Commercial - Guidance and Information
Alienation is the legal transfer of title of ownership to another party.
Assignment of a lease is where the tenant transfers/sells its interest in the property for the unexpired term of the lease to an assignee.
An agreement an outgoing tenant enters into with the landlord when it assigns its lease to a new tenant. Under the agreement, the outgoing tenant guarantees the performance of the covenants by the new tenant. The outgoing tenant therefore becomes the guarantor for the new tenant.
Business rates are a business tax for occupiers of non-domestic property, collected and managed by the local council.
A break clause (or a ‘break option’ or ‘option to determine’) is a clause in a lease which provides the landlord or tenant with a right to terminate the lease before its contractual expiry date, if certain criteria are met.
A break notice is the formal notification that one party wishes to exercise its right to terminate the lease in accordance with a break clause. Notices must be drafted with care, taking into account compliance with any pre-conditions, to ensure the right is successfully exercised.
The parties to a lease may, by agreement, contract out of the Landlord & Tenant Act 1954 with the main consequence being to remove the tenant's rights of renewal, and eligibility for compensation in certain circumstances (e.g. landlord's redevelopment ).
Covenants in a lease refer to the obligations imposed on each party by the various clauses.
Dilapidations are the potential breaches of a tenant's lease covenants in respect of repair, reinstatement of alterations, and redecoration. These can be raised by a landlord during the term of the lease or at lease expiry.
Part of the tenant's service charge liability relating to the maintenance of the estate on which a commercial property is situated.
Exceptions and Reservations
Areas that would otherwise form part of the property but are not included in the lease.
When a business tenant is in rent arrears or 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 relevant legislation when exercising this right.
Full Repairing and Insuring (FRI)
FRI is a term used to describe a lease where the tenant is responsible for all repairs and for insuring. The term also applies to the liability for payment of these costs. FRI leases can therefore include terms where the landlord pays for external repairs and insurance and recovers the cost from the tenant usually via a service charge.
The total current income receivable from a property investment before allowing for any deductions.
Gross Internal Area
Gross internal area refers to the total area within the perimeter walls of a property and makes no allowance for the space occupied by staircases, walls, etc. This measurement is the standard measurement given for industrial property.
An agreement whereby a third party is liable to pay the tenant’s debts, or carry out their duties, if the tenant fails to do so.
A person who gives a guarantee.
Head and Superior Landlord
The person who is landlord to the tenant’s landlord (see freehold).
Heads of Terms
Heads of terms agreements record the requirements of both the transacting parties in the property transaction. It is designed for both parties to fully understand what they are subject to, and reduce any misunderstandings. The heads of terms form the basis of the eventual contract and will be passed to the parties' solicitors tasked with drafting the contract or lease.
The practice of linking tenant payments under the lease to a published index, such as the Retail Price Index (RPI) or the Consumer Price Index (CPI). Mainly associated with service charge payments and rent reviews.
Internal Repairing Lease (IRL)
Unlike a FRI lease, the landlord retains responsibility and financial liability for the cost of external repairs.
The person who grants the lease or who now has the right to enforce the terms of the lease.
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.
An agreement whereby the parties bring a lease to an end other than by contractual expiry or use of a break option. This can often involve negotiation of a premium or rely on a mutually beneficial surrender.
The legal term for ‘tenant’.
The legal term for ‘landlord’.
A managing agent is the party instructed to oversee the property by the property owner or landlord. Managing agents have varying responsibilities, from maintenance and repair management to rent and service charge collection.
The estimated amount for which a property could be leased.
The estimated amount for which a property could be sold.
The income from a property investment after deductions for ground rent and non-recoverable expenditure.
Net Internal Area
The ‘useable' measured internal floor area of a building.
Takes the assumed or actual costs associated with purchasing the property into account to produce a figure in respect of the relationship between the rental income and the total capital investment.
Open Market Rent
The most common basis of valuation at rent review (also known as open market rental value - OMRV). 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.
Overage (also known as ‘clawback’) concerns the right to receive future payments triggered by future events. Achieving planning permission for change of use or development, practical completion of a development, or the sale or lease of the completed development are potential events that could trigger an overage clause in a lease.
The price paid for a lease, in the open market, where one tenant assigns its interest to another, replacement tenant.
A term entitling the tenant to operate the premises without interference from the landlord.
The assessment required of non-domestic property to represent the rental value at a prescribed valuation date, subject to assumptions about repair on a full repairing and insuring basis.
Refers to the tenant's liability to remove its alterations at lease expiry, reinstating the property back to its condition at lease commencement.
The amount the tenant pays regularly to use the Property.
A periodic review of rent during the term of a lease. Rent review clauses often require an assessment of market rent at the review date, but some incorporate other factors, such as the movement in the Retail Price Index.
Rent Review Memorandum
Records the outcome of the rent review process, whether the review is settled by agreement or arbitration / independent expert determination. It identifies the lease, the review provisions and both the original and current parties, recording the amount and effective date of any revised rent. It may either be annexed to the lease or retained with each party's deed packet as a separate document.
Usually taking the form of an interim schedule of dilapidations, the intention of the notice is to highlight breaches of the lease to both the landlord and the tenant.
Schedule of Condition
A record of the condition of property at the commencement of a lease.
Schedule of Dilapidations
A list of outstanding repair and maintenance items that have accrued under the terms of a tenant’s repair and maintenance obligations.
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 prescribed under the L&TA legislation. Also known as ‘lease security’.
Payable by a tenant for services provided in relation to the repair and maintenance of common parts.
Stamp Duty Land Tax
A government fixed tax, chargeable on the execution of documents, relating to transactions such as leases, agreements for leases and conveyances. The duty is payable by the purchaser or lessee.
Where a tenant grants a new lease for the property, or part thereof, to an alternative occupier, for a period less than the residue of the tenant’s lease.
The tenant is the person who rents the property from the Landlord. Also referred to as ‘Lessee’ or even ‘leaseholder’.
Also known as “Lease Period”, this is how long the property is to be rented for.
Transfer of a Going Concern
A mechanism used on the sale of a property investment where VAT is chargeable but not actually payable. It is only applicable where the asset is and remains income producing after the transaction.
A term denoting the empty state of a property.
A legal term used in negotiations and correspondence meaning that anything said, or offers made cannot be subject to forced disclosure in the event of litigation or arbitration.