A-Z Commercial Property Glossary

SEP 2021 | LAST UPDATED

Acquisition

Obtaining either a freehold or leasehold interest in property.

Adjudication

A simple and efficient method of settling disputes. An adjudicator uses their own knowledge and investigations while weighing the evidence presented by the opposing parties. This helps them to reach a decision that is legally binding until the original dispute is referred to arbitration or the courts, or is settled between the parties themselves.

Arbitration

A procedure whereby two parties in a dispute agree to be bound by the decision of an independent third party (the arbitrator). The role of an arbitrator is similar to that of a judge, although the procedures are often less formal. An arbitrator is usually an expert in their own right.

Business centre

A traditional term for flexible workspace. In a modern sense it sometimes refers to basic provision.

Buyer

The buyer is the new/prospective owner of the property.

Broker

A person acting as an intermediary between the parties buying and selling real estate. In many jurisdictions this is a licensed activity.

Claim

A claim made by the lessor against the lessee in relation to make-good works under a lease may take the form of a claim for a financial payment (and is the lessor’s assessment of its loss), or for the lessee to carry out the works required under the lease.

Claim letter

A letter from a lessor to a lessee setting out a claim.

Client

Anyone instructing a real estate agent to act on their behalf for the buying or selling of real estate.

Commerical Property

All property that is not residential or agricultural and includes retail, office, industrial and leisure properties.

Completion Date

The date of the sale of a property.

Conflict of interest

Where an agent acts for clients who have competing interests, or where an agent’s personal interests conflict with those of their client.

Dilapidations Protocol (‘the Protocol’)

Pre-action protocol for claims for damages in relation to the physical state of commercial property at the termination of a tenancy (applicable to terminal dilapidations disputes).

Diminution Valuation

A valuation prepared in order to calculate the diminution in value of a landlord’s property incurred as a result of alleged breaches. The document is usually prepared by a specialist valuation surveyor.

Disposal

Freehold of leasehold sales, assignments, lettings and surrenders of leases.

Goodwill

Any future economic benefit arising from a business, an interest in a business or the use of a group of assets that has not been separately recognised in another asset. The value of goodwill is typically measured as the amount remaining after the value of all assets (adjusted for actual or potential liabilities) has been deducted from the value of a business.

In Trust

Money or monies kept in a separately named account that is held in trust within the bank account of its owner.

Inspection

A visit to a property or inspection of an asset, to examine it and obtain relevant information, in order to express a professional opinion of its value.

Intangible Asset

A non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and/or economic benefits to its owner.

Landlord

The term used in landlord and tenant legislation to denote the person or company who owns and rents or leases premises. The person or company may own the freehold or may have a superior leasehold interest in the property themselves. To avoid confusion, this term is only used in this professional statement where the context makes this necessary. In all other cases the reference is to ‘owner’.

Lease term

The period of the lease

Leasehold

Possession and use of a property by virtue of a lease.

Lessee

See tenant.

Lessor

See landlord.

Make good

A state of disrepair in a premises, or a condition of that premises that requires work to rectify it, where there is a legal liability to remedy, or undertake, that work.

Market rent

The amount for which an interest in real property should be leased on the valuation date, on appropriate lease terms and in an arm’s length transaction (after proper marketing and where the parties have each acted knowledgeably, prudently and without compulsion).

Management Charge

The management charge is the reasonable price for the total cost of managing the provision of the services at the location, and relates only to work carried out in managing and operating the services and administering the service charge.

Market evidence

Details of properties with the same or similar characteristics, in the same or similar location to the client’s property, that have been sold within a reasonable timeframe, and the price or rent achieved.

Management Fees

The remuneration of the manager and related entities including any profit element, for managing the services comprised in the service charge. Typically, this includes the supervision of the site team, overseeing the site contractors and the accounts work necessary to budget, forecast, manage, disperse, balance and apportion the service charge. Specifically, these fees are not to include property management work separate from the service charge, such as owner approvals, income generation or rent collection.

Occupier

A person in possession or occupation of premises and usually responsible for payment of the service charge to the owner.

Owner

The person who receives or is entitled to receive the rent. This person is usually responsible for the provision, management, and administration of the services and the service charge. In practice the owner may appoint a manager to discharge the owner’s obligations under the terms of the lease.

Ratable Value

An official estimate of the value of a property used as a basis of local taxation. Rateable value is said to be the amount equal to the rent at which the property might reasonably be expected to be let from year to year if the occupier undertook to pay all of the usual occupier rates and taxes, and was also to bear the cost of repairs, insurance and other expenses (if any) necessary to maintain the property in a state to command that rent.

Real estate manager

A company or individual employed to manage an interest in real estate on behalf of the owner of the interest.

Refurbishment

The renovation of fabric or equipment to bring it to a workable or better condition. It is often a different concept to repair or improvement, and usually includes elements of both. Where a refurbishment project includes improvements or enhancements beyond normal repair or maintenance, this element of the cost would usually be met by the owner.

Rent

A payment made periodically by a lessee to a lessor for the use of premises.

Rent review

A periodic review of rent under a lease, using a predetermined method.

Diminution assessment

An assessment of the value of the reversionary interest. Under statute the diminution in value of the reversion may form the upper limit of a claim for damages on the basis that, in some jurisdictions, a lessor cannot recover for breach of a covenant to repair beyond the loss to its reversionary interest. The assessment compares the value of the actual condition of the premises compared with the condition the premises is required to be in when all of the repairing obligations in the lease have been met.

Reversionary value

The value of the premises when it reverts back to the lessor and where the lessee has met all its repairing obligations.

Reversionary value diminution

The value difference between the actual condition of the premises when it reverts back to the lessor and the value where the lessee has met all of its repairing obligations, assuming that the condition is worse than that required under lease. See also diminution assessment (above).

Serviced office

A traditional term for flexible workspace highlighting the ‘all-inclusive’ nature of services provided for the space. The term is sometimes still used to refer to traditional short-letting accommodation, with less emphasis on, for example, coworking and communal space.

Schedule of Condition

In the context of make-good works, this means a schedule prepared at, or immediately prior to, the lease commencement and prior to any of the lessee’s works being carried out (whether by the lessor or the lessee) and will usually:

comprise a written description of each element of the premises
be accompanied by photographs or drawings
record the standard of condition of the premises, including any relevant surrounding area
will be issued to all parties with interests in the condition of the premises
if prepared at lease commencement, be signed by both parties to the lease and dated as an acceptance of it as a true record and
if prepared at lease commencement, be appended to the signed lease document and will then form part of the legal document.

Schedule of make good

A schedule documenting the state of repair of a premises or part of a premises and the work required to take it to a condition that meets the lessee’s obligations under their lease.

Schedule of Dilapidations

A document that identifies:

relevant lease/tenancy obligations
alleged breaches of those obligations
in certain circumstances remedial works that have been completed or are proposed in order to rectify each alleged breach and
potentially the estimated or actual cost incurred in rectifying those breaches.

The document is usually prepared by a building surveyor.

Scott Schedule

A Schedule of Dilapidations with additional columns to enable the parties to set out their respective views. The document is usually prepared by a building surveyor.

Seller

The previous/current owner of the property

Service Charge Reconciliation

A comprehensive comparison of all service charge income demanded against all service charge expenditure (including accruals and prepayments) for a given service charge accounting period. This enables the calculation of any balancing charges and credits due from tenants and/or landlords.

Sinking Fund

A fund formed by periodically setting aside money for the replacement of a wasting asset (for example, heating and air-conditioning plant and equipment, lifts, etc.).

Sublease or sublet

A contract whereby the whole or part of the property is let to another person, the party letting being itself a lessee. The obligations of the lessee to the lessor are not diminished.

Superseded work

Those works which are overtaken by the probable occurrence of another, such as a substantial refurbishment. The property professional assessing diminution in the value of the lessor’s reversion needs to distinguish between items that will and will not be superseded. For example, if a wall needs to be replastered in fact and in accordance with the lease obligations, then this item will legitimately appear in the schedule of make good and be costed. The lessee’s premises professional may agree that it falls within the covenant to repair, and may agree with the costing. However, there may be an argument that because, for instance, the wall is due to be demolished or altered in some way by the lessor, the work of replastering is superseded by the intention to alter or demolish the wall.

Sustainability

Sustainability is, for the purpose of these standards, taken to mean the consideration of matters such as (but not restricted to) environment and climate change, health and well-being and corporate responsibility that can or do impact on the valuationof an asset. In broad terms it is a desire to carry out activities without depleting resources or having harmful impacts.

Tenancy

See lease.

Tenant

The term used in landlord and tenant legislation to describe any person (physical or legal) who owns the leasehold interest in property and is liable to pay the service charge under the terms of the lease. As with ‘landlord’, this term is only used when the context requires; references in the context of commercial property and service charges are to ‘occupier’.

Valuation

A valuer’s opinion of the value of a specified interest(s) in a property, at the date of valuation, given in writing. Unless limitations are agreed in the terms of engagement this will be provided after an inspection and any further investigations and enquiries that are appropriate, having regard to the nature of the property and purpose of the valuation.

Valuer

A RICS member who is registered under the RICS Valuer Registration Scheme (VRS) and provides a written valuation report for lending or other purposes. Such a report is to be written in accordance with the current edition of the RICS Valuation – Professional Standards (Red Book).

Without prejudice

This is a form of words put at the top of written correspondence in which an offer to settle a dispute, or an admission of liability, is made. Parties to a conversation or negotiation can also agree at the start of that conversation that the content of that conversation is ‘without prejudice’ if the conversation relates to an attempt to settle a dispute.The use of the term ‘without prejudice’ in communications endeavouring to settle a dispute indicates that a form of privilege attaches to the communication, and is used as a means to enable offers to be made to settle claims without fear that those communications will later be used by the other party as an admission of liability. The underlying policy behind the privilege that attaches to ‘without prejudice’ correspondence is that parties should be encouraged as far as possible to freely negotiate their disputes in an attempt to settle them.