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The Meaning of Commercial Terminology

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Published: 28/03/2017   Last Updated: 28/03/2017  
Tags: Commercial Alterations Demise IRI & FRI Leases Rent Review Lease Assignment Reversionary Lease Break

Willmotts pride themselves for the excellent years of service they have offered to many Landlords and Tenants alike. We are members of the RICS and operate under the stipulated regulations. No truer is it said to invest in some time and avoid common pitfalls when dealing with commercial lettings. The job of commercial property management is easier when not having to resolve issues which can quickly become costly. The UK Commercial Real Estate Agency Standards 2011 provides members and others with best practice guidance on all aspects of commercial real estate agency and contains everything needed to do the job.


Listed here are some common terms/terminology you may come across with what they actually are;


Alterations
Alterations are works undertaken by the tenant which alter, cut, divide, relocate or modify the demise, which can include the building, partitions, mechanical and electrical services, or finishes.

 

Business Rates Business
rates, or non-domestic rates, are a tax on the occupation of commercial property and other non-domestic property. The Local Government Finance Act 1988 introduced business rates in England, Wales and Scotland. Properties are assessed in a rating list with a rateable value. Rating Lists are created and maintained by the Valuation Office Agency, with a revaluation generally occuring every five years.


Demise
Demised premises are the extent of the premises included within a lease and may include land or other facilities. For example, when an office block is let under a written lease, in the lease the office block might be referred to as the demised premises.

IRI & FRI Leases
an IRI lease makes the tenant responsible for the internal repair and
insurance of the demised premises whereas an FRI is a full repairing an insuring lease of the whole building. The latter may also be subject to a service charge provision for the upkeep of the fabric of the building.

Rent Review
The lease shall state when the rent can reviewed. This is typically every 4 – 5th year. The landlord surveyors shall inspect the premises and compare with other similar properties. The tenants surveyors should do the same and agree the matter between the two surveyors. In case they cannot agree the new rent the lease shall provide a mechanism where a third party can be instructed to agree the matter.

Lease Assignment
The tenant may have an option to assign the lease to a third party if the lease allows the same. The tenants may be able to seek a premium for the assignment but that would be dependant upon many factors. Before any assignment can be undertaken the landlords consent shall be required but not reasonably withheld or delayed. The landlord can/may insist upon a guarantor for the assignment and in some cases the existing tenant may have to be party to the assignment.

Reversionary Lease
This is referred to the new terms that have been agreed prior to the end of the existing lease term. So in other words the extension of the existing lease terms which would include the amount of rent, duration , rent reviews. A reversionary lease is binding so one should seek legal advice.

Break option / clause
The lease shall contain an option for either or both parties to break the lease at a pre agreed date or timing within the lease term. To enable this, a notice shall be required for the either party and that is defined within the lease. Leases are usually explicit about the timing and its essential to adhere to those, Otherwise the notice may not be valid. In some instance a break penalty shall be payable. Whilst break option may provide flexibility, tenants should be very aware that landlords may exercise the break to get possession, better covenant and sometimes higher rents.


Heads of Terms
The basis of the agreed deal between theparties and including details of each parties lawyers and surveyors. This document shall
allow the lawyers to draft the lease without further consultation between the landlord and tenant. The heads of terms should be
agreed by both parties prior to instructinglawyers and start incurring costs.


For help with Commercial Property
please call or email Varol Zafer
020 8222 9946, v.zafer@willmotts.com