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Property Phrases

Property Phrases
21st September 2017

Property Phrases

Abandonment
The voluntary desertion of a property or an interest in a property, where there is no intention of resuming possession of the property or of maintaining rights in it. 

Alienation
Normally this refers to the transfer of a leasehold interest in property to another party – e.g. the grant or assignment of a lease, or the granting of an underlease. Most leases will require the landlord’s consent for such a transfer and his costs in considering the terms of the assignment or underletting are borne by the tenant. 

Amortisation
The gradual reduction of a debt or liability, especially by means of equal periodic payments at stated intervals which, in total, are sufficient to repay the capital or principal at the end of the given period and to pay interest on the outstanding balance throughout the period. 

Arbitration
A method of settling disputes by reference to an independent and impartial third party, usually an arbitrator appointed by the President of the Royal Institute of Chartered Surveyors (RICS) (www.rics.org). Arbitration is essentially an adjudication of the arguments of the parties, and as such differs from independent expert determination. 

Assignment
Transfer of a lease from one party to the other. Once a lease has been assigned, the assignee becomes responsible to the landlord for paying the rent and fulfilling the other obligations of the lease; however, in the event of default, the landlord can require the assignor to pay the rent.

Assignor
The existing tenant who is transferring his leasehold interest to a new tenant (Assignee). 

Authorised Guarantee Agreement (AGA as it is known)
Is a legal guarantee that is often required by a tenant who has assigned their lease to a new tenant. An AGA holds the old tenant liable for all monies relating to the lease if the new tenant defaults.

Break clause 
A clause in a lease giving the landlord and/or the tenant the right to terminate a lease in specified circumstances, normally at a given date within the lease i.e. the third anniversary of the start of the lease. It is important to diarise the dates for the break clause, as notice will have to be given by the party wishing to implement it to the other party at the correct time. Most break clauses are time-sensitive in that if the date is missed, you will have lost your right to exercise the break.

Capital value 
The value of a freehold or leasehold asset as opposed to a periodic value such as rent.

CAT A
Cat A is usually used to indicate that the demise has recently been refurbished to a new standard. This typically means new carpets, ceilings, decorations, etc. have been installed.

Cat 5 data cabling
Cat 5 data cabling is the current industry standard for network and telephone wiring in offices.

Commercials
An abbreviation used to describe the financial terms of a lease deal, including rent, rates and service charge.

Contracting out (of the act)
An agreement between the landlord and tenant that the tenant will have no right to renew the lease at the end of the contractual term and will not have any right to compensation for the same purpose.

Conventional Lease
The term used to describe a normal commercial property lease, usually in the context of comparing it with a serviced office type arrangement or agreement.

Covenant
Used to denote the worth of a tenant and hence the risk of default, which will have a bearing on the value of the lease. 

Concierge
If a building has a communal manned reception or security station, it is referred to as having a concierge. The presence of a concierge will likely have an impact on the running costs of the building and the subsequent service charge demanded by the landlord.

Contribution
The contribution, or landlord’s contribution as it is commonly referred, represents any money the landlord is prepared to contribute to the moving in costs of the tenant. This is often offered by way of an incentive, but can also be offered to cover the cost of works required prior to the tenant being able to enjoy occupation.

Dilapidations
Commonly referred to as delapse, these represent the works that are required to be done by, and at the cost of, an outgoing tenant at the determination of a lease.

Demise
The property itself being let by the landlord to the tenant. 

Deposit
The amount of money the landlord wishes to hold on account, usually expressed in terms of months of rent. Whether a deposit is required is largely based on the covenant of the tenant, with strong covenants often not requiring any deposit, and weak covenants often requiring 6 months’ rent or more. A test of covenant in terms of deposits used by landlords is often whether the annual net profit of a tenant is three or more times the annual rent payable under the lease. 

Determination
The bringing or coming to an end of a lease, or an estate or interest in property, especially by notice as expressly provided for in the lease or as a consequence of a fundamental breach of a lease condition. See also termination.

Energy Performance Certificate (EPC)
A commercial EPC provides an energy rating for a building which is based on the performance potential of that building. Services such as lighting, heating and ventilation are taken into account. 

An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and it is valid for 10 years.

EPCs are needed whenever a property is:

· built

· sold

· rented

Estimated Rental Values (ERV)
An estimate of the rental which a property is likely to command in the open market at a given time. 

Exchange vs. Completion
In commercial property, it is less usual to follow the “exchange and completion” process, and often the transaction will complete once all the documents are agreed and signed. In the event that an exchange of contracts takes place prior to completing, this would usually be because it is not going to be possible to complete the lease within a reasonable timescale for whatever reason and so it becomes necessary to legally secure the interest of both parties in advance of the completion date.

Fees
The money charged by an agent for his services. This is typically a percentage of the annual rent, but often includes a percentage of savings made by the agent over the headline rent quoted by the landlord at the beginning of the negotiation. If a tenant is working with an acquisition agent, they will typically pay a fee. Where a tenant is dealing directly with a landlord’s agent, the landlord will pay the fee and the tenant does not.

Fit-out
The generic term used to describe works an incoming tenant will need to do to transform a demise into a space suitable for their commercial purposes.

Forfeiture
Forfeiture of a lease occurs when the landlord exercises his right to regain possession against the wishes of the tenant, where there is a breach in a condition of the lease. 

Freeholder
The owner of a property.

Full repairing and insuring (FRI) lease
An FRI lease requires the tenant to pay all running costs, e.g. maintenance, rates and insurance. 

Guarantor
Is when a third party, often a parent company, offers a guarantee for all payments relating to a lease. If the tenant defaults then the guarantor will be liable for all monies owed in relation to the building. A guarantor is often used when a tenant is trying to mitigate a rent deposit by improving their covenant strength.

Head lessee
The highest leaseholder in a sub-tenancy or series of sub-tenancies, who pays head rent to the freeholder. 

Headline rent
The rent apparently being paid, that may not take account of concessions such as rent free periods. 

Heads of Terms
A non-binding document, agreed by both parties prior to the deal being sent to solicitors, which outlines the main points of the commercial transaction as agreed. Heads of Terms will typically contain the following but may contain other information as well.

· Lease Term with any proposed break clauses

· Rental per square foot including any escalators

· Full contact details of all parties entering into the agreement

· Full details of the demise being leased

· Details of the service charge including any agreed caps or stipulations

· Whether the deal will be subject to VAT

· Dilapidations provisions

· Deposit details including size (normally in months and which is subject to VAT)

· The allocation of legal costs

· Solicitors’ details

Indexation
The regular adjustment of a rent in accordance with a specified index e.g. the RPI. 

Investment yield
Annual rent that is passing as a percentage of the capital value. 

Landlord and Tenant Act 1954
There are two parts to this act, which is an act of the UK Parliament.

Part I deals with the protection of residential tenancies, and is now largely superseded.

Part II is a statutory code governing business tenancy. It gives business tenants a degree of security of tenure. A business tenant protected by the act may not be evicted simply by the giving of notice to quit or by the ending of a fixed term of the tenancy. The landlord must serve a notice on the tenant, giving them an opportunity to respond.

Landlord’s incentives
Landlord’s incentives refer to anything offered by the landlord to the tenants as part of the lease negotiations. There are a number of different mechanisms that can be offered to tenants, such as rent free periods, carpet allowances, paid works and cash contributions.

Licence to Alter
A Licence to Alter is a legal document which is drawn up by solicitors and agreed between the landlord and tenant when a tenant intends to undertake office fit-out works or to refurbish their existing space. The landlord needs to sign the Licence to Alter to agree to the works before any work can be undertaken. 

As the tenant, you will be responsible for setting out the proposed scope of works to the landlord, in order to receive their approval. This will typically require the preparation of design and layout drawings, technical drawings, and specifications, together with providing an undertaking that all works will be carried out in compliance with all relevant statutes planning consent, bylaws, building regulations and in accordance with good working practices.

Lease term
The period of the lease usually expressed in terms of years and months.

Legal costs
In the process of transacting a lease, solicitors will almost always be appointed by both sides to negotiate terms. Legal costs represent their fees and, under normal circumstances, each party will pay their own legal costs. In more complicated transactions, especially where there is a superior landlord, the tenant may be asked to cover legal costs other than just their own.

Lessee
A party to whom a property has been let i.e. the tenant. 

Lessor
The party letting the property (i.e. the landlord). 

Market rent
The best rent at which a property might reasonably be expected to be let with vacant possession in the open market, with a willing landlord and tenant, taking full account of all terms of the tenancy offered. 

Open market rent review
Where the rent review clause provides that the rent on review should be based on the open market prevailing for new lettings. 

Option to Purchase
A legal document giving a person a right to buy. The price and period are specified in the document. 

Passing rent
The actual current rent being paid. 

Peppercorn rent
This is a nominal sum that must be paid annually to a landlord to enforce the terms of a lease. It is most common in a situation when a purchaser takes a virtual freehold from a landlord such as a long lease. 

Peppercorn rents originated when peppercorns were used in place of a ground rent. In theory, the freeholder could still demand the peppercorn but in effect it meant there was no ground rent to pay.

Premium
The price an actual or prospective lessee pays to a lessor, usually in return for the rent being reduced to below what otherwise would be payable. 

Prime location
The most desirable or sought-after location. 

Prime property
A term used to define property of particular interest to investors. Broadly, prime property is likely to be a modern or recently refurbished building, finished to a high specification, well situated in a commercially strong geographical location and let to a good tenant. 

Quarter days
Almost all commercial rents are paid on the quarter days rather than monthly. These days are 1st January, 1st April, 1st July, and 1st October.

Quiet enjoyment
Most leases contain a covenant for quiet enjoyment, entitling the tenant to enjoy his lease without lawful entry, eviction or interruption. 

Rates
Rates, or business rates to give them their full title, are the money paid to the local council each month as a tax for a tenant occupying the demise. Rates are usually a significant proportion of the annual cost of the demise and can even be more expensive on an annual basis than the rent itself.

Re-entry
A landlord may exercise his right to regain possession of premises by peaceable re-entry where there has been a breach of a condition by the tenant, or a breach of a covenant of a lease with a forfeiture clause. 

Relative legal fees
In the process of transacting a lease, solicitors will almost always be appointed by both sides to negotiate the wording of the lease. Legal costs represent the fees a solicitor will charge including all the associated costs they will need to carry out CPSEs.

Under normal circumstances, each party will pay their own legal costs, however in more complicated transactions, especially where there is a superior landlord, the tenant may be asked to cover legal costs other than their own. Landlords will also try to charge tenants for legal costs associated with fit-out works and wayleave and this is nearly always another element of the negotiation process.

Rent free
The amount of money, usually expressed in terms of months of rent, the landlord of a property is prepared to offer an incoming tenant as an incentive to take a particular building. Rent free periods vary wildly depending on factors such as:

· The current state of the economy

· The type of the building and its desirability in the market space

· The condition of the building

Rent free is calculated on the rental portion of the amount paid to the landlord each quarter and usually does not include the service charge or business rates.

Rent review
Leases generally contain clauses providing for a periodical review of the rent, say at five yearly intervals. The lease will generally specify what the basis of the review is to be: e.g. the open market rent prevailing at the time of the review, or, as is frequently the case, upwards only (see upwards only rent reviews).

Rent Deposit Deed
A Rent Deposit Deed is a legal document prepared by solicitors which sets out the conditions under which the tenant will pay to the landlord a deposit (a sum of money) to be held in a separate deposit account. The deed refers to the lease and allows the landlord to recover costs from the deposit account if the tenant defaults under the terms of the lease, and the tenant is then obliged to reinstate the deposit account to the full amount.

Rental value
The rent that a property might reasonably be expected to command in the open market at a given time, subject to the terms of the lease. 

Restrictive covenant
A covenant in a lease restricting the tenant in some respect, e.g. a covenant in a shop lease providing that only a particular type of trade may be carried out at the premises. More generally, an obligation in a deed whereby the covenanter undertakes to refrain from some act affecting the land of the covenantee. 

Retail Price Index
The Retail Prices Index (RPI) is the most familiar general purpose domestic measure of inflation in the United Kingdom. 

Reverse premium
On assignment, the payment of a sum of money by the assignor to the assignee to reflect the unfavourable lease terms, e.g. where there is over-renting. 

Security of tenure
The statutory right of a tenant to renew the lease at the end of a term. Part II of the Landlord and Tenant Act 1954 gives business tenants security of tenure, but parties follow the procedure set out in The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. 

Serviced office
A type of office space, usually offered on “easy in, easy out” terms with short contract durations and a standard contract that is not negotiated by solicitors. Serviced offices tend to be proposed on a cost per desk basis and offer a client a ready-made office complete with phones, internet and furniture. They also tend to offer shared reception services, meeting rooms and administrative support. Typically, much more expensive than conventional office space (although serviced office providers would beg to differ), the service is commonly used by start-ups, overseas companies setting up new locations, and companies in transit between one conventional space and another, as long leases and high set-up costs are not required.

Service charge
The amount a tenant pays for services his landlord provides. This is different to the rent in that it covers only the tenant’s proportion of the total running costs of the building including communal heating and lighting, upgrades and repairs, and items such as lifts, air-conditioning and concierge services.

Service charge cap
A service charge cap is an agreed point in the lease to protect a tenant from any unfair rises to their service charge contributions during the term of their lease. These would usually refer to the landlord deciding to carry out works in the building which the tenants do not wish to be done or pay for.

Side agreement
Terms agreed separately by the landlord and tenant, or by the buyer and seller, which do not form part of the lease or contract of sale. 

Stamp Duty Land Tax (SDLT)
Broadly speaking, SDLT is charged as a percentage of the amount paid for property or land when it is bought or transferred. Higher percentage SDLT rates apply to higher value transactions. The amount payable can also vary depending on whether the property is being used for residential or non-residential purposes, and whether the property is sold as a freehold or leasehold. 

The lowest rate of SDLT payable is 1% of the transaction value. More valuable properties are charged at 3% or 4%. The threshold at which SDLT becomes payable is currently £175,000 for residential properties and £150,000 for non-residential. 

If the property value is above this threshold, SDLT is charged on the entire value.

SDLT is also payable on the granting of leases. The amount of stamp duty payable on new leases and agreements depends on; 

– The premium, which is the capital

– The average annual rent 

Tenants should also be aware that any VAT payable on the rent will also be taken into account in calculating the SDLT due.

Subletting 
Where the tenant lets part or all of the premises to a subtenant, as permitted by the terms of the lease. It differs from assignment in that the head lessee remains responsible to the landlord for the payment of rent and fulfilment of other obligations. 

Superior landlord
In the case of an assignment of a lease or a sublet, the primary landlord remains the person who owns the building and they are referred to as the superior landlord. The superior landlord will almost always be required to give consent (not reasonably to be withheld under the terms of the original lease) for such a transaction, but it should be noted that this often slows down the process as multiple sets of solicitors become involved in the transaction. 

Surrender
A landlord’s willingness to release a tenant from the terms of the lease (known as ’surrender’) will depend upon several factors

1. The amount of time he thinks it will take to re-let the space

2. The rent the tenant is paying relative to an achievable rent in the current market

3. How much the tenant is willing to pay (relates to the above two points)

When considering this negotiation, it is important to remember the landlord is not only forgoing his rent, as he will also have to pick up the rates, utilities and insurance costs until the space is re-let. He will also have to pay back your rent deposit (if you gave one, unless this has been taken into account in the negotiations of the surrender). 

Termination
The coming or bringing to an end of a lease, by mutual agreement or by the exercise of a right of one of the parties. 

Waiver
The act of voluntarily giving up, or intentionally relinquishing, a claim, benefit or interest. A landlord waives his right of forfeiture when a tenant is in breach of covenant, if he knows of the breach and accepts or demands rent, or unequivocally recognises the continued existence of the lease.


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