Investment Glossary: Ultimate List Of Commercial Property Investment Definitions You Need To Know

    commercial property glossary

    Commercial property investment is one of the profitable property investment strategies.

    As much profitable strategy it is so many people get it wrong, be it either property challenges or tenant challenges.

    Even experienced investors, there will be something that we can learn.

    A

    Absolute Compliance

    If you see this on your contract, it means that you must meet the requirements of the agreement in full. You may see ‘absolute compliance’ in a break clause, which means certain conditions must be met in order to bring the lease to an early close.

    Adjudication

    Adjudication provides a forum for disputes to be settled quickly; normally within 28 days. It is generally the statutory procedure for settling building disputes. It has proved particularly useful in allowing works to continue and avoiding unnecessary tensions. An adjudicator’s decision is binding but the decision can be revisited in, for example, arbitration or a court of law.

    Alterations

    It’s common for contracts to mention alterations, which refer to how much you can modify the premises; for example, adding partition walls, replacing the electrics or changing the interior décor. Read these carefully, as there may be some restrictions in place.

    Alienation

    The right to dispose of the leasehold interest in land or property. These provisions will outline a tenant’s ability to transfer ‘assign’ the lease, underlet or sub-let, or share occupation of the premises.

    Alienation provision

    Alienation provisions are those clause(s) in a lease which governs a tenant’s ability to dispose of its leasehold interest.

    Arbitration

    Arbitration is governed by statute. Agreements to refer disputes to a specialist arbitrator are often made in a lease or building contract. Arbitration is private; the arbitrator’s award is final and binding and is based on evidence put forward. There are limited rights of appeal to the courts on procedural irregularities and points of law. This is a popular way of resolving property disputes where privacy and speed are important.

    Asset Valuation

    In property terms, an asset valuation is an expression applied to the formal valuation of land, offices and buildings or plant and machinery. The term is generally used to describe an expert opinion of the open market or existing use value of offices or property. An asset valuation can be incorporated into company accounts, where the ownership of the asset is not necessarily being transferred, but the valuation is of interest to, say, shareholders.

    Assignee

    An individual or company to whom a lease is assigned.

    Auction

    An auction is a sale which takes place, usually in public, when an office or property is sold to the highest bidder, provided the amount of money offered reaches the reserve price. The sale process by auction is immediate, with the exchange of contracts being achieved on the “fall of the hammer”. A reserve price is the lowest price the vendor is prepared to accept and the property will not be sold unless the reserve price is reached or exceeded. In most cases, a guide price is also available from the auctioneer.

    B

    Beneficial occupation

    Beneficial occupation is one of the essential requirements in designating rateability. Together with exclusive occupation and sufficient permanence, beneficial use is required before any party can be subject to a business rate liability.

    Biodiversity offsetting

    Conservation activities designed to deliver biodiversity benefits in compensation for losses, in a measurable way. The government has announced plans to introduce biodiversity offsetting schemes to the UK. The first pilot schemes began in spring 2012, with the stated aim of testing a ‘metric based approach’ towards biodiversity conservation.

    BREEAM

    BREEAM (Building Research Establishment Environmental Assessment Method) is a recognised environmental assessment method and rating system for buildings, which was first launched in 1990. BREEAM is one of the most commonly used standards for best practice in sustainable building design, construction and operation and is a widely recognised measure of a building’s environmental performance. A BREEAM assessment evaluates a building’s specification, design, construction and use, such as energy and water use, the internal environment (health and well-being), pollution, transport, materials, waste, ecology and management processes.

    Break Clause

    A clause or get-out of a lease which provides either party with the right to terminate a lease.

    Break Notice

    A formal notification, either by a tenant or landlord, to end a lease.

    Brownfield Land

    Previously developed land that was used for industrial or commercial use. This land may be contaminated with pollutants and require clearing of hazardous waste.

    Business Rates

    Non-domestic property contributions towards local authority services. This is calculated using rateable values and a multiplier, plus any discounts or reliefs. The local council is in charge of billing these rates.

    Business rates

    Business rates, or non-domestic rates, are a tax on the occupation of commercial property and other non-domestic property. The Local Government Finance Act 1988 introduced business rates in England, Wales and Scotland. Properties are assessed in a rating list with a rateable value. Rating Lists are created and maintained by the Valuation Office Agency, with a revaluation generally occurring every five years.

    C

    Capex

    Capital expenditure (CAPEX) are funds used by an organisation to acquire or upgrade physical assets, such as property or equipment.

    Capital Value

    The value of an asset.

    Chair Agreement

    A non-exclusive licence to occupy, often seen in hairdressing or beauty salons.

    Change of Use

    All buildings are given permitted use limitations. ‘Change of Use’ is a clause referring to the change of this categorisation or the process of altering this. This may require planning permission.

    Clawback

    An agreement for provisions regarding land that may be worth considerably more if redeveloped in the foreseeable future. For example, if planning permission is granted on a vacant plot.

    Compulsory Purchase

    A purchase by a public body of property or land from an unwilling owner for development. There may be compensation entitled.

    Condition precedent

    A condition precedent is a lease covenant including conditions which must be strictly fulfilled to satisfy the requirements of the lease.

    Contractors test

    The Contractor’s Test is the method of valuation used for property where there is no open market, for example, a public building.  It is also the method of valuation adopted ‘as a last resort’ for rating.

    Covenant

    1) A clause in a lease. 2) A term used to dictate the worth of a tenant and the risk of default.

    Coventee

    The person or business that complies with a covenant.

    CPI (Consumer Price Index)

    The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. The CPI Index is used to track price changes associated with the cost of living.

    D

    Decoration covenant

    Where there is an obligation to decorate, the decoration covenants within the lease will state when the internal or external decoration is required. It may go on to define specific details, such as how many coats of paint are to be applied and when the decorations are to be applied.

    Demise

    The term demised premise refers to the space occupied by a tenant, under the lease contract.

    Demised Premises

    Any business premises which is subject of a lease.

    Depreciation

    Depreciation is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes.

    Dilapidations – A term given to principally cover the proceedings of a sought out the schedule of dilapidations where a landlord seeks to enforce a tenant’s repairing obligations or compensation may be acquired for damages.

    Dilapidations protocol

    There is a formal pre-action protocol for claims for damages in relation to the physical state of a commercial property generally called the ‘dilapidations protocol’. This was been formally adopted under the Civil Procedure Rules in January 2012.

    Diminution Valuation

    A Diminution Valuation is a specialist’s report prepared by an experienced Valuer which takes into account Section 18 of the Landlord and Tenant Act 1927. Section 18(1) provides that the damages for breach of the repairing covenant may not exceed the diminution in value of the landlord’s reversion caused by breaches of repair. The common law practice is now to produce a single diminution valuation reflecting all breaches of the covenant (i.e. including reinstatement etc).

    Disrepair

    The assessment of the condition of the property, which highlights areas where repair is required.  Many tenants will have obligations to repair their premises.  Failure to do so is commonly referred to as disrepair. The state of repair is usually disregarded in making an assessment for rating, although significant dilapidation can lead to removal from liability.

    E

    Easements

    The official right of accessing another’s land in order to access your own, such as private roads or a path that runs through another property’s land. This should be built into the property deeds.

    Empty Rates

    Following the introduction of new legislation in 2008, rates have been applied in full to empty properties (with some minor exceptions).

    Endorsement

    This is the parties’ signature of their documents being Landlord’s Schedule of Dilapidations and the Tenant’s Response.

    Energy Performance Certificates (EPC)

    Energy Performance Certificates (EPCs) are required for buildings when they are sold, built or let. The certificate identifies how energy efficient a building is by providing a rating from G (least efficient) to A (most efficient). It is accompanied by a report providing recommendations for potential improvements to the building and indicative costs, payback periods and carbon impacts.

    Equivalent Yield

    The form of conveying the level of return on a commercial property investment on a discounted cash flow basis. This utilises account initial and reversionary yields.

    Estoppel

    Estoppel is the legal principle whereby one party is held to have varied its rights by its actions, and in doing so has given another party sufficient encouragement to act to its detriment in a way contrary to any existing relationship.

    External valuer

    You or your landlord may wish to use an external valuer; someone who will value the property but who is acting purely on a 3rd party basis, with no connections to either of you.

    F

    Final schedule of dilapidations

    The final schedule of dilapidations is served after the lease has ended. The timescales for dealing with the dilapidations process is defined under the dilapidations protocol and RICS Dilapidations Guidance Notes.

    Fit Out Costs

    These are costs which are usually incurred by a lessee prior to being able to occupy any new or alternative accommodation. Fit-out items will include a range of goods from the erection of partitioning, installation of electrical or telecommunications cabling, through to purchasing furniture.

    Five yearly revaluations

    Rateable values are generally subject to a revaluation every five years. This ensures that relative changes in markets between locations and property types is properly reflected in the rating list and not allowed to become outdated.

    Fixed and minimum uplift rents

    Rent subject to fixed uplifts at an agreed level on agreed dates stipulated within the lease, or rent subject to a contracted minimum uplift at the specified review date (often at annual or five-yearly intervals).

    Fixtures and Fittings

    A fixture is usually an item that has been annexed to a property to such an extent that it becomes part of it, i.e. the article cannot be removed without significant damage to the land or building. Fitting is more commonly regarded as an item that is easily removable from the land or building.

    Forfeiture

    The right of a landlord to terminate a lease before the end of its term due to certain circumstances, such as a breach of covenant or lack of payment.

    Freehold

    The term freehold is used as shorthand for the tenure of an estate in land which exists in “fee simple absolute in possession” and identifies the ultimate owner of a property. Such ownership usually includes not only the surface land or building but also the subsurface of a property and all the air space above. As part of the aim of simplifying the conveyancing process, the Law of Property Act 1925 set out two estates or interests in land, namely the “fee simple absolute in possession” or ‘freehold’ and the “term of years certain” or ‘leasehold’.

    Freeholder

    An individual who owns a property or estate outright.

    Full Repairing and Insuring (FRI) Lease

    FRI is a term used to describe a lease where the tenant is responsible for all repairs and for insuring. However, the term also applies to the liability for payment of these costs, known as effective FRI. FRI leases, therefore, include those where the landlord pays for external repairs and recovers the cost via service charge or contribution to “shared” expenditure. Also where, as is most common, the landlord maintains the insurance and recovers the cost of the premium from the tenant, usually as further rent.

    G

    Greenfield Land

    Undeveloped land in a rural area that has previously been used for agricultural or natural purposes and is now being considered for urban development.

    Gross internal area

    Gross internal area (GIA) is the internal floor area of a building measured to the internal face of the external walls. It is most commonly used in the industrial / warehouse sector, but also in food stores and retail warehousing.

    Ground Lease

    A lease of land for an extended period of time. Properties built on this land are then referred to as ‘leasehold’ when sold.

    H

    Head of Terms

    This outlines a seller’s terms which have been agreed by a buyer or tenant. This is used as an overview of the agreement while formal documents are drafted.

    Headline Rent

    The general rental amount being paid.

    Hereditament

    The unit of assessment for rating, defined in statute merely as a building which is or could be subject to a rate. A proper understanding of what comprises a hereditament relies on case law precedent developed over 400 years. Any decision on rateable occupation requires the existence of a hereditament, that is a physical unit capable of use or occupation or a ‘right’ to advertise, the latter being expressly mentioned in the main enabling act, the Local Government Finance Act, 1988.

    Hold period

    The period over which the investment is assumed to be held.

    I

    Incentive

    An incentive is a payment or concession that often arises when a lease is first granted or subsequently assigned during the course of its term. A common example might be where a landlord pays a new tenant a sum of money to take on a new leasehold contract. This sum may be in the form of a capital contribution towards the tenant’s initial fit-out costs.

    Incentive Fee

    An ‘incentive fee’ or ‘contingency fee’ is a charge related to the degree of success achieved in the task for which it is payable. A client may agree with an incentive-based fee for property instructions with their appointed commercial property agent or surveyor.

    Incoming Tenant
    The new tenant who is taking on or entering into the lease. The incoming tenant will take an assignment of a lease from the outgoing tenant.

    Indexation

    A regular adjustment of rent according to a specified index.

    Internal Repairing (IR) Lease

    In this type of lease, the landlord is responsible for external repairs. It’s also their responsibility to take on the costs of these repairs, and as such, may result in a slightly higher rent being charged.

    Interim rent

    The rent payable during a period of holding over while a new lease is negotiated or completed under the Landlord and Tenant Act 1954. If the lease is renewed, the revised rent becomes the interim rent, although either party can apply to the court for a variation to this presumption, on limited grounds.

    Internal Rate of Return (IRR)

    The rate of interest at which all future cash flows must be discounted in order that the net present value of those cash flows, including the initial investment, should be equal to zero.

    Investment Yield

    The annual rent represented as a percentage of the capital value.

    J

    Jervis v Harris clause

    A Jervis v Harris clause within a lease provides for a landlord to re-enter the property to remedy breaches of the lease the tenant has failed to rectify after an express notice period. The landlord recovers the cost of repairs as a debt thus removing some of the defences available to the tenant under dilapidations claims.

    L

    Lands Chamber

    This is the judicial forum available to hear appeals from decisions of the lower court for rating, the Valuation Tribunal (VT). The ratepayer, the Valuation Officer or any other ‘interested party’ can appeal to the Lands Chamber where they are represented at VT.

    Landlord’s consent

    If you wish to make certain changes to the property, you may have to seek ‘landlord’s consent’, which means formal permission (usually written).

    Landlord and Tenant Acts

    These are a statutory framework for the occupation of a building or land where a landlord and tenant relationship exists. Business tenancies were first given protection and an entitlement to compensation by the Landlord and Tenant Act 1927. This act was substantially amended by the Landlord and Tenant Act 1954, which now forms the main legislation for owners and occupiers, although further amendments were made by the Law of Property Act 1969.

    Land Registry

    A government department that registers the ownership of land and property in England and Wales.

    Lease

    A binding contract that grants possession of the property for a set period of time in exchange for rental payments.

    Lease Expiry Renewal

    The Landlord & Tenant Act 1954 limits the way in which a business tenancy may come to an end. Thus a tenancy or lease that falls within the provisions of the Act, will not come to an end unless it is terminated in accordance with the provisions set out in the Act.

    Lease regear

    A lease regear is a relatively recent term used to describe the renegotiation of a lease during the term. Often linked to another lease event, for example, a break option or rent review, but also applies to early renewal, when the parties renegotiate during the contractual term.

    Lease Security or Security of Tenure

    Provided by The Landlord and Tenant Act 1954 and the Regulatory Reform Order 2003, this dictates a tenant’s right to remain in a property at the end of a lease, or not.

    Lease surrender

    A lease surrender is an agreement whereby the parties bring a lease to an end other than by contractual expiry or the exercise of a break option.

    Lease term

    A lease cannot be open-ended. The lease term is the period of time the Lease runs for (as a “term of years” or “length of term”) under the lease.

    Lessee

    A tenant

    Lessor

    A landlord

    Licence

    Legal permission to do something.

    Liquidity

    The ability to convert an asset into cash within a required period.

    Loan Valuation

    In most cases when a party lends money for the purchase of a property interest, the lender will require a loan valuation. This is to ensure that the value of the asset meets the security and equity criteria of the loan contract.

    Loss of rent

    Loss of rent is the term given to the rent a landlord has lost due to the tenant’s breaches of the lease. The loss of rent may relate to the period of time it takes for the landlord to remedy the tenant’s breaches of the lease after lease expiry. Some leases include provision for this to be paid in any event.

    M

    Managing agent

    The managing agent is someone who works for or represents the property owner. Duties include collecting rents and monitoring the tenant’s and landlord’s compliance with their respective lease covenants.

    Market Rent (MR)

    Market Rent (MR) is the estimated amount for which a property would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.

    Market Value (MV)

    Market Value (MV) is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

    Market Value with existing use

    The definition of market value with existing use disregards potential alternative uses and any other characteristics or development.

    Material change in circumstances

    A Material Change in Circumstances (MCC) is a physical change, defined under Schedule 6 of the Local Government Finance Act, that can be cited as a reason to alter any existing assessment in the rating list and which may lead to a change in Rateable Value following a ratepayer proposal or a Valuation Office Notice.

    Material compliance

    Material compliance is a legal phrase used to describe the extent to which the conditions in a lease must be met.

    Managed Office Space

    Neither services or conventional, this space is fully managed by an external company to provide equipment under flexible terms.

    Memorandum of review

    A memorandum of review (or rent review memorandum) documents the outcome of the rent review process, whether the review is settled by agreement or arbitration / independent expert determination. It is a simple legal document identifying the lease, the relevant review provisions and both the original and current parties, which records the amount and effective date of any revised rent. It may either be annexed to the lease or, more typically, retained with each party’s deed packet as a separate document.

    N

    Net effective rent

    The equivalent rent that would be payable after all incentives (for example capital contributions and rent-free periods) are taken into consideration.

    Net Internal Area (NIA) – The usable space within a property’s perimeter walls. This is a standard term quoted when marketing office space.

    NLIS search

    A search carried out over the internet using the National Land Information Service

    Notice to Quit – A served notice from a landlord to a tenant, instructing them to vacate the property due to certain circumstances.

    Net yield

    Net yield consists of the profits generated from purchasing or renting a property, minus the costs involved.

    Net initial yield (NIY)

    The net initial yield is the initial net income at the date of purchase, expressed as a percentage of the gross purchase price including the costs of purchase.

    Net present value

    The sum of the discounted cash flow of a project, with all tranches of net income discounted to a present value at a rate derived from the investor’s target rate of return or the cost of capital.

    Nil increase

    Shorthand term referring to the outcome of an ‘upward-only’ rent review, where the current open market rental value is at or below the level of the passing rent, and the review is documented at the same (nil increase) level.

    O

    Onerous lease provisions

    Some of the tenant’s covenants in a lease may impose restrictions on its occupation of the premises which, when assessing the rental value of the property at rent review, warrant an adjustment in the rent.

    Open market rent

    Open market rent is the most common basis of valuation at rent review (also known as open market rental value – OMRV). It is commonly defined as the rent at which the premises might reasonably be expected to let, in the open market, at the review date, on the terms of the hypothetical lease.

    Open market rent review

    A rent review to open market rent.

    Outgoing Tenant
    The current tenant who is assigning the lease. The outgoing tenant will assign their lease to the incoming tenant.

    Option to Purchase
    An option to purchase is a right or option given by the seller of a property or the landlord to an intending purchaser or tenant to buy the property at a specified price within a specified period of time (the validity period of the option). The intending purchaser must pay a fee for this right or option. The intending purchaser or tenant has to exercise the option to purchase within its validity period if they decide to buy the property.

    Overage
    Also known as clawback or uplift clause (see clawback). Overage is also known as a clawback. It is a right to receive future payments which are triggered by future events – for example, achieving planning permission for change of use or development, practical completion of a development, or the sale or lease of the completed development.

    P

    PACT

    Professional Arbitration on Court Terms (PACT) is available to the parties to a disputed lease renewal, by agreement, as an alternative to the expense and procedural complexity of a Court determination.

    Party wall surveyor

    A party wall surveyor is appointed in relation to the condition of, or work to, a party wall. This arises when works are planned to adjoining property and impinge on the party wall. The surveyor is independent; they produce a set of guidelines in respect of the work and its progress, a record of the condition of the party wall, photographs and any relevant drawings.

    Permitted Use

    Most leases contain use or permitted use clause. This clause will restrict specifically what the property may be used for. It is important tenants consider such clauses carefully.

    Personal Guarantee or Guarantor

    A personal agreement with another party, where an individual is made liable for third party debts.

    Positive Covenant

    A covenant obligation that requires actions are made.

    Private Treaty

    This is the most common form of buying/selling a property and essentially involves a binding private contract for sale to be drawn up between the parties. A sale of a property or investment opportunity by “private treaty” allows the vendor a much greater degree of control over the actual sale process and any specific conditions that should apply.

    Privity of contract

    The legal doctrine whereby the contractual relationship between the original parties to a lease (i.e. property contract) remains in place, notwithstanding any assignment(s) of the tenant’s interest.

    Q

    Quantified demand

    The quantified demand sets out all aspects of the dispute and quantifies the monitory sum sought for damages in respect of the breach detailed in the schedule as well as any other items of loss for which damages are sought. It should also set out whether VAT applies or not.

    Quiet enjoyment

    Quiet enjoyment is a term that means the tenant is entitled to operate the premises without any interference from the landlord.

    Quinquennial

    Rating revaluations in England, Wales and Scotland usually take place at five-yearly intervals which are termed Quinquennial reviews.

    R

    Rack rented

    An historic term, still in common use in rent review clauses of modern leases, to the effect that the rent is at a fully open market level. A ‘rack’ rent is one which has been ‘stretched’ (derived from the medieval torture instrument) to the full extent which could reasonably be expected on an open market letting.

    Raised floor

    Modern office buildings have floors raised above the structural slab, to provide ease of access and enable a high degree of flexibility in the positioning of floor boxes for telecoms and computer networks.

    Rateable Value

    This is the assessment required of any non-domestic property (with some exceptions) under the statute and is supposed to represent the rental value of any unit of assessment (hereditament) at the prescribed valuation date, subject to assumptions about repair on a full repairing and insuring basis. The tenancy assumed is from year to year with a reasonable prospect of continuance.

    Rates exemptions

    There are certain statutory exemptions from rates.

    Rating Liability

    A Rating Liability is a charge based on the occupation of commercial land and buildings, administered by the Local Authority. The “Rateable Value” of a property is assessed by the Government’s Valuation Office and can have similarities to the rental value of the property. All Land and Buildings are revalued every 5 years and the current assessment is effective from 1 April 2000.

    Rating list

    This is the national list of all assessments (apart from those relating to utility/national networks contained within the central list). The list is available through the Valuation Office website

    Red book valuation

    The RICS ‘Red Book’ contains rules and practice statements for all Chartered Surveyors who undertake asset and other forms of formal types of valuation. The latest edition of the Red Book came into effect on 30 March 2012.

    Reinstatement

    Reinstatement refers to the tenant’s liability to remove its alterations at lease expiry, and reinstate the premises to their original condition, as at lease commencement. If carried out under licence, there will usually be an express covenant to reinstate in the licence in addition to the ‘general’ obligation to do so in the Yielding Up clause. Frequently encountered in dilapidations cases, where the landlord’s claim for damages, based on the cost of reinstatement, is subject to a Diminution in Value test (under common law principles rather than statute, as for repairs).

    Repair Deposits

    Rent repair deposits are principally a sum of money which is held on an account, for an agreed period of time, to act as financial security in case of default by a party to a contract. The money would usually earn interest at a fixed or variable rate. When new leases are entered into, a landlord will often require a rent deposit from the in-going tenant.

    Repair notice

    A repairs notice usually takes the form of an interim schedule of dilapidations. The intention of the repairs notice is to highlight to the landlord or tenant breaches of the lease during the term. They are frequently used in conjunction with Jervis v Harris provisions.

    Repair Covenants

    Covenants in a lease are the terms of the contract between the landlord and the tenant and they specify responsibility for matters arising out of the lease. Normally, a lease will make express provision for one party to repair and maintain the whole or part of the demised premises and for the other party to repair and maintain the remainder.In short leases the landlord will often be directly responsible, while in long leases the tenant will usually take on the obligation for repair and maintenance.

    Restrictive Covenant
    A restrictive covenant is a clause that imposes a restriction on the covenantee i.e. they must not specifically do something. Common examples of a restrictive covenant are not to use the land for a certain purpose or not to erect a building on the land to enable the value and use to be preserved.

    Reverse Premium

    The sum of money paid on an assignment.

    Rent review

    Usually, the landlord will review the rental rate every five years (against the current market plus the value of the property, or the Retail Price Index).

    Retail Price Index (RPI)

    The Retail Price Index (RPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. The RPI is used to track price changes associated with the cost of living. In the commercial property market leases are often granted with rent reviews occurring by reference to the RPI (or occasionally the Consumer Prices Index) (normally on an upwards only basis). Unlike the CPI Index, the RPI includes mortgage payments.

    Revenue per available room (RevPAR)

    Revenue per available room (RevPAR) is one of the standard benchmarking measures in the hotel industry. However, it is not straightforward as the revenue is related to room-generated revenue rather than total revenue. It is calculated by taking all rooms revenue and dividing by the number of bedrooms.

    S

    Schedule of Condition

    An official record of the condition of commercial property at the start of a lease.

    Schedule of Dilapidations

    This is a list of outstanding repair and maintenance items, that a landlord has assessed as accrued under the terms of a tenant’s repair and maintenance obligations. It is often served by the landlord at the end of the lease in the form of a “Terminal” Schedule of Dilapidations.

    Scott Schedule

    The Scott Schedule is a document that enables the parties to compare their respective positions in relation to the landlord’s original schedule of dilapidations. It comprises a series of columns in which each party sets out its response to the opposing party’s contentions.

    Section 18

    Section 18 is a reference to Section 18 of the Landlord and Tenant Act 1927. The Act is split into two parts or ‘limbs’. The first limb S 18(1) provides that the damages recoverable for breach of the repairing covenant, may not exceed the diminution in value of the landlord’s reversionary interest. The second limb S 18 (2) that a landlord may not recover damages where it intends to demolish or carry out structural works to the property that render the tenants repairs valueless.

    Section 25 Notice
    A Section 25 Notice is prepared by the Landlord and served on the tenant where the tenant has lease security. It is served towards the end of a tenancy or after a tenancy has expired and is used to inform the tenant whether or not the landlord agrees to the grant of a new lease. If the landlord agrees to a new lease the notice will set out in brief the landlord’s proposed terms for the new lease. If the landlord does not agree to a new lease then the notice must state the reason why (refer to Landlord and Tenant Act 1954)

    Section 26 Notice
    A Section 26 Notice is prepared by the tenant and served on the landlord where the tenant has lease security. It should be served before the end of a tenancy and is used to inform the landlord that the tenant requires a new lease for the property.

    Sections 24-28 of the 1954 Act

    The sections of Part II of the Landlord & Tenant Act 1954 (as amended) which govern Security of Tenure. Section 24 deals with the Continuation of the Tenancy after the contractual expiry date, including the rules relating to interim rent payable during the continuation or ‘holdover’ period. Sections 25-27 deal with the Notices which must be served to either renew, oppose renewal, or end the tenancy by Tenant’s Notice to Quit. Section 28 deals with the agreement of future ‘reversionary’ leases.

    Security of tenure

    The protection (security) afforded to tenants of commercial premises by Part II of the Landlord & Tenant Act 1954 at the end of their lease.

    Service Charge

    It’s common to have a service charge in place, which the tenant must pay, in exchange for services provided by the landlord; such as maintenance and repair of the building, plus management (in some cases).

    Specialised trading property

    Property with trading potential, such as hotels, fuel stations, restaurants or the like, the market value of which may include assets other than land and buildings alone. These properties are commonly sold in the market as operating assets and with regard to their trading potential. Also called property with trading potential.

    Statutory obligation

    A lease will generally include for covenants relating to the tenant’s or landlord’s obligations to comply with statute or regulations.

    Sublease

    A lease granted by a tenant

    Surrender
    An agreement between the landlord and the tenant that the lease will end before the term end date.

    Subletting

    When a tenant rents out a property to a sub-tenant.

    Sui generis

    Uses that do not fall within any particular Use Class, including theatres, houses in multiple occupations (where not C4), hostels providing no significant element of care, scrap yards, petrol filling stations and shops selling and/or displaying motor vehicles, retail warehouse clubs, nightclubs, launderettes, taxi businesses, amusement centres and casinos. The change permitted is from casinos to D2.

    Supersession

    Supersession is the process by which a landlord’s actual or intended future works to a property render of no value a tenant’s repairs. This is used as a defence to the landlords claim.

    T

    Tenancy

    The holding of a legal interest in Property by a Tenant under a Lease or other Tenancy Agreement.

    Tenancy at will

    Essentially a form of Licence – a legal (but non-Property) interest under which premises may be occupied by way of a “personal” agreement. A Tenancy at Will does not grant a formal Tenancy or create any legal/enforceable interest in the property, which is occupied “at the will of” the Landlord. Often used to allow early access to Premises pending completion of a Lease.

    Tenant’s improvements

    This term refers to a range of improvements that a tenant can legally make (at their own cost), without seeking permission from the landlord.

    Tenants in common

    The way in which two or more people own land (freehold and leasehold) jointly. They can hold in unequal shares and on death the share of the deceased passes in accordance with the deceased’s Will or the law of intestacy

    Tenant’s representative

    An agent, usually a Surveyor, appointed by the Tenant to represent them in negotiations and/or third-party dispute resolution – Arbitration, Independent Expert or Court proceedings.

    Termination

    The end of a lease by mutual agreement or the end of the tenancy term.

    Term

    This refers to the length of time granted to the tenant to rent out the premises. Some premises are short-term (i.e. six months or less), others are long-term (at least a year).

    Terminal schedule of dilapidations

    The terminal schedule of dilapidations, served at lease end, is intended to address all breaches of the lease, prepared following the recommended format in the dilapidations protocol.

    Transfer of a Going Concern (TOGC)

    A mechanism used on the sale of a property investment where VAT is chargeable but not actually payable and therefore has a cashflow benefit. It is only applicable where the asset is and remains income-producing after the transaction.

    Transition

    This is a mechanism employed by the government under the statute to limit (phase) year on year changes in liability following a rating revaluation. The system is self-funding so that limits in increases are financed by limits in decreases.

    Turnover rent

    A method of calculating all or part of the rent of commercial premises, by reference to the Tenant’s turnover. Exact terms vary between Leases, but usually, this is based on a percentage of Gross Receipts.

    U

    Underlease

    A lease granted by a tenant

    Uniform Business Rate (UBR)

    The Uniform Business Rate (UBR) is adjusted annually by inflation (RPI) and is the multiple applied to Rateable Value to calculate rates payable (subject to transition and some other reliefs for small business).

    User clause

    This is a contractual provision within a lease, that specifies the use, or uses to which a property may be put and the uses which are prohibited. The formal classification of “Uses” are set out in the Town and Country Planning (Use Classes) Order 1987 as amended, which is a statutory instrument defining various use classes.

    Use Class

    The Town and Country Planning (Use Classes) Order 1987, as amended, groups common uses of land and buildings into classes. The uses within each class are, for planning purposes, considered to be broadly similar to one another. The different use of classes are:

    • Part A
      • Class A1 – Shops
      • Class A2 – Financial and professional services
      • Class A3 – Restaurants and cafes
      • Class A4 – Drinking establishments
      • Class A5 – Hot food takeaways
    • Part B
      • Class B1 – Business
        • B1(a) offices excluding those in A2 use
        • B1(b) Research and development of products or processes
        • B1(c) Light industry
      • Class B2 – General Industrial
      • Class B8 – Storage and distribution
    • Part C
      • Class C1 – Hotels
      • Class C2 – Residential institutions
      • Class C2A – Secure residential institutions
      • Class C3 – Dwellinghouses
      • Class C4 – Small Houses in multiple occupation
    • Part D
      • Class D1 – Non-residential institutions
      • Class D2 – Assembly and leisure

    Paragraph: 009 Reference ID: 13-009-20140306

    Revision date: 06 03 2014

    V

    Vacant possession

    Vacant possession is a legal term denoting the empty state of a property on hand back to the landlord. Usually required in a lease the extent of compliance will be determined by the factual position at the date the premises are handed back.

    Valuation Office Agency (VOA)

    The VOA is responsible for maintaining a fair and accurate rating list.

    Valuation roll

    This is the Scottish equivalent of the Rating List and can be accessed here.

    Valuation Tribunal

    This is the lower court responsible for hearing rating appeals in England and Wales.

    Value Added Tax (VAT) – The tax on the supply of goods and services in the business.

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