Glossary Of Property Terms
I to N
An incentive is a payment that is used to encourage a tenant to take on a new leasehold contract when a lease is granted or assigned. A common example is where a landlord pays a tenant a sum of money to contribute to the cost of a tenant's fit-out or allows a rent free period.
Independent 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.
The practice of linking the review of the tenant's payments under the lease to a published index, most commonly the Retail Price Index (RPI) but also the Consumer Price Index (CPI). Most commonly associated with service charge payments, annual adjustment of service charge caps and rent reviews.
When a lease mentions insurance this refers to the Building Insurance which rarely and unless stated does not cover contents or internal repairs, that is unless the internal damage is caused by a risk covered by the Building Insurance. You must refer to the insurance policy to understand the insurable risks. Be aware that commercial leases usually refer to the building insurance as a rent and so must be paid as per the Tenant’s Covenant.
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.
Interim schedule of dilapidations
The interim schedule of dilapidations - served during the lease term, at any time after lease commencement. It is usual for the interim schedule of dilapidations to be served before the last 18 months of the lease. The intention of an interim schedule is to identify breaches of lease and necessary works to remedy the breach within a set time frame.
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.
Property held as an investment with the primary purpose of yielding a return over the life of the holding.
Internal Repairing Lease (IRL)
A lease where the landlord retains responsibility for, and bears the cost of, external repairs. Differs from the more common Full Repairing and Insuring (FRI) lease, and commonly results in a higher rent reflecting the tenant's lower obligations in respect of annual expenditure on repairs.
In Terms of Zone A. See Zoning.
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.
Joint sole expert
Joint sole expert is an expert witness appointed jointly by the parties or the court to reduce the cost of litigation by removing the ability of each party to appoint its own expert. The joint sole expert reports to the court and may be questioned by each party. Apart from the saving in costs the main advantage is the removal of the adversarial approach taken by some expert witnesses appointed by parties.
Landlord and Tenant Act
These are the statutory frameworks for the occupation of buildings and/or land where a landlord and tenant relationship exists. The principal legislation is the Landlord and Tenant Act 1954 (as amended), which confers Security of Tenure and the right to a renewal lease, on specified grounds, on the tenant. Also includes the Landlord and Tenant Act 1927 that relates to the treatment of tenant's improvements and the limitations on a landlord's claim in damages for dilapidations.
Many clauses in commercial leases are "permissive", and allow the tenant to implement changes or alterations to the property or its occupation (for example alienation or user). Usually, however, the landlord's formal consent is required, and the lease will contain provisions governing how this is to be obtained and documented. These clauses also usually provide for the landlord's consent not to be unreasonably withheld or delayed and, if not, provisos to this effect are imported by statute in relation to alterations and alienation, but not user.
These covenants are those a Landlord agrees to when signing a lease. These are duties or commitments that a Landlord will perform regardless of whether a Tenant has fulfilled his duties of performance. Examples of a Landlord’s covenants are the tenant’s rights to quiet enjoyment of the premises or an implied level of maintenance and habitability of the main property structure or services.
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.
A lease is a legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property.
The Landlord & Tenant Act 1954 limits the way in which a business tenancy may come to an end. Thus a tenancy that falls within the provisions of the Act will not come to an end unless it is terminated in accordance with its provisions.
Lease length refers to the length of the lease term. It will vary depending upon the particular requirements of the tenant and the investment strategy of the landlord. In broad terms, the landlord will normally look for a longer lease of between 15-25 years, whereas tenant's increasingly demand more flexibility and are likely to look for shorter terms of 5-10 years.
A lease re-gear 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 re-gears are most often linked to an extension of the tenant's commitment to the premises, either by extension of term length or removal of a break option, in exchange for a re-basing of the rent to current open market value and/or incentives e.g. a rent free period.
A lease renewal is the renegotiation of a lease with the existing tenant at its contractual expiry.
Also known as "Security of Tenure". Unless the parties have "Contracted Out" of the Landlord and Tenant Act 1954, tenants of commercial premises have the right to remain in occupation, and to a new tenancy on terms proscribed under the L&TA legislation.
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. Frequently involves negotiation of a surrender premium by one party to the other, but may rely on mutually beneficial release, e.g. early termination of a lease where the tenant is no longer in occupation and the landlord is able to re-let or refurbish/redevelop early.
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.
The Law of Property Act 1925 simplified the conveyancing process by creating two “estates” or interests in land.
These are the lawyers costs incurred by both a purchaser and vendor of a property, or in connection with the sale or grant of a new lease by a landlord and a tenant. Such costs can include conveyancing fees, litigation advice, counsel’s opinion, stamp duty, local authority search fees, bank transfer fees and court expenses, plus other disbursements and VAT.
Lessee is the legal term for "tenant".
Lessor is the legal term for "landlord".
The agent (usually a surveyor) acting for the party seeking to create a lease by offering the premises "to let" in the open market. Refers to the landlord's surveyor in a transaction, which includes those acting for a tenant seeking to sub-let , who then becomes an intermediate landlord. If represented, the tenant's surveyor in any transaction is often referred to as "acquiring agent".
An authority to do something that would otherwise be inoperative, wrongful or illegal. This may be used, for example, to permit occupation of land and buildings or allow a tenant to carry out alterations, or to assign or sub-let.
Licence for alterations
Licence for alterations will define the works which have been agreed by the landlord for the tenant to undertake. It will include additional covenants for the tenant to comply with in undertaking the works and may include reinstating the works at lease expiry. The Licence may also include provisions for the landlord to notify the tenant to reinstate such works including a timescale before lease expiry.
Licence to alter
A legal document "licensing" the tenant to carry out alterations to the premises. Usually relates to a specific, approved Schedule of Works for which landord's consent has been obtained. Commonly time-limited and also addresses the tenant's reinstatement obligations at lease expiry, and how the alterations are to be treated at rent review.
The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan or mortgage contract. A lien exists, for example, when an individual takes out a mortgage. The lien holder is the bank or lender that grants the loan, and the lien is released when the loan is paid in full.
The total of all costs relating to the holding of a property over its expected life, including the amount paid to acquire it. These extra costs include items such as maintenance spend, business rates and utilities consumption. Lifetime cost analysis may reveal that a modern building with higher headline rents is actually cheaper than a secondary property, due to higher running costs.
The ability to convert an asset into cash within a required period.
Loan to value (LTV)
Loan to value is the proportion a bank will lend on an asset in relation to its overall market value.
Loan to value ratio
Loan to value ratio is the loan amount, expressed as a percentage of a property's market value.
A lender will normally require a loan valuation prior to lending on a particular property purchase to ensure that the value of the asset meets the security and equity criteria of the loan contract. The lender will normally appoint a suitably qualified surveyor. In the case of a surveyor that is a member of the Royal Institution of Chartered Surveyors (RICS), it is mandatory for the member to prepare the loan valuation in accordance with the RICS Appraisal and Valuation Manual. This publication sets out various practice statements and guidance notes that should be adopted by the surveyor in order to ensure consistency of approach and quality assurances for the lender.
Local authority searches
A local authority search is essentially an application for an official search of the local authority’s records, for written confirmation or a certificate disclosing matters or encumbrances affecting the land. Where a lease is being granted or conveyancing takes place, a local authority search should be undertaken.
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.
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. An MCC gives rise to fresh/specific grounds of appeal against an entry in the Rating List. Examples would include temporary disruption arising from building or road works in the vicinity, or a permanent change to the accessibility of the premises. For example a pedestrianisation scheme, resulting in a material change to the physical parameters determining their rental (and therefore Rateable) value.
Material compliance is a legal phrase used to describe the extent to which the conditions in a lease must be met.
Mediation is an informal method of resolving disputes in which an independent mediator works with the parties to help them resolve their dispute. The decision they reach is documented formally and then becomes binding upon them. Mediation is encouraged by the courts and has a very high success rate. It is particularly suitable to landlord and tenant, boundary and other disputes where the parties have an on-going relationship to preserve.
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.
This is the formula used by the billing authority where an assessment has been reduced (N) after the compiled list date (J), and where a property is affected by transitional relief. It is critical that ratepayers in these circumstances get the date of decrease right or matters could prove costly.
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. This calculation is used by the VOA to determine the actual Rateable Value. It is also used in lease negotiations to identify the appropriate level of rent.
The net income from a property investment after deducting ground rent and non-recoverable expenditure.
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 Internal Area
The 'useable' measured internal floor area of a building, which is measured to the internal face of external walls, by excluding 'non-useable' but ancillary/essential areas such as stairwells, WCs and permanent essential access routes. Most commonly used in the office and retail sectors.
Net Present Value
The sum of the discounted cashflow 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.
Net yield takes the assumed or actual costs associated with purchasing the property into account, providing a more accurate position in respect of the relationship between the rental income and the total capital investment.
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.