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Break clause
A clause in a lease giving either the landlord or the lessee/tenant the option to terminate a lease at a given date during the Term.
FRI
This means fully repairing and insuring and is used to denote a lease where the lessee takes on responsibility for maintaining the structure of the premises as well as the interior and pays all rates and insurance on the building, resulting in no such costs to the landlord/investor.
Internal Repairing lease
Denotes a lease where the lessee/tenant only has obligations towards maintenance of non structural parts of the property. The landlord/investor has the liability of maintenance of the structure and the mains services to the building. The landlord/investor may also have obligations towards the rates for the property as well as other obligations.
Net yield
The Yield after deduction of costs and expenses. In order to obtain the nett yield, the costs of the purchase (including legal fees, stamp duty, surveyors fees and bank fees) and any loan should be added to the purchase price. There should also be deducted from the income any maintenance and repair, costs, administrative charges and potential void periods. The result is in effect a lower income and a higher purchase price, from which the yield is calculated and will result in a lower yield or return.
Option to Purchase
The right in a lease or other agreement affecting the property to purchase the property on certain terms.
Rent review
The right for the landlord or the lessee/tenant to review the rent at a specified date, on certain terms. Unless otherwise specified, the review can be both upwards and downwards and is typically either based on market rent at the time of the review or an increase based on the increase in the Retail Price Index or even the higher of both.
Retail Price Index
The index produced by the joint Advisory Council and published by 'The States of Jersey Statistics Unit'.
Strength of the Covenant
This is the measure of the financial standing of the lessee/tenant and where possible is based on the financial records or information available on the lessee/tenant. Thus a high street Bank or a Plc. with substantial turnover and profits is considered a strong, safe and reliable tenant. The strength of the covenant is important as the bottom line to the investor is to get his income return regularly and on time and also can be critical in obtaining finance for the transaction.
Term
The length of a lease or tenancy.
Void periods
Periods during which no income is received by way of rent of otherwise in respect of any part of the property.
Yield
The income or return that is received from the sum of money invested and is expressed as a percentage e.g. an income of one hundred thousand pounds (£100,000.00) from an investment of one million pounds (£1,000,000.00) is a yield of 10%.
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