Commercial Real Estate Terminology Pt 4

MARKET VALUE - As defined by the courts, the highest price estimated in terms of money which a property will bring if exposed for sale in the open market allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted and for which it is capable of being used and assumes a willing buyer and willing seller.

MODUS OPERANDI - The way in which anything is done, mode or manner of operation.

MUTATIS MUTANIMS - With the necessary changes of things that have to be changed.

NULL AND VOID - Of no legal effect a nullity, e.g. an agreement for an illegal consideration, it can neither be enforced and in general, money paid under it cannot be recovered by the payer.

PERCENTAGE RENT - Rental income received in accordance with the terms of a percentage clause in a lease, normally with a guaranteed lease rental.

PASSED IN - If a property is not sold at auction because the owner’s reserve price has not been reached, it is passed in. the highest bidder having first option to purchase at the reserve price. It is then possible to negotiate for the purchase, either on the same day or afterwards. Properties so passed in are mostly sold shortly afterwards at a price close to the passed-in figure.

PHYSICAL DEPRECIATION - The decline in property value due to the physical action of time and the elements, as well as through usage. Deterioration through the physical depreciation is normally as a result of inadequate maintenance of normal weathering and decay.

PRO FORMA - As a matter of form.

PRO RATA - In proportion.

PURCHASE AND LEASE BACK - A real estate transaction wherein an investor purchased a property and allows the seller to remain in possession as a tenant.

QUID PRO QUO - Something for something. Consideration.

RACK RENT - The rent at which a property is worth to be let by the year in the open market, i.e. what a tenant, taking one year with another, might fairly and reasonably be expected to pay, the tenant paying rates and taxes, and the landlord doing repairs.

RECEIVER - A court-appointed person who takes possession and manages the property of a bankrupt or of property being otherwise litigated. The receiver’s function is to maintain the premises and its assets for the benefit and protection of those having an equity in it, until a court decision as to its disposition is reached.

REDEVELOPMENT - The development or improvement of cleared or undeveloped land in an urban renewal area. In technical usage, this term includes demolition of existing buildings, erection of buildings and other development and improvement of the land, by private or public redevelopers to whom the land has been made available, but it does not include site or project improvements installed by a local public agency in preparing land for disposition by sale or lease.

RESERVE PRICE - The minimum price at which the owner of a property is prepared to sell his property at auction.

RESTRICTIVE COVENANT - A covenant on a title restricting the full use of the land. It may be removed by order of the court, or in some cases by consent of the person or persons named in the covenant as having this power. A common example is a covenant not to erect more than one dwelling on the allotment at which the covenant relates. Another typical covenant is that buildings to be erected on the subject land must have brick external walls.

REVERSION - Where land is granted by the owner for a less period or interest than he himself has, his undisposed of interest is termed the reversion, because the land will revert to the owner, or the determination of the particular estate.

REVERSIONARY INTEREST - Any right in property the enjoyment of which is deferred e.g. a reversion or remainder, or analogous interests in personal property.

RISE AND FALL CLAUSE - A clause in a contract (normally in building contracts) providing for an adjustment of the contract price upwards or downwards according to movement of prices, wages or other factors specified in the clause.

SATELLITE TOWN - A separate town situated near a large city that is closely tied economically, politically and socially to the metropolitan area it borders.

SCHEMATIC - (i) Relating to a scheme, plan or diagram. (ii) An architect’s three-dimensional, detailed drawing.

SECURITY DEPOSIT - Deposit to assure performance usually of a lease.

SELLER’S MARKET - When any community including real estate is in short supply, the seller is in a more commanding position. Within reason, an owner can generally name his price and terms.

SITE VALUE - Means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge thereon, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a bona fide seller might be expected to require and assuming that the improvement (if any) had not been made. (Definition from Local Government Act, Victoria). The value of the land component in a developed property.

SPECIFIC PERFORMANCE - A contract is specifically performed when each of the parties to it does the very thing or things which he contracted to do, and when accordingly, each party gets what he by the contract bargained for. The right to specific performance of a contract is enforced through the Equity Court, which m may decree that a contract shall be specifically performed and carried into effect.

SPECULATOR - One who speculates; that is, one who buys any commodity, including real estate, in the expectancy of selling in a higher market.

SPEC. BUILDER - A speculative builder is simply a builder who builds houses first then sell them as a package deal at a profit.

STATUS QUO - The state in which things are, or were.

STRATUM - Stratum means a part of land consisting of a space or layer below, on, or above the surface of land, or partly below and partly above the surface of the land, defined or definable by reference to improvements or otherwise, whether some of the dimensions of the space or layer are unlimited or whether all the dimensions are limited, but refers only to a stratum rateable or taxation under any Act; and strata is the plural of stratum.

SUB-LEASE - A lease granted by a lessee of the whole or part of the leasehold property. The length of the sub-lease must be less than the unexpired part of the tenants own lease of the property.

SUMMATION - Means an addition of the values of the constituent parts of a property to arrive at a total value.

TENANCY AGREEMENT - A document setting out the rights and obligations of both lessor and lessee, the rental and period of tenancy. It is not registered upon the lessors certificate of title. Usually it is used where a lease is not entered into.

VIVA VOCE - By word of mouth.

VOID - Having no legal effect.

YEARS PURCHASE - The number of years required for the net income from an interest in property to amount (without interest) to a sum equal to the purchase price. The years purchase in any particular instance is determined by dividing 100 by the rate percent. NOTE: Years purchase multiplied by net rent equals purchase price.

YIELD -
(i)         That which an investment or property will return; the profit or income. The money derived from any business venture.
(ii)        To turn over or surrender possession.