Lease Advisory Glossary

Glossary of Lease Advisory Terms

Jones Lang LaSalle’s Lease Advisory Experts: helping you make your commercial property an asset to your business.

Rent Review (read)

Commercial property leases usually allow for a rent review every 5 years, although other periods are not unknown. The landlord and the tenant negotiate and agree a revised rent; if agreement cannot be reached, the dispute can be referred to a third party, either an Arbitrator or an Independent Expert. For commercial property leases, a specialist rent review surveyor will represent each side, bringing to bear their commercial property market knowledge, negotiating flair and technical expertise.

Expert Witness (read)

If the landlord and tenant cannot agree on the revised rent at rent review, our experienced surveyors will act as an Expert Witness and prepare a valuation report which is considered by the third party surveyor.

Arbitrator / Arbitration (read)

If the landlord and tenant cannot agree on the revised rent from the rent review, the lease agreement will provide for the dispute to be referred to a third party surveyor. This might be either an Arbitrator or an Independent Expert. An Arbitrator must decide the revised rent based on the valuation reports of the parties’ Expert Witnesses. He has the power to award costs.

Independent Expert Determination (read)

If the landlord and tenant cannot agree on the revised rent from the rent review, the lease agreement will provide for the dispute to be referred to a third party surveyor. This might be an Arbitrator or an Independent Expert. An Independent Expert can decide the revised rent using his own experience and research, although the parties are usually encouraged to submit valuation reports. He normally has no power to award costs, although the lease may grant him some powers.

Calderbank Offer (read)

Used in rent review disputes as a commercial compromise. Either party can make a “Calderbank Offer”, which is an open offer made ‘without prejudice save as to costs’. If the Calderbank Offer is not accepted by the recipient, the dispute resolution proceeds and the Arbitrator does not see the offer until after their decision as to the rent has been made. If the decision falls above the level of the landlord’s Calderbank Offer (or below that of the tenant) then costs may be awarded accordingly.

Rent Review Dispute Resolution (read)

The lease will set out the procedure to be followed if rent review negotiations fail. The RICS administer a system to appoint an Arbitrator or Independent Expert to resolve the rent review dispute. Two of our Directors are on the President’s Panel for the appointment of Arbitrators or Independent Experts.

Commercial Lease Renewal (read)

When a commercial lease reaches its contractual end there is a statutory process to be followed in order for the tenancy or lease agreement to be renewed and can involve the dispute being heard in Court. This is a very technical process and must be followed carefully to avoid any problems and possibly loss of security of tenure. Our directors are fully trained and highly experienced in managing lease renewals in conjunction with clients’ solicitors.

Security of Tenure (read)

As a general rule, a tenant has security of tenure until the end of the lease. After that date, statutory provisions apply and there is a strict procedure to be followed. Some commercial leases include an agreement to exclude the statutory provisions relating to security of tenure and compensation.

Interim Rent (read)

If negotiations for a renewed lease are not concluded until several months after the contractual lease expiry date, it may be necessary for a separate agreement to be reached between the parties for a revised rent to be paid in the interim period. This could also be the case where the lease is not terminated until several months after the contractual expiry date.

PACT (read)

Stands for Professional Arbitration on Court Terms. Where a commercial lease renewal is unopposed but the parties cannot agree on the new rent, PACT can be a useful alternative to going to Court as there are often meaningful savings to be made in terms of cost and time.

ADR (read)

Stands for Alternative Dispute Resolution. PACT and mediation are examples of ADR.

Lease Regearing or Restructuring (read)

Provided the parties have a common interest, they can agree to alter the terms of the lease. For example, they might agree to the lease being extended or a lease break option being taken out. This involves detailed strategic and valuation considerations. Our directors have extensive experience in advising on restructuring leases to fulfil clients’ objectives.

Lease Break Options (read)

Although leases are generally for fixed terms, they can contain break options in favour of the landlord, the tenant, or both. Often the successful exercise of a break option can depend on fulfilling conditions set out in the lease. This is a highly technical area on which professional advice should be sought.

Time of the Essence (read)

Commercial lease agreements can contain time limits. For example, a notice period prior to exercising an option to break, or a timescale within which a tenant must respond to a landlord’s notice which specifies a revised rent at review. Time can be expressed to be ‘of the essence’ and missing the time limit can have serious consequences. This is a highly technical area on which professional advice should be sought.

Dilapidations (read)

At the end of the lease, if the tenant does not renew, the landlord will claim a payment from the tenant if the premises are not in repair or fail to meet the agreed specification in which the premises are to be returned to the landlord. This is referred to as a claim for dilapidations.

Section 18 Valuations (read)

A tenant can reduce or even avoid a claim for dilapidations if it can be shown through valuation that the landlord’s reversionary interest has been damaged by less than the cost of the repairs. This is known as a ‘Section 18 valuation’ because of its statutory basis.

Headline Rent (read)

The rent payable in an open market deal after the expiry of any rent free period or other incentives.

Net Effective Rent (read)

The rent payable on a rent review is typically based on the hypothesis that the tenant has enjoyed a rent free period for fitting out (or does not need one), but any rent free period longer than that needed for fitting out, regarded as an inducement, is still to come. Rent review surveyors have to arrive at a rent payable from day one and use their skill and experience to calculate the net effective rent from the open market headline rent and the inducement.

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