This is the remuneration which is payable to a commercial property agent for services performed, usually arising from a disposal or acquisition transaction.

An agent appointed to identify suitable premises or dispose of an interest, will normally expect to charge about 10% of the first years rent, or in the event of a purchase/sale, between ½% - 2% of the finally agreed sale price. Both fee levels would usually be exclusive of VAT and disbursements.

A commercial property agent acting on your behalf can negotiate appropriate lease terms or freehold conditions, based on their market expertise. They can also ensure that you only receive details of properties that are suitable for your particular requirements and they can adopt a role that prevents direct contact between the vendor and the purchaser.

Agents can act on a retained or non retained basis. On a non retained basis, the agent who introduces the property to you or identifies the purchaser, will normally expect a fee on a brokerage basis. A retained agent on the other hand, will act exclusively on your behalf and expect a fee arising from the transaction.

There are sole and multiple agency contracts. The latter usually require a higher remuneration than sole agency contracts but marketing coverage should be more extensive.

An agent should agree and confirm the basis of their instruction, fee terms and conditions of engagement in accordance with the Estate Agents Act 1979 (as amended).

In property terms, an asset valuation is the expression applied to the formal valuation of land and buildings or plant and machinery.

The term is generally used to describe an expert opinion of the open market or existing use value of a property. An asset valuation can be incorporated into company accounts, where the ownership of the asset is not necessarily being transferred, but the valuation is of interest to, say, shareholders. It is also used for establishing the value of an asset for company takeovers, share flotations or mortgages.

The Royal Institution of Chartered Surveyors’ Appraisal and Valuation Manual is the valuer’s standard book of reference for such matters. This sets out guidance notes and practice statements to be adopted by the valuer in order to ensure consistency of approach.

An assignment of a lease takes place when the tenant (assignor) transfers/sells to another person (assignee) their entire interest in the property for the unexpired residue of the lease.

Section 52 (1) of the Law of Property Act 1925 requires that for the legal estate to pass to the assignee, then the assignment must be by Deed.

Under the doctrine of “privity of contract”, the original tenant remains liable to perform all the covenants in a lease throughout the term. Thus, if the lease is assigned to a third party, in the event that the new tenant defaults, the original tenant remains liable for the covenants contained therein.

In some cases therefore, if an assignee is found to be in breach of contract, the landlord is able to look to the assignor to seek redress; even though the original tenant has no control over the subsequent occupiers business.

The Landlord and Tenant (Covenants) Act 1995 sought to address this issue and relieve the original tenant from such liability upon assignment. Modern leases granted on or after 1st January 1996 usually incorporate this change in legislation.

An auction is a sale which takes place, usually in public, when a property is sold to the highest bidder, provided the amount of money offered exceeds the reserve price. The sale process by auction is immediate, with exchange of contracts being achieved on the “fall of the hammer”. A reserve price is the lowest price the vendor is prepared to accept and the property will not be sold unless a higher bid is received. In most cases, a guide price is also available from the auctioneer.

In the case of disposing of a property, auctioneers usually require a catalogue entry fee for each property that is included in an auction which can vary between £1,000 to £1,500 (exclusive) and is payable regardless of whether a sale is achieved. In addition, on completion, a further fee is payable to the auctioneer which usually ranges from between 1.25% to 1.5%, (exclusive) of the sale price. This also excludes legal fees, which the vendor is required to pay.

Not all properties are suitable for a sale by auction because there are different types of purchasers operating in the auction market compared to normal private treaty sales. Each property therefore needs to be considered individually to ascertain whether this method of sale is the most appropriate.

The Royal Institution of Chartered Surveyors is currently preparing a document known as “Common Conditions of Sale” in order to simplify the auction process, and also make auction contracts easier to understand.

A ‘break option’, ‘break clause’ or ‘option to determine’ is a clause in a lease which gives either the landlord, tenant, or both, a right in specified circumstances to terminate the lease before it’s contractual expiry date.
The break option will usually define the length of notice to be given by either party in order to operate it and any other conditions. A break clause may also be subject to contractual or statutory financial provisions that need to be complied with in order for it to be legally binding.
In addition, it can also be linked to a rent review date and its subsequent operation may make “time of the essence” for the purpose of invoking the rent review provisions within a lease.

This is an insurance policy which covers the landlord against damage, destruction and loss of rental for their building, against the usual perils. The tenant of a commercial lease is usually responsible for reimbursing the cost of the landlord’s premium.

A building survey is an examination of a building by a surveyor (which may include specific tests by the surveyor or other experts) in order to produce a report on the structural integrity of a building and the state of repair.

Such a report would usually cover the condition of the structure, incidence of any defects to the fabric of the building and the state of repair of fixtures and fittings, services and plant installations.

Depending upon the instructions given to the surveyor; these physical features would also be described in relation to safety, stability, strength, efficiency and economy in use, ease of maintenance and other factors as required.

A building survey is often required as a condition to the grant of a mortgage or loan secured against the value of a property.

This is an acquisition in accordance with statutory procedures and practice, of interests in land or rights, by a public or private body empowered to do so by an Act of Parliament, and authorised so to do by an appropriate Compulsory Purchase Order.

Such a process entitles the purchaser to deprive the, usually unwilling, owner or occupier of their property, upon payment of compensation, as provided for by statute. There are a number of rules and regulations governing the assessment of compensation, which not only relate to the value of the land and buildings, but also losses arising from disturbance, severance and injurious affection and in circumstances where no land is taken.

A Compulsory Purchase Order is an order made by a private or public body (usually a local authority or government department), with the relevant statutory powers, which, after confirmation by the appropriate minister, gives the right to acquire specified Land, Buildings or Rights compulsorily.

This concept is governed by a statutory framework, the most relevant being the introduction of new regulations into Part IIA of the Environmental Protection Act 1990 by the Environment Act 1995. These regulations impose a clean up liability where land is contaminated by substances that are causing, or likely to cause, significant harm or water pollution.

The Local Authority is primarily responsible for taking regulatory action and identifying contaminated sites. In general terms the liability for clean up falls upon the persons who have caused or knowingly permitted the ‘pollution’.

Prior to purchasing an interest in land, detailed investigations into contamination are usually carried out by an environmental consultant. Thereafter, a valuer will have to have regard to the contents of any environmental report in as much as it may affect the value of an interest in the subject property.

A bank or mortgage company will often require that an environmental assessment takes place as a condition of the loan.

This is essentially an insurance policy, which covers the tenant against damage, destruction and loss of their goods and chattels.

These are costs which are usually incurred by a lessee prior to being able to occupy any new or alternative accommodation. Fit out items will include a range of goods from the erection of partitioning, installation of electrical or telecommunications cabling, through to purchasing furniture.

Fit out costs will vary according to each tenants particular requirements and it may be possible to obtain a landlord’s contribution towards the expenditure. The amount spent on fit out costs is usually written off over the duration of a tenancy. In the circumstances it is important to have regard to the length of any new lease prior to incurring the costs.

During the period of time when any fit out works are taking place, it would be usual to obtain a rent free period until such time as the property is ready for beneficial occupation.

A fixture is usually an item that has been annexed to a property to such an extent that it becomes part of it, i.e. the article cannot be removed without significant damage to the land or building. A fitting is more commonly regarded as an item that is easily removable from the land or building.

Items may be defined as either landlords or tenant’s fixtures and fittings.

Landlord’s fixtures and fittings are usually non structural/non material parts of the property which are present at the start of the tenancy such as lightweight or demountable partitions, purpose built kitchens, individual air conditioning units and carpets.

Tenant’s fixtures and fittings are things that the tenant may have added at their own cost. Normally it is recommended that the tenant has a list of these items and is able to prove that they have been added by them. It may be necessary to obtain permission to add them to the property if required to do so under the terms of the lease.

This is the term used as shorthand for the tenure of an estate in land which exists in “fee simple absolute in possession” and identifies the ultimate owner of a property. Such ownership usually includes not only the surface land or building, but also the sub surface of a property and all the air space above.

As part of the aim of simplifying the conveyancing process, the Law of Property Act 1925 set out two estates or interests in land, namely the “fee simple absolute in possession” or ‘freehold’ and the “term of years certain” or ‘leasehold’.

This is usually a long lease, granted at a ground rent but subject to an initial premium payment. A ground lease can vary in length from 30 years up to 999 years.

The principle of a ground lease is that the rent paid relates to the value of the land only. The terms of the tenant’s lease usually provide an obligation to develop the land. The building is then owned by the tenant, usually free of any rent. Ground Rent levels vary from a peppercorn, i.e. nil rent, to a percentage of the open market rack rental value of the building.

An incentive is a payment or concession that often arises when a lease is first granted or subsequently assigned during the course of its term.

A common example might be where a landlord pays a new tenant a sum of money to take on a new leasehold contract. This sum may be in the form of a capital contribution towards the tenants initial fit out costs. Or it might be in the form of rent free period or stepped rent until the first rent review date.

An ‘incentive’ or ‘contingency’ fee is a charge related to the degree of success achieved in the task for which it is payable.

A client may agree an incentive based fee for property instructions with their appointed commercial property agent or surveyor. For example, in rent review cases an incentive based fee, if appropriate, is usually based on the degree of success achieved in the negotiation that takes place between the parties. Thus, in the case of representing the landlord, the higher the level of the revised rent achieved, the greater the fee payable to the commercial property agent or surveyor, or vice versa in the case of representing the tenant.

It would not be usual to agree an incentive fee when the commercial property agent or surveyor is appointed to act in the role of an Expert Witness, for example Arbitration or Court proceedings.

These are a statutory framework for the occupation of a building or land where a landlord and tenant relationship exists.

Business tenancies were first given protection and an entitlement to compensation by the Landlord and Tenant Act 1927. This act was substantially amended by the Landlord and Tenant Act 1954, which now forms the main legislation for owners and occupiers, although further amendments were made by the Law of Property Act 1969.

In essence the 1954 Act provides a business tenant with (i) security of tenure and the right to apply for a new tenancy, subject to specified grounds of opposition and (ii) a right to compensation (in certain cases) upon opposition to a new continued tenancy, for improvements and disturbance.

Not all business tenancies are protected by the 1954 Act and there are strict Notice procedures that need to be complied with in order to maintain such protection.

The Landlord & Tenant Act 1954 limits the way in which a business tenancy may come to an end. Thus a tenancy that falls within the provisions of the Act, will not come to an end unless it is terminated in accordance with the provisions set out in the Act.

The statutory methods of terminating a lease are set out in Part II of the 1954 Act. Namely:-
(i) by a Landlord’s notice under Section 25
(ii) by a tenant’s request for a new tenancy under Section 26, or
(iii) a tenant’s notice to quit under Section 27.

The landlord and the tenant must comply with the provisions set out within these various notices, since failure to do so could result in the loss of the automatic right for a new tenancy. There are also strict procedures to be followed during the interim period between the expiry and grant of a new lease, either by negotiation or through a court.