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Glossary Of Property Terms

D to H

 

D

D1 non-residential institutions

Clinics, health centres, crèches, day nurseries, day centres, schools, art galleries (other than for sale or hire), museums, libraries, halls, places of worship, church halls, law court. Non residential education and training centres. There are no permitted changes.

D2 assembly and leisure

Cinemas, music and concert halls, bingo and dance halls (but not night clubs), swimming baths, skating rinks, gymnasiums or area for indoor or outdoor sports and recreations (except for motor sports, or where firearms are used). There are no permitted changes.

Decoration covenant

Where there is an obligation to decorate, the decoration covenants within the lease will state when 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

Demised premises are the extent of the premises included within a lease and may include land or other facilities. For example, when an office block is let under a written lease, in the lease the office block might be referred to as the demised premises.

Deposit

Details of the deposit and terms on which it is held are usually agreed within a separate Rent Deposit Deed but can also be included within the lease. A deposit will usually take the form of 3-6 months of the headline rent plus VAT if applicable. If the rent increase via Rent Review a Tenant can be expected to top up the amount of deposit held. Should the Landlord agree to use the deposit to deal with an immediate short fall in the Tenant’s payments, then the Tenant will be expected to reinstate the deposit to its full amount.

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. Consumption includes the wearing out, using up or other reduction in the useful economic life of a tangible fixed asset whether from use, passing of time or obsolescence through either changes in technology or demand for goods and services produced by the asset.

Determination

The generic term for the decision of a Third Party surveyor appointed under a Dispute Resolution clause to make a binding decision to resolve a dispute between the parties to a lease. Most commonly Independent Expert Determination of a rent review (similar to an Arbitration Award), but can include service charge, insurance and adjoining owner/occupier clauses.

Dilapidations

The term 'dilapidations' refers to the breaches of a tenant's lease covenants in respect of repair, reinstatement of alterations, and redecoration. Can be raised by a landlord during the term of the Lease (interim dilapidations) or, more commonly, at lease expiry (terminal dilapidations). Any resultant claim for damages is capped at the Diminution in Value of the landlord's interest under s18 of the Landlord and Tenant Act 1927 in respect of repair, and similar principles at common law in respect of reinstatement and redecoration.

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 covenant (i.e. including reinstatement etc).

Discounted cashflow

An analysis technique used to appraise, for example, investment and development projects, whereby future income streams are discounted, accounting for the time cost of money, to arrive at a present value in order to gauge performance and project viability.

Disrepair

The assessment of the condition of 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 a removal from liability.

 

E

Empty rates

Following the introduction of new legislation in 2008, rates have been applied in full to empty properties (with some minor exceptions). We have campaigned consistently against the application of rates to empty commercial and industrial buildings as a disincentive to urban renewal and business growth. We have undertaken surveys in conjunction with the Royal Institution of Chartered Surveyors, and we have continued to provide strategic and particular advice as to legal empty rate avoidance.

Endorsement

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

Energy Act (The)

The Energy Act (2011) is the central pillar of the Coalition’s programme relating to energy and climate change. It focuses on improving the energy efficiency of buildings and includes three major elements in the Green Deal, Energy Company Obligation and Private Rented Sector regulation. The Act makes it unlawful to let premises that do not meet minimum energy efficiency standards from April 2018 (set as a minimum EPC rating of E), thereby making it unlawful for landlords to rent buildings with an F or G EPC rating until certain energy efficiency improvements are made. While the energy efficiency improvements required by the Act, exceptions to the rule and links to the Green Deal are yet to be confirmed, the direction of travel has been clearly defined.

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, pay back periods and carbon impacts.

Estate charge

An estate charge is that part of the tenant's service charge liability relating to the maintenance of the estate on which a commercial property is situated. Includes, for example, landscaping, maintenance and lighting of estate roads, as well as security.

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.

Exit yield

The yield that is applied to the projected income on the assumed sale date of the investment.

Expert determination

Expert determination in the UK involves an independent third party, acting as an expert deciding a dispute using their own knowledge and experience. This is a common way of resolving rent review and valuation disputes. It is seen as quicker and cheaper than arbitration and particularly suitable to specialist property disputes.

Expert witness

An expert witness is required to assist the court or tribunal to understand complex technical matters on which their decision might be based. Experience in the subject matter of the dispute is critical and the choice of expert witness can make or break a case. Expert witnesses appear in most property disputes, whether before the courts or arbitrators. While appointed by one of the parties, they have an overriding obligation of impartiality to the court or tribunal.

External valuer

A valuer who, together with any associates, has no material links with the client, an agent acting on behalf of the client, or the subject of the assignment.

 

 

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

Fit-out costs are usually incurred by a tenant prior to being able to occupy new accommodation. Fit-outs will often include everything from installing 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. Our market coverage ensures that we have proper representation and coverage in all sectors; our rating expertise is supported by good market intelligence.

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).

Forfeiture

When a business tenant is in rent arrears or is in serious breach of the lease terms, then the commercial landlord will in most cases have the right to forfeit - the right to summarily end the tenancy. The landlord must, however, comply with section 146(1) of the Law of Property Act 1925. There is no automatic right to forfeit a lease unless the lease contains specific provisions by way of a clause setting out the grounds on which the landlord may forfeit. The landlord's actions must indicate that he intends to end the lease, so actions to the contrary, like accepting rent, will remove the right to forfeit. There are two main methods of doing this: (1) by peaceable re-entry to the premises or (2) by issuing court proceedings for possession.

Freehold

The most superior legal title to the ownership of premises - legally referred to as "fee simple absolute in possession" - as opposed to long leasehold (or ground lease) which will often run for 100 years or more, and leasehold (usually the occupational lease interest). For an estate to be a freehold it must possess two qualities: immobility (property must be land or some interest issuing out of or annexed to land); and ownership of it must be of an indeterminate duration.

Freeholder

The owner of the freehold interest. See Virtual Commercial document Title Types Explained.

FRI (Full Repairing and Insuring)

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

General Rate Act 1967

The General Rate Act 1967 was repealed and replaced by the Local Government Finance Act 1988, but still carries many of the principles of rating law in use today.

Gross income

The total current income receivable from a property investment before allowing for any deductions.

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 foodstores and retail warehousing.

Ground lease

This is usually a long lease, granted at a ground rent but subject to an initial premium payment. A ground lease can vary in length from 30 years up to 999 years.

Guarantor

A Guarantor is someone who agrees to meet the Tenant’s financial commitments of the lease should the tenant default. Often seen when a company is newly formed and a Landlord requires with additional guarantee that the company will meet its financial obligations.

 

H

Headline rent

A headline rent is the rent that is paid under a lease, after the end of any rent-free periods or any period of reduced rent. It creates an artificially inflated rent by ignoring the rent-free period, period of reduced rent or any other concessions the landlord may have given to the tenant in return for a higher headline rate. Headline rent is most commonly associated with open market lettings, but increasingly at lease renewal and lease re-gearing / restructuring. Headline rent usually also forms the benchmark for any "upward only" rent review in the lease.

Heads of terms

A heads of terms agreement identifies and highlights the requirements of both the transacting parties in a property deal. Its advantage is that both parties will fully understand what they are subject to, and reduce or abolish any misunderstandings from each party. The heads of terms will form the basis of the contract and be forwarded to the parties' solicitors to draft the contract or lease.

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 an 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.

Hurdle rate of return

The target return or IRR from an investment.

Hypothetical lease terms

The basis of valuation under a rent review clause. In most commercial property Leases, rent is reviewed periodically to an open Market rent level - the rent review clause will prescribe the exact terms to be assumed and matters to be disregarded, in a hypothetical letting of the subject property at the review/valuation date. Usually based on the terms of the actual lease, but can vary e.g. length of term, whether break options are imported/included, assumptions as to permitted user etc.

 

II. Glossary D to H
2016-05-09 22:44:47

Glossary D to H.pdf