Glossary Of Property Terms
O to R
A landmark lease renewal case under the Landlord and Tenant Act 1954 - O'May v City of London Real Property Co Ltd (1982). Frequently referred to in lease renewal negotiations where one party, usually the landlord, seeks to vary the terms of the renewal lease to reflect 'modernisation' of the lease covenants, as the result of changed market practice since the grant of the original lease. In summary, the case held that the tenant's statutory protection under the 1954 Act means that the starting point in any renewal is a lease on substantially the same terms, and in effect imposes a 'presumption against' change. The party proposing the change must prove that it is 'fair and reasonable in all circumstances' (including the existing covenants, and not merely current open market practice), and that the tenant can be compensated for the proposed change via an adjustment in the rent.
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. If the premises were offered in the open market on the same tenancy terms (and a discount could be expected in any open market bids), to reflect the onerous lease provisions in comparison to the 'market norm' for the class of property concerned, a simliar discount may be applied to the rent review.
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. Typically, this is framed with primary reference to the terms and covenants of the actual lease of the premises, although this is not always the case (for example, in relation to the assumed length of term) and due diligence is essential in understanding the particular definition of open market rent in any review clause.
Open market rent review
A rent review to open market rent.
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.
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. Usually only adopted when all other terms of the renewal lease have been agreed, and the parties feel it more appropriate to have the question of rent determined by a surveyor who is an expert in the field/class of property concerned, than a judge.
Part 36 offers
Part 36 offers are offers to settle a claim and can be made by both a claimant and defendant in a legal dispute. They relate to this section of the Civil Procedure Rules which govern court action. Part 36 offers are usually made ‘without prejudice except as to costs’ and are usually made by solicitors as they have to comply with the strict requirements of Part 36 rules of court to be effective.
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 condition of the party wall, photographs and any relevant drawings. This is a statutory process with the advantage of removing partiality from the process and resolving what would otherwise be an ongoing dispute between adjoining owners.
A premium is the price paid for a lease, in the open market, where one tenant assigns its interest to another, replacement tenant. See also surrender premium and reverse premium.
A property investment regarded as the best in its class and location, determined by occupier and investor sentiment. Typically a modern or recently refurbished building, finished to a high specification, well-situated in a commercially strong location and let to a strong covenant.
This is the most common form of buying/selling a property, involving a binding private contract for sale between the parties. A sale of a property or investment opportunity by 'private treaty' allows the vendor more control over the sale process and any specific conditions that apply. However, the completion of the sale can take longer than other routes, such as auction.
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.
Proposal (business rates)
An ‘interested party’ (usually the owner or occupier) is permitted to make a proposal to alter the rating list where they are dissatisfied with the level of assessment or any other part of their entry within the list. The grounds of a valid proposal will define the extent of any case brought before a hearing and must be carefully served. A proposal can usually be made within the term of the rating list, and where the matter remains unresolved it becomes an appeal and may proceed before the valuation tribunal for a hearing.
With property acquisitions, a prospective purchaser will normally incur acquisition or purchase costs, which relate to legal and surveyor fees, VAT and stamp duty.
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 is a term that means the tenant is entitled to operate the premises without any interference from the landlord.
Rating revaluations in England, Wales and Scotland usually take place at five yearly intervals, which are termed Quinquennial reviews.
An historic term, still in common use in rent review clauses of modern leases, to the effect that the rent is at a full open market level. A 'rack' rent is one that has been 'stretched' (derived from the medieval torture instrument) to the full extent which could reasonably expected on an open market letting.
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 telecomms and computer networks.
This is the assessment required of any non-domestic property (with some exceptions) under 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.
There are certain statutory exemptions from rates.
A rating liability is a charge based on the occupation of commercial land and buildings, administered by the local authority. Separate arrangements exist for Scotland and Northern Ireland.
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 though 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 6 January 2014.
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).
The consideration paid by the tenant to the landlord for the ability to occupy premises under a lease.
If there is a rent-free period that has been granted at the start or during the term of the lease, This will take the form of a specified number months or a date range where the lease states that no rent will be charged. The period can occur during a lease term.
A rent-free period is normally granted at the start of a lease and is granted for the following reasons:
A rent review is a periodic review (usually five yearly) of rent during the term of a lease. The vast majority of rent review clauses require the assessment of the open market, or rack rental value, at the review date, in accordance with specified terms, but some are geared to other factors, such as the movement in the Retail Price Index.
Repair covenants are the contractual obligations in a lease which identify the landlord and the tenant's liabilities to repair.
See Virtual Commercial document Commercial Leases Explained.
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 (see “Jervis v Harris”).
A covenant that imposes a restriction on the use of land to enable the value and enjoyment of the land to be preserved.
Revenues and expenditure method
A method for valuing trading properties, including public houses, bingo, hotels and marinas, by adopting an accounts method of assessment in the absence of rental evidence.
The opposite of a premium payment on assignment; instead of the outgoing tenant (assignor) receiving a lump sum for the Lease, it pays the replacement tenant (assignee) to take the lease on.
A measure of investment analysis showing the relationship between the capital cost of acquisition and the estimated rental receivable at the next lease event.
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. It can also be calculated by multiplying the ADR (or ARR) by the occupancy rate.
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. The RPI was first introduced in 1947 and was for many years, the Government’s main measure of inflation. In 2003 the Government announced that the UK inflation target would be based on the CPI, replacing the RPI for this purpose.