June 8th, 2018. Ben Lloyd
The A to Z of Commercial Property
Whether you’re a business owner considering buying your premises or a residential property investor looking to branch out and lease commercial property, you may need a little help. However, sometimes, the terms conveyancers, financial brokers or tradesmen use can make buying commercial property a little tricky.
To help you make sense of the situation and explain different financial terminology, so the process is as seamless as possible, we’ve compiled an ultimate jargon buster. Take a look at our financial terms glossary below.
Alienation – The right to dispose of leasehold interest in land or property. These provisions will outline a tenant’s ability to transfer ‘assign’ the lease, underlet or sub-let, or share occupation of the premises.
Assignee – An individual or company to whom a lease is assigned.
Assignment – The process of transferring a lease and its responsibilities from one individual to another.
Authorised Guarantee Agreement (AGA) – A requirement of a commercial lease when assigned, an AGA guarantees obligations are met.
Break Clause – A clause or get-out of a lease which provides either party with the right to terminate a lease.
Break Notice – A formal notification, either by a tenant or landlord, to end a lease.
Brownfield Land – Previously developed land that was used for industrial or commercial use. This land may be contaminated with pollutants and require clearing of hazardous waste.
Business Rates – Non-domestic property contributions towards local authority services. This is calculated using rateable values and a multiplier, plus any discounts or reliefs. The local council is in charge of billing these rates.
Capital Value – The value of an asset.
Chair Agreement – A non-exclusive licence to occupy, often seen in hairdressing or beauty salons.
Change of Use – All buildings are given permitted use limitations. ‘Change of Use’ is a clause referring to the change of this categorisation or the process of altering this. This may require planning permission.
Clawback – An agreement for provisions regarding land that may be worth considerably more if redeveloped in the foreseeable future. For example, if planning permission is granted on a vacant plot.
Compulsory Purchase – A purchase by a public body of property or land from an unwilling owner for development. There may be compensation entitled.
Covenant – 1) A clause in a lease. 2) A term used to dictate the worth of a tenant and the risk of default.
Coventee – The person or business that complies with a covenant.
Demised Premises – Any business premises which is subject of a lease.
Dilapidations – A term given to principally cover the proceedings of a sought out schedule of dilapidations where a landlord seeks to enforce a tenant’s repairing obligations or compensation may be acquired for damages.
Easements – The official right of accessing another’s land in order to access your own, such as private roads or a path that runs through another property’s land. This should be built into the property deeds.
Equivalent Yield – The form of conveying the level of return on a commercial property investment on a discounted cash flow basis. This utilises account initial and reversionary yields.
Forfeiture – The right of a landlord to terminate a lease before the end of its term due to certain circumstances, such as a breach of covenant or lack of payment.
Freeholder – An individual who owns a property or estate outright.
Full Repairing and Insuring (FRI) Lease – A lease that includes the cost of all repairs and insurance paid by the tenant.
Greenfield Land – Undeveloped land in a rural area that has previously been used for agricultural or natural purposes and is now being considered for urban development.
Ground Lease – A lease of land for an extended period of time. Properties built on this land are then referred to as ‘lease hold’ when sold.
Gross Internal Area (GIA) – A standard measurement in industrial property. The term given to describe the total area within the property boundaries, with the allowance of spaces such as stairs, walls or WCs.
Head of Terms – This outlines a seller’s terms which have been agreed by a buyer or tenant. This is used as an overview of the agreement while formal documents are drafted.
Headline Rent – The general rental amount being paid.
Indexation – A regular adjustment of rent according to a specified index.
Internal Repairing (IR) Lease – A lease where structural and external repairs are the sole responsibility of the landlord, whereas a tenant must make any internal maintenance repairs.
Investment Yield – The annual rent represented as a percentage of the capital value.
Land Registry – A government department that registers the ownership of land and property in England and Wales.
Lease – A binding contract that grants possession of property for a set period of time in exchange for rental payments.
Lease Security or Security of Tenure – Provided by The Landlord and Tenant Act 1954 and the Regulatory Reform Order 2003, this dictates a tenant’s right to remain in a property at the end of a lease, or not.
Lessee – A tenant
Lessor – A landlord
Licence – A legal permission to do something.
Managed Office Space – Neither services or conventional, this space is fully managed by an external company to provide equipment under flexible terms.
Net Internal Area (NIA) – The usable space within a property’s perimeter walls. This is a standard term quoted when marketing office space.
Notice to Quit – A served notice from a landlord to a tenant, instructing them to vacate the property due to certain circumstances.
Option Agreement – A contractual arrangement which allows an individual the right to buy land or property within a set time period.
Outgoing Tenant – A tenant who is assigning a lease.
Permitted Use – A restrictive clause on what a property may be used for.
Personal Guarantee or Guarantor – A personal agreement with another party, where an individual is made liable for third party debts.
Positive Covenant – A covenant obligation that requires actions are made.
Purchasing Costs – The charges acquired with the purchase of a property, such as Stamp Duty, legal fees and the cost of surveys.
Rack Rent – The best rent obtainable.
Restrictive Covenant – Part of a lease which restricts certain actions, such as original features being removed or trees being cut down.
Reverse Premium – The sum of money paid on assignment.
Schedule of Condition – An official record of the condition of a commercial property at the start of a lease.
Service Charge – A charge for services provided by a landlord, such as for maintaining common or outside areas.
Stamp Duty Land Tax (SDLT) – A government tax calculated on a property’s purchase price.
Subletting – When a tenant rents out a property to a sub-tenant.
Termination – The end of a lease by mutual agreement or the end of the tenancy term.
Term – The amount of time a lease will be in place.
Use Class – The category of a commercial property according to the Town and Country Planning Order 1987.
Value Added Tax (VAT) – The tax on the supply of goods and services in business.
Want to Learn More About Commercial Finance?
Do you have any questions about the terms listed in this glossary or any of the language we use throughout our website to describe our services? Then get in touch with our friendly financial brokers.
We’re happy to demystify these terms, clear any confusion and make finding commercial financial as easy as possible for you.
Article By Ben Lloyd
June 8th, 2018
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben