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Real Estate Glossary
 
 
 

Many people do not understand some of the terms that come up during a real estate transaction. Whether it is contract or financing related, it is important to understand what you read, especially that which you sign. Hopefully, you may find this real estate glossary helpful in learning the "ABCs" of real estate

A

Absolute title 1. The right of ownership of a mortgage deed, which gives the right, in certain specified circumstances, to demand repayment in full, of the outstanding debt than the due date. 2. A clause in a deed or contract, which provides for the early termination of an exciting interest in land, in certain specified circumstances, thereby advancing the future interest.

Agreement for lease/sale A contract to enter into a lease (or sale), which in order to be enforceable either must be evidenced in writing and signed by the person against whom action is taken for the breach of the alleged contract and there must be a sufficient act of part performance.

Amortization 1.(UK) The concept of writing off the capital cost of a wasting physical asset by means of a sinking fund. 2. (USA) Payment of a debt in equal installments of principal interest, as opposed to interest-only payments.

Anchor tenant One or more department or variety chain stores, or supermarkets, introduced into a shopping centre in key positions to attract the shopping public into the centre for the purpose of encouraging other retailers to lease shops en route. The larger the developments the more anchors required.

Annuity A sum of money paid each year during the life of the recipient. An annuity is usually paid as a legal obligation under a contract or undertaking, as through a pension scheme, and may be paid in installments more frequently than once every twelve months.

Asset valuation In the property market this expression is applied to the valuation of land and buildings or plant and machinery. The term is often used to describe an expert opinion of the worth of a property which may be incorporated into company accounts, where the ownership of the asset is not necessarily to be transferred but the valuation is required for the company takeovers, share flotation or mortgages.

Assignment The transfer of a property interest, especially a lease, from one party to another.

Atrium An entrance hall of a building, often rising through a number of storeys and containing lifts, reception areas and plants. Originally the hall or chief apartment of a Roman house.


B

Balloon payment A repayment of a loan bond, usually but not necessarily the final repayment, which is larger in amount than other installments.

Bare shell Depicts the condition of any property after completion of construction activity and installations of basic building services. A bare shell includes basic flooring - tiled, mosaic, cement or granite and plastered walls. Apart from this, pantry and toilet facilities may also be operational in such condition.

Basic rent A monthly rental net of maintenance and interest costs charged or quoted by landlords for any property. The base rent comprises of only the payment made for usage of the subject property under a lease agreement. Imputed costs such as holding costs, fit out costs and building service charges are not usually included in the base rent.

Bayana An Indian term used to denote the token money given to the landlord to informally freeze negotiations on a particular property, after the initial terms and conditions have been formalized.

Bombay Stamp Act, 1958 A legal statute, which provides for the payment of stamp duty in case of all real estate transactions to duty to the local government. The value of the stamp duty depends on the rental payable and the lease term or the sale value as the case may be. This duty is paid by purchasing non judicial Indian Stamp Paper, on which the lease/sale agreements are documented.

Breach of contract An act, or omission, contrary to enforce specific performance to rescind the contract and / or to claim damages, the remedy available depending upon the nature of the breach.

Broker/dealer A person or company who acts as a medium of bringing owners and proposed buyers together with a view to complete a real estate transaction.

Brokerage 1. Commission paid to a broker. 2. The activity of a broker in bringing together two parties in a transaction.

Building bye laws Local authority control of building standards promulgated to regulate and control the usage of land, property and areas in cities and towns.

Building contract A contract between an owner or occupier of land and a building contractor, setting forth the terms under which construction is to be carried out, basis of remuneration, time scale, and penalties, if any, for failure to comply with terms of the contract.

Business centre Commercial premises usable by the occupiers for a short period on a membership basis of the centre. Usually, a business centre charges for the full service accommodation, which is generally substantially higher than the rental of a standard office space and usually includes cost of HVAC, housekeeping, electricity, and security systems.

Business park A landscaped area containing high tech, other amenities for business purposes, as distinct from high-tech park or a science park. Building density is lower than would be usual in a traditional industrial estate. Business parks are preferentially located where motorway, rail and airport communications are within a short distance.

C

Capitalization 1. At a given date the conversion into the equivalent capital worth of a series of net receipts, actual or estimated, over a period.
2. A method of calculating a final purchase price for a development using an agreed formula to convert actual, or assumed, income from initial lettings into capitalism. Such capitalized sums may be offset against a purchasing fund's interim finance payments, any excess being paid to the developer.
3. In relation to a company's reserves, the conversion into capital of money, which is then distributed as a capitalization issue.

Catchment area 1. The area of land from which finds its way into a particular watercourse, lake or reservoir.
2. By analogy, the area which contains those people who can be expected to obtain goods, services, employment or other benefits from a particularly property. More especially related to retail premises, where the success of forecasting depends on the accuracy of estimating the number of purchasers (catchment population) likely to be attracted from the different parts of the area and the average expenditure which might be expected from them.

Central business district The functional centre around which the rest of a city is comparison shopping, office accommodation, leisure facilities, buildings for recreational use, public museums, art galleries and governmental functions. Generally the area of highest land values within a city.

Completion certificate The completion certificate is issued by the owner/developer through the licensed architect, engineer, structural engineer, as the case may be, who has supervised the construction, to the concerned local authority regarding completion of work described in the building permissions.

Condominium (Association of Apartment Owners) means all the apartment owners acting as a group in accordance with the bye-laws and declaration

Conveyance A document transferring title to land from one person to another.

Cooperative Housing Society means a society, the object of which is to be provide its members with open plots for housing, dwelling houses or flats; or if open plot, the dwelling houses or flats are already acquired, to provide its members common amenities and services.

>Current yield The remunerative rate of interest which is, or would be, a appropriate at the date of valuation, assuming the property to be let at its full rental value. It will be the same as the reversion yield where the reversion is to full rental value, and the same as the term yield where the rent receivable under the lease is full rental value.

D

Developer An entrepreneur who has an interest in a property, initiates its development and ensures, that this is carried out ( for occupation, investment or dealing) and from the outset accepts the responsibility for providing or procures the requisite funds needed to finance the whole project.

Development control The powers of a local planning authority to control the development and use of land, which includes inter alia:-
a) the refusal or grant (with or without conditions)of planning permission.
b) the issue of enforcement notices.
c) the making of revocation, modification or discontinuance orders.
d) the grant or refusal of listed building consents.
e) the designations of conversion areas.

Development yield In a valuation to ascertain a ground rent, the rate at which costs are recapitalized to find the annual deduction from the occupation rents. It comprises:
a) an investment yield
b) an annual allowance for developers risk and profit and, in some instances
c) an annual sinking fund element

Discounted cash flow analysis Techniques used in investment and development appraisal whereby future inflows and outflows of cash associated with a particular project are expressed in present-day terms by discounting. The most widely used forms of DCF are the internal rates of return (IRR) and net present value (NPV). The techniques may be used for such purposes as the valuation of land and investment, the ranking of projects or their components.

E

>Easement (UK) A right appurtenant to a parcel of land entitling a dominant owner to use the land of the servient owner in a particular manner, or constraining the legal rights otherwise enjoyed by the servient owner, e.g. A right of way, right to light, right to support. Strictly speaking, easements cannot exist "in gross", i.e. personal and unattached to the ownership of land, but rights similar to easements can be created by statute, usually for the benefit of public utility undertakings, and these are commonly referred to as "statutory easements".

Effective rent The gross rent payable per month by the occupiers which includes the base rent, maintenance charges, imputed costs of loss of interest on security deposit and rental advance. The effective rent indicates the total cash outflow of an occupier every month on account of leasing any property.

Equity linked mortgage A mortgage whereby the interest on the principal in part or in whole is calculated, usually yearly, by reference on the security, e.g. It may reflect annual increase or possible decreases, in the annual return on, or the value of, the property in which the mortgage is secured.

Escalation clause Specified in lease agreements wherein renewals of lease period are built in. It involves an increment in the base rent at every renewal of a lease agreement and is generally a percentage rate that is either pre agreed or negotiated before the renewal of the lease agreement.

F

Facilities management The co-ordination of many specialist disciplines to create the optimum working environment for staff.

FEMA Restrictions in respect of acquisition and transfer of immovable property in India by non-resident are covered in Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

Fire certificate A certificate covering matters of safety required under the legislation for hotels, boarding houses, factories, offices shops and railway premises, excluding those buildings containing less than a minimum number of employees. In order to obtain a fire certificate, one must apply to a fire officer, who then inspects the building and issues a list of requirements (e.g. Fire escape doors/stairways). Once the fire officer is satisfied that those requirements have been met he will issue the fire certificate. It enables fire officers, in the event of an emergency, to have prior knowledge inter alia of the permitted number of people on each floor; it also informs officials if any authorized inflammable /explosive materials are found on the premises. Fitouts Relate to the interior permanent furnishings required in a property including HVAC ducting, fire protection system implementation, establishment of workstations and telephone/computer cabling among others, in order to make the property fit for usage.

Force majeure A force, which cannot be resisted, in other words, something beyond the control of the parties involved. It includes acts of God and acts of man, e.g. Riots, strikes, arson. In many contracts and insurance policies, specific provision is made for damage or injury arising from force majeure. For example, the financial liability of a building contractor for failure to complete by a specific date may be relieved to the extent it was caused by force majeure. This is a common clause in most property contracts.

Freehold In general parlance this is used as shorthand for the tenure of an estate in fee simple absolute in possession. Strictly speaking, however, freehold includes fee simple, entailed interests and tenancies for life.

Frontage (line) The full length of a plot of land or a building measured alongside the road on to which the plot or building fronts. In the case of contiguous buildings individual frontages are usually measured to the middle of any party wall.

G

Green field site An area of land, usually in the edge of a town or city or away from substantial urban areas, hitherto undeveloped but for which development is now proposed.

H

Hi-tech building (high technology building) Primarily a modern industrial building which is particularly suited to the flexible uses and space needs of business organizations engaged in modern technologies. Such activities usually require more office or laboratory space than a traditional factory and also more sophisticated and adaptable installations for services and communications.

HVAC Refers to the heating, ventilation, air conditioning system installed in a building to regulate temperature. This includes air conditioning plants, chillers and ducting systems, which ensure the uniform transfer of the cold or hot air, as the case may be throughout the building.

I

Improvements Generally, physical changes which enhance the capital value of land or buildings. These may include additional buildings, extensions to existing buildings, installation of new services, e.g. central heating and air conditioning and infrastructure works. On the other hand, mere replacement by a modern equivalent if something worn out would normally be regarded as a repair rather than an improvement. The distinction has legal and taxation consequences.

Indenture a deed between two or more parties, each party having his own copy. Originally copies were all included in a single document from which each part was torn or cut along a wavy (intended) line.

Institutional investors These are generally taken to include banks, pension funds, insurance companies, unit trusts and investment trusts, which are together commonly referred to in the investment field as the "institutions".

Investment yield The annual percentage return which is considered to be for a specific valuation in an investment being expressed as the ratio of annual net income (actual or estimated) to the capital value. It is therefore a measure of an investor's opinion about the prospects and risks attached to that investment. The better the prospects and lower the risks, the lower the expected yield and thus the greater the capital value. The required yield from an investment is estimated in the light of such factors as:
a) the security in real terms of the capital invested.
b) the security in real terms and regularity of income.
c) the ability to adjust the income to reflect market conditions.
d) the complexity and cost of management.
e) the ease and likely cost of realizing the capital.
f) the tax position.

Internal rate of return (IRR) 1. The rate of interest (expressed as a percentage) at which all-future cash flows (positive and negative) must be discounted in order that the net present value of those cash flows should be equal to zero. It is found by trial and error by applying present values at different rates of interest in turn to the net cash flow. It is something called the discounted cash flow rate of return.
2. An alternative explanation might be: the highest rate of interest (expressed as a percentage) at which funded cash flow generated is to be sufficient to repay the original outlay at the end of the project life.

K

Kiosk A small enclosed retailed outlet, normally without toilet facilities and in the retail area, frequently located in a public concourse or other place where it may remain open only during peak times and be closed securely when there are no customers. Kiosks are now sometimes included in managed shopping schemes.

L

Landlord The owner of an interest in land who, in consideration of a rent or other payment (e.g. a premium), grants the right to exclusive possession of the whole or part of their land to another person for a specific or determinable period by way of a lease or tenancy.

Lease agreement An agreement, usually written, between the lessor and the lessee, which allows for the conveyance of property to the tenant under a contract, and confers usage and control rights to the tenant for the duration of lease. Apart from financial terms and conditions, several clauses describing the other binding terms and conditions of the agreement are also documented.

License The lawful grant of a right to do something which would otherwise be illegal or wrongful. It may be gratuitous, contractual or coupled with an interest in land. The grantor of license is the licensor and the grantee is the licensee. A gratuitous ("mere" or "bare") license can always be revoked (i.e. cancelled), but revocability of a contractual license depends on the terms of the contract. A license coupled with an interest in land may be irrevocable and unlike the other two categories, may be binding on successors in title of the licensor. One example of license is permission, usually required in writing, given specifically by an owner to a tenant, enabling something to be done which otherwise would be in breach of a term of the lease. A license does not itself transfer any interest in the land but may authorize the licensee to enter the licensor's land for some specific purposes of the license; the licensor may enter the land and use it in any way not inconsistent with the rights of the licensee. However, a landlord may authorize by license some act or omission by a tenant, which would otherwise be a breach of the terms of the lease.

Load bearing The capacity of an element in a building structure to support a weight in addition to its own, whether vertically or laterally. Thus a load bearing wall is one which supports part of the structure in addition to its own weight.

M

Maintenance In property parlance, the keeping of a building, structure or other physical feature in a specified condition e.g. wind and weather tight conditions. The approved cost of maintenance may be deductible for income taxation.

Mortgage The conveyance of a legal or equitable interest in freehold or leasehold property as security for a loan and with provision for redemption on repayment of the loan. The lender (mortgagee) has powers of recovery in the event of default by the borrower (mortgagor). A mortgage is a form of land charge and can be either legal or equitable.

N

Non conforming use The use of a property which does not conform to the allocation of the area for planning purposes. Such a property may have been built in conformity with the planning requirement at the time and a policy change ensued; more usually, the property was constructed before planning control was introduced.

Net present value method (NPV) A method used in discounted cash flow analysis to find the sum of money representing the difference between the present value of all inflows and outflows of cash associated with the project by discounting each at a target yield.

O

Occupancy Certificate The Occupancy certificate is issued by the Local Authority based on the completion certificate issued by the owner/developer through the licensed architect, engineer, structural engineer, as the case may be, who has supervised the construction regarding completion of work described in the building permissions. This is issued by the Local Authority after inspection of the work completed.

Outgoings Costs incurred by the owner of an interest in property, usually calculated on a yearly basis. E.g. management, repairs, rates, insurance and rent payable to the holder of a superior interest, as appropriate to his contractual or other liabilities. It is prudent to make annual provision for future items involving expenditure at intervals of more than one year.

P

Patwari Usually denotes the person appointed by a local government or land authority to maintain and update land ownership records for a specific area as well as to undertake the collection of land taxes.

Penal rent A financial punishment of a tenant for failing to honour his obligation to pay rent at the proper time, taking the form of a vastly higher figure being payable during the period of default.

Pre-stressed concrete A type of reinforced concrete in which all or some of the ordinary steel reinforcement is replaced by high-tensile steel bars or wires which are tensioned by 'pre-tensioning' or 'post-tensioning'. The number and positioning of wires or tendons can be arranged to eliminate all tension in the concrete, thereby preventing cracking and so rendering the concrete water-tight and gas-tight as well as increasing in durability. Pre-stressed concrete structures can achieve greater spans and carry higher loading.

Project management (development management) The leadership role which plans, budgets, co-ordinates, monitors and controls the operational contributions of property professionals, and others, in a project involving the development of land in accordance with a client's objectives in terms of quality, cost and time.

Property management The range of functions concerned with looking after buildings, including collection of rents, payment of outgoings, maintenance including repair, provision of services, insurance and supervision of staff employed for services, together with negotiations with tenants or prospective tenants. The extent of and responsibility for management between landlord and tenant depend on terms of the lease(s). The landlord may delegate some or all of these functions to managing agents.

Pugree An Indian term used to describe an interest free security deposit given to landlords which is refundable at the expiry of the lease term to the outgoing tenant by the successive tenant.

R

Rateable value The figure upon which property tax is charged in India. This value is determined by the tax authorities and thereafter the tax liability is charged to the owner(s) of the property on the basis of certain pre-determined tax slab rates.

In order to qualify, a trust must, among other requirements, be owned by at least 100 shareholders and invest most of its capital in real estate loans or properties and receive income in the hands of shareholders

Refurbishment Improvement and modernization of a building falling short of rebuilding or redevelopment and thus not normally requiring planning permission (other than for alterations to the external appearance), except in the case of listed buildings.

Registration and mutation: It is mandatory for the sale deed of all high value property transactions to be registered at the regional sub registrar's office of the local municipal authority. Thereafter, the buyer has to apply for mutation, which involves a change in the title records to incorporate the name of the buyer of the property. In order to complete the transfer of property, it is mandatory for the seller to furnish or arrange a valid "certificate of completion" issued from the local municipal authority to the buyer.

Renewal As distinct from repair, this is "reconstruction of the entirely meaning not necessarily the whole subject matter".

Rent Act (s) Legislation promulgated by various states in India, which regulates the terms and conditions of the rental market with a view to curb profiteering and hoarding. Though its restrictive nature has not allowed owners to enjoy economic returns from same categories of property, thereby allowing market inefficiencies.

Rent free period An agreed period, usually for several weeks or months, during which a lessee is allowed to occupy the subject premises without payment of rent:
a. in consideration for the tenant incurring expenditure on such matters as fitting out premises or carrying out repairs or improvements.
b. to reflect market conditions which favour tenant e.g. where the space available for letting exceeds the total tenant demand in that area or
c. by virtue of both a and b


Rentable area The area of floor space for which rent is calculated even though other areas, within or outside the premise, are lawfully used by the tenant. For example, in an office building it is customary to exclude from the direct calculation of rent the space used for corridors, atrium and stairways.


Rental advance Comprises a lump sum payment to the landlord at the beginning of the lease term, which is thereafter adjusted in equal installments over the lease term against the monthly base rental payable by the tenant. The advance amount generally ranges between 3 to 18 months depending on the city, type, location of property and the period of the lease.

S

Sale and leaseback An arrangement whereby a freeholder or lessee sells his interest in a property for an agreed sum and takes back a lease on the whole or part of the property from the purchaser, generally either at a rack rent or at some lesser rent related to the price paid.

Security deposit Comprises of an interest free lump sum payment to the landlord at the commencement of the lease, which is refundable at the end of the lease term. Though the deposit amount varies depending on city, property type, location and the period of the lease, it may range anywhere between 6 to 18 months of monthly rental. It is not uncommon for some landlords to provide a bank guarantee to the tenant as security for the repayment of the initial deposit amount.

Serviced accommodation Suites of offices or rooms where the landlord provides a range of services within the individual premises extending beyond the traditional ones associated with the maintenance and management of the building itself or the operation and maintenance of the installation or plant therein e.g. furniture, telephone, fax machine, room cleaning, and/or provides centralized specialized services, such as a receptionist and secretarial and communication facilities.

Shopping Mall A group of retail outlets designed and built with ways for pedestrians on one or more levels to form a unified whole under one roof.

Site Plans A drawing of an area of land, on a horizontal plane, showing the boundaries and physical extent of the land included in a particular parcel. It may also show any existing buildings or the proposed layout of a development.

Speculator A person (usually a dealer) who undertakes a transaction in property, in expectation of asking for a profit but with the risk of not doing so.

Sub Leasing A method wherein, the primary lessee of a property has the right to further lease out a part or whole of the property to another occupier or lessee. Essentially, the right to sub lease is decided beforehand at the time of signing the main lease agreement and is with the consent of both the lessor and the lessee.


T

Technology Park A landscaped development usually comprising of high specification office space as well as residential and retail developments, designed to encourage localization of high technology companies such as information technology, software development etc., thereby giving each the benefit of economies of scale. Usually, technology parks are located outside the inner city areas as these are quite land intensive in nature.

Tenancy 1. Strictly speaking, the interest of a person holding property by any right or title.
2. More usually, an arrangement, whether by formal lease or informal agreement, whereby formal lease or informal agreement, whereby the owner (the landlord) allows another (the tenant) to take exclusive possession of land in consideration for rent, with or without a premium, either:
a. for an agreed period of
b. on a periodic basis until formally terminated

Tenant's improvements Improvements to land or buildings to meet the needs of and carried out wholly or partly at the expense of the tenant.

Town and country planning The determination of policy for the development and use of land and the control of its implementations in urban and rural areas by district and country planning authorities.


U

Urban Land Ceiling and Regulation Act (ULCRA) A legislation promulgated in 1976 as a social equity measure with a view to curb profiteering and hoarding in the urban land market as well as prevent urban congestion.

Urban centers i.e. cities were classified into categories such as A, B and C and a ceiling on the maximum permissible usage on land by respective owners was set under provisions of the act.

User 1. The use or enjoyment of a property or of a right over property. 2. A person who uses, enjoys or has a right over a property.


V

Vaastushastra A traditional Indian architecture and design system, which specifies the detailed methodology of designing buildings, buying land etc. in order to maximize benefits, from the same for the occupier. This system relies in harmonizing any real estate development with the five elements of Indian Mythology namely air, water, earth, fire and space.

Valuation 1. The process of making an estimate of worth of real property or real property or other assets for a particular purpose e.g. letting, purchase, sale, audit, rating, compulsory purchase or taxation. That purpose and the relevant circumstances will determine assumptions and facts that are appropriate and hence the process used.
2. A statement, usually in writing, setting, out the facts, assumptions, calculations and resultant value.
3. Colloquially, the value arrived at as a result of the valuation process.

Value The price that might an interested in property or some other asset might reasonably be expected to fetch if disposed of at right


W

Warehouse Premises designed and built for the purpose of bulk storage of raw materials or finished or partly finished goods, pending either onward transit or division into smaller batches and subsequent distribution.

Written-down value At a given time, the result of making one or more annual of periodic deductions for depreciation against capital cost or worth.

Z

Zone A defined area of land or part of a building which is allocated for a particular purpose, e.g. development plans may allocate areas of land for different uses or values of property may distinguish between areas of floor space of a building and ascribe different values to them.

Zoning In planning terms, the dividing of an area by a local planning authority into zones for particular uses or activities.