Commercial Property A-Z Of Key Terms And Abbreviations
Attestation
The witnessing of an act or event, for example, witnessing the signature or sealing of a document.
Attestation clause
A clause stating that a document has been executed in the presence of one or more witnesses (who attest the execution).
Authorised guarantee agreement
A form of guarantee which may be given (as a condition of the landlord’s consent) by an outgoing tenant of its assignee’s obligations under the lease. The guarantee will only endure for so long as the assignee remains the tenant.
A clause giving a party to an agreement the option to determine (i.e. end early) the agreement before its expiry.
Call option
A type of option which grants a right (but not an obligation) for a potential buyer to acquire an asset from a seller at a specified price (or a price to be calculated in accordance with a pre-agreed formula). The option is generally exercisable during a specified period.
Capital allowances
Expenditure on capital assets is not deductible against trading income for tax purposes. However, capital allowances may be available. These are the tax equivalent of depreciation but are not available in respect of all capital assets. When a person purchases a capital asset for the purposes of its business on which capital allowances are available, it can deduct a proportion of the cost of the asset each year as an expense in the calculation of income profits. The rate of the allowance varies according to the nature of the asset.
Certified copy
A copy of a document which has been certified as being a true, complete and up-to-date copy of the original at a given date. Certification is achieved by a statement to the above effect being signed and dated by the certifying person on the copy document. The certifying person is usually a solicitor or, in the case of a document relating to a company, a director or secretary of that company.
Charge
Security over an asset which gives the lender the right to have the particular asset and its proceeds of sale appropriated to the discharge of the debt in question. A charge does not transfer ownership; it is merely an encumbrance on the asset.
Chargeable consideration
For the purposes of stamp duty land tax, any consideration in money or money’s worth given for the subject matter of the land transaction, directly or indirectly, by the purchaser or a person connected with him (Schedule 4, Finance Act 2003).
Chattel
A thing that a person can possess in physical form; a tangible, moveable asset (for example, a piece of jewellery, a painting or a car and, in some contexts, goods, equipment or machinery).
Dilapidations
Items of disrepair. The term might be used for any such items that are covered by repairing covenants given by a tenant (or, much more rarely, by a landlord) under a lease. A more narrow definition is items in need of repair to comply with a tenant’s obligations both to repair the premises and to return them to the landlord in repair at the end of the lease. Dilapidations may therefore be distinct from items requiring repair during the course of the lease
Easement
A right benefiting a piece of land (known as the dominant tenement) that is enjoyed over land owned by someone else (the servient tenement).
Usually, such a right allows the owner of the dominant tenement to do something on the other person’s land, such as use a path, or run services over it. This type of easement is sometimes referred to as a positive easement.
Epitome of title
The modern method of deducing title to unregistered land. A schedule of all the documents of title, together with photocopies of the documents themselves.
FRI lease
A full repairing and insuring lease. A lease where the costs of all repairs and insurance are borne by the tenant notwithstanding that:
The landlord will almost invariably take out the insurance itself; and
In the case of a multi-let building, the landlord will carry out the repairs to the common parts.
The insurance costs would be recovered by an insurance rent and the costs of repairs to common parts would be recovered through a service charge.
Forfeiture
The forfeiture of a lease by the re-entering by the landlord on the demised property, or by the commencement of proceedings for possession of the demised property by the landlord. The term is also used more widely in the context of supply of goods to relate to forfeiture of those goods for non-payment.
Full title guarantee
One of the two key phrases used to imply covenants for title under the Law of Property (Miscellaneous Provisions) Act 1994 in an “instrument effecting or purporting to effect a disposition of property” (section 1(1)). The other key phrase is limited title guarantee. Full title guarantee implies that:
– The disposing party has the right to dispose of the property (section 2(1)(a)).
– The disposing party will do all it reasonably can to give the title it purports to give, at its own cost (section 2(1)(b) and (2)).
If the property being disposed of is registered, there is a presumption that the whole of the property in the registered title is being disposed of (section 2(3)).
If the property being disposed of is not registered, there is a presumption that the interest being disposed of is the freehold. If it is clear that the interest is leasehold, it is presumed that the interest is the unexpired residue of the term of the lease (section 2(3)).
The disposal is free from all charges, encumbrances and adverse rights, except any charges, encumbrances or adverse rights about which the seller does not know and could not reasonably be expected to know, that is, free from all known encumbrances (section 3(1)).
Where the full title guarantee covenant is used in respect of the sale of leasehold property, additional covenants are implied: that the lease is subsisting and the seller has complied with its terms.
Guarantee
A legal commitment to repay a debt if the original borrower fails to do so
Headlease
A lease held directly from the freeholder and subject to one or more underleases. It is sometimes called a head lease.
Heads of terms
Also known as letters of intent, memoranda of understanding, heads of agreement, letters of potential interest, term sheets or protocols. A document which sets out the terms of a commercial transaction agreed in principle between parties in the course of negotiations. Heads of terms evidence serious intent and have moral force, but do not legally compel the parties to conclude the deal on those terms or even at all. However, provisions relating to confidentiality and costs may be binding on the parties.
Interim rent
Where a tenancy is continuing by virtue of the Landlord and Tenant Act 1954, either a landlord or a tenant can apply to the court for determination of an interim rent payable in the period before the new lease comes into existence (section 24A).
Joint and several liability
In contract, it arises when two or more persons in the same contract jointly promise to do the same thing, but also separately promise to do the same thing.
Land Registry
The government body that guarantees the title to, and records the ownership of, and interests in, registered land in England and Wales.
Lease of the reversion
Also known as a concurrent lease. A lease of the landlord’s interest in a property that is already subject to a lease.
Legal charge
A legal mortgage over land. Sections 85 and 86 of the Law of Property Act 1925 specify how a legal mortgage over land can be created. Almost always, a legal mortgage is created by the method referred to in the Law of Property Act 1925 as “a charge by deed expressed to be by way of legal mortgage”.
Licence
The lawful grant of a permission to do something that would otherwise not be legal or allowed, for example, to occupy a property, or to assign a lease where the landlord’s consent is required.
LTA 1954 protected tenancy
A tenancy under which the tenant has security of tenure under Part II of the Landlord and Tenant Act 1954.
Nuisance
There two types of nuisance:
– A public nuisance arises from an act that endangers the life, health, property, morals or comfort of the public or obstructs the public in the exercise or enjoyment of rights common to all. A public nuisance is actionable in tort and can also be a criminal offence.
– A private nuisance usually is caused by a person doing something on his own land, which he is lawfully entitled to do but which becomes a nuisance when the consequences of his act extend to the land of his neighbour by, for example, causing physical damage. A private nuisance is actionable in tort.
Office Copies / Official Copies
Under the Land Registration Act 1925 they were known as office copies. Official copies as they are properly known since 13 October 2003 (section 67, Land Registration Act 2002)(LRA 2002), are copies of the entries on the registered title of a property, officially produced by the Land Registry, and stamped with the date and time of issue
Option
A derivative contract under which one party pays a premium in return for the right (but not the obligation) to buy an asset from the other (called a call option), or to sell an asset to the other (called a put option).
Option holder
A person who holds an option.
Overriding interests
Overriding interests were created by the Land Registration Act 1925 (LRA 1925). They are interests that are not protected on the land register but which nevertheless bind any person who acquires an interest in registered land, either on first registration or where there has been a registrable disposition of a registered estate that has been completed by registration. The LRA 1925 was repealed by the Land Registration Act 2002 (LRA 2002) which now refers to overriding interests as:
– “Unregistered interests which override first registration”, which are dealt with under Schedule 1 to the LRA 2002, and
– “Unregistered interests which override a registered disposition”, which are dealt with under Schedule 3 to the LRA 2002.
The class interests that have overriding status under the LRA 2002 are more restricted than under the LRA 1925, but include short leases, certain rights of people in actual occupation and unregistered legal easements.
Periodic tenancy
A tenancy whose term is framed by reference to a period of time: weekly, monthly, quarterly or yearly. The tenancy lasts from week to week, or month to month and so on until determined by a notice to quit given by either the landlord or the tenant. The notice must expire at the end of a relevant period. The tenant under a periodic tenancy of business premises has protection under Part II of the Landlord and Tenant Act 1954 and so any notice to quit given by the landlord takes effect subject to the provisions of the Act. A periodic tenancy cannot be contracted out of the security of tenure provisions of the Act.
A periodic tenancy can be created by express agreement or, in the absence of an express agreement, may be inferred where there is a landlord and tenant relationship and rent is demanded and paid by reference to a particular time period.
Put option
A type of option which grants a right (but not an obligation) for a potential seller to sell an asset to a buyer either at a pre-agreed price or at a price to be determined in
accordance with a pre-agreed formula. The option is generally exercisable by the seller during an agreed period. The term is normally used in relation to shares or other securities but can be used in relation to other assets. A put option provides a safety net for a potential seller by guaranteeing a price for a limited period.
Rack rent
In modern usage, a rack rent is usually a rent that represents the full open market annual value of a holding, often simply called the market rent. Less frequently, a rack rent may also be “the maximum rent permitted by law”, or an extortionate rent.
Restrictive covenant
A negative covenant that restricts the way in which a party can act, for example the way in which land may be used
Retail Prices Index (RPI)
One of two consumer price indices used as the domestic measure of inflation in the UK (see also Consumer Prices Index (CPI)). The RPI is published by the Office for National Statistics. It measures the average change from month to month in the prices of goods and services purchased by most households in the UK. The government uses the RPI for the uprating of pensions, state benefits, tax allowances and index-linked gilts. It is commonly used in private contracts for uprating of maintenance payments and housing rents.
Reverse surrender
The surrender of a lease by a tenant where the tenant pays the landlord to accept the surrender. The payment is known as a reverse premium.
Right of pre-emption
Also known as a right of first refusal. This is the right to be offered a property first, should the owner decide to dispose of it. Such a right may be agreed expressly between parties, or it may arise under statute.
Schedule of dilapidations
A list of items that are in need of repair and which are the responsibility of a tenant because of its repairing obligations under a lease. See also Dilapidations.
Most commercial leases allow the landlord to serve notice on the tenant, listing items that are in disrepair and requiring the tenant to comply with its repairing obligations. A schedule of dilapidations is usually a list of dilapidations served on the tenant at the end of the lease, but may occasionally refer to a list of dilapidations served on the tenant during the term of the lease.
Section 106 agreement
An agreement made under section 106 of the Town and Country Planning Act 1990 between a local authority and a developer. The agreement will contain a planning obligation to enable the local authority to secure, or the developer to offer, restrictions on the use of the land or the operation of the development or to make contributions towards the local infrastructure and facilities.
Section 25 notice
A notice that must be served by a landlord on its tenant if the landlord wishes to determine a LTA 1954 protected tenancy.
Section 26 request
A notice given by a tenant who wishes to renew a LTA 1954 protected tenancy.
Secure tenancy
A lease of a residential property that is granted by a public body, for example, a local authority for the purpose of providing a home for the tenant. The secure tenancy gives the tenant some security of tenure, which means that the tenancy cannot be terminated without a court order.
Self-invested personal pension (SIPP)
A personal pension scheme where the member, and not the pension plan provider or trustees, determines the investment strategy.
Service charge
An amount payable in respect of repairs, maintenance and services.
Service charges are usually found in leases, where tenants agree to pay the landlord or a management company for the cost of services provided.
Occasionally, service charges appear in other contexts, for example, where a freeholder of a property on a private estate must contribute towards the cost of maintaining the grounds and the access road.
Snagging List
A list compiled by the architect or contract administrator at the inspection for practical completion of a building project. Items which need attention, but which are not sufficiently significant to delay practical completion, are put on a snagging list. The developer expects the building contractor to remedy the items on a snagging list promptly. However, most standard form building contracts do not refer to snagging lists.
Stamp duty land tax (SDLT)
A tax on transactions involving acquisitions of interests in land in England and Wales or Northern Ireland. An acquisition includes the creation, surrender, release or variation of a land interest (section 43, Finance Act 2003).
Surety
A person who offers security for the payment of a debt or the performance of an obligation. A surety is often a third party to the main arrangement dealing with the debt or obligation, but the term may also apply to a borrower that has provided security, depending on the context.
A surety may sometimes be referred to as a guarantor.
Surrender
The surrender of a lease by a tenant to its immediate landlord is a consensual arrangement between the landlord and the tenant. It results in the vesting of the tenant’s estate in the landlord and the extinguishment of the term of the lease. Surrender is the acquisition by the landlord of the inferior (leasehold) estate. It is to be distinguished from the merger which occurs where the tenant acquires the superior estate from its landlord.
Tenancy at will
A tenancy which is not a periodic tenancy nor for a fixed term, but which lasts for so long as both parties desire. A tenancy at will falls outside Part II of the Landlord and Tenant Act 1954.
Transferee
A person to whom title or ownership is conveyed. (i.e. a buyer)
Transferor
The person from whom title or ownership to property moves. (i.e. a seller)
Turnover rent
A rent that is calculated by reference to the turnover generated at the premises. Typically, turnover rent is used in leases in the retail sector. Turnover rent usually forms only part of the total rent payable.
Underlease
A lease that is not held directly from the freeholder, but from a tenant.
The most common way for an underlease to arise is for a tenant to create one out of an existing lease. The tenant of the existing lease would be the landlord of the underlease created from it. A headlease may become an underlease, if an overriding lease is created, but this is uncommon.
Where an underlease is created out of another underlease, it is sometimes described as a sub-underlease. An underlease granted out of a sub-underlease may therefore be known as a sub-sub-underlease and so on.
An underlease should be granted to expire before the lease out of which it is created.
If it is not, the underlease may operate as an assignment of the lease, instead of creating an underlease.
Undertaking
The meaning of this term varies depending on the context in which it is used. In a finance or property law context, in some cases, an agreement or promise to do or provide something, or to refrain from doing or providing something, which is meant to be binding on the party giving the undertaking.
Wayleave agreement
An agreement under which a property owner gives a service provider (for example, an electricity or telephone services provider) a right to install pipe or cable passing through or over the owner’s property.