January 16, 2025

Commercial Law Glossary:

This post was written by: Riya Sekhon

We know that buying or selling a commercial property can be confusing, especially if you don’t understand most of the legal jargon, so we have put together a guide to help you navigate legal language with confidence. Whether you’re reviewing contracts or drafting agreements, use this glossary to simply the complex terminology, making it easier for you to make informed decisions.

Adverse Possession – A legal principle in the UK that allows a person to claim ownership of land they do not legally own by occupying it for a specified period. The claimant must show that they have:

  • Factual possession.
  • Intention to possess.
  • Occupied for the required period.

Articles of Association (AOA) – A set of legally binding rules that govern how a company is run in the UK. They can be agreed by the company’s shareholders, directors, guarantors, and company secretary. They cover a range of topics, including:

  • The company’s purpose.
  • The administrative structure.
  • The powers and duties of directors.
  • How dividends are awarded.
  • How shares are transferred.
  • Fiduciary duties.

Agreement for Lease – A contract entered by a landlord and tenant to confirm that the parties will enter into a formal lease after certain conditions have been completed. These are often used when works are required before occupation, or planning permission is awaited.

Asbestos Survey – A non-intrusive inspection that identifies the location, amount, and condition of asbestos-containing materials (ACMs) in a commercial property.

Assign – Another word used instead of transfer.

Base Rent – The minimum amount of rent payable, usually set at a market rate.

Break Option – A contractual provision that allows a landlord or tenant to end a lease early without penalty.

Certificate of Incorporation – A document that confirms a company’s registration with Companies House and its legal existence.

Community Infrastructure Levy (CIL) – A mandatory, non-negotiable charge on new developments in a local authority area, such as schools and health services. It is calculated based on the size and type of the new development, usually charged per square meter of new floor space.

Completion – The final step in the legal process of transferring ownership of a property. The funds are sent from the buyer or tenant’s solicitors to the seller or landlord’s solicitors, and all signed documents are dated.

Conditional Contract – An agreement between a buyer and seller to complete the purchase of land or a property after certain events have happened.

Contract – A legally binding agreement between two or more parties that outlines the terms and conditions of a commercial deal between two or more parties.

Commercial Property Standard Enquiries (CPSE’s) – A set of questions that help buyers and tenants understand a property and perform due diligence. There are 7 different types of CPSEs, depending on the transaction to be completed, and these provide further detail about the property. They can include enquiries about common transactions, title requisitions, and environmental matters.

Covenant – A restriction / condition affecting a property with which all owners must comply. These do not end of a sale of a property.

Deed of Easement – A legal document that grants the right to use someone else’s land for a specific purpose e.g., to grant rights of way, access, or the ability to run pipes or drains over a property and set out the terms on which it may be used

Energy Performance Certificate (EPC) – A rating system that shows how energy efficient a building is. You must provide an EPC for a property that you are selling or granting a lease for in England and Wales. EPCs use a scale from A (the most efficient) to G (the least efficient). The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 mean that, from April 2018, private domestic / non-domestic landlords must ensure that properties they rent in England and Wales reach at least an EPC rating of “E” before granting a Lease.

Exchange – The buyer and seller in a property transaction exchange signed contracts and agree on a completion date. The sale becomes legally binding and both parties become committed to the transaction. The buyer usually pays a deposit to the seller.    

Fire Risk Assessment – Confirms the compliance of a building with fire safety regulations, or areas which need improvement.

Freehold – You own the building and the land.

FRI Lease – The tenant is responsible for all maintenance, repair, and insurance costs.

Forfeiture – A legal process that allows a landlord to end a lease and take back the property if a tenant breaches the terms of the lease.

Full-Service Lease – The tenant pays a fixed rent, and the landlord covers most or all property-related expenses.

Highway Search – Shows rights of access to the property, including public footpaths, random strips, and encroachments.

Independent Legal Advice – Advice given by a solicitor who is not connected to the parties involved in a legal matter.

Lease – A legal contract between a landlord and a business tenant that grants the tenant the right to use a property for commercial purposes in exchange for rent. A lease outlines the rights and responsibilities of both parties.

Leasehold – A property that is leased from a landlord for a set period.

Licence – Permission granted by the owner of a property (the licensor) to a third party (a licensee) to use the property without trespassing. It’s usually short-term and revocable.   

License to Assign – A formal document that grants a landlord’s permission for a tenant (the assignor) to assign their commercial lease to a new tenant (the assignee).

Licence for Works – A document that gives a tenant permission from a landlord to perform work on a property.

Local Authority Search – Provides information about the property and its surroundings, such as planning permissions, building regulations approvals, and environmental notices.

Memorandum of Association – A legal document that records the formation of a company in the UK. It is signed by the initial shareholders or guarantors of the company, agreeing to form it. The MoA includes the registered company name, date of subscription, and the names of the founding members.

Mutual Break Option – This allows either tenant or landlord to end the lease early, provided that certain conditions are met, and proper notice is given.

Option Agreement – Gives the third party the option to buy the land on agreed terms. The third party can serve notice on the landowner to exercise the option, either at an agreed price or based on market value at the time.

Option to Tax – A freehold owner or landlord registers their commercial premises to charge VAT on either the value of the property upon a sale, or on the rent they may charge.

Option Fee – The sum to be paid to a land or property owner on completion of an Option Agreement.

Overage – A legal agreement that allows a seller to receive additional funds from a buyer after a sale has been completed.

Overage Agreement – Confirms the terms of the overage, such as payment terms. 

Percentage Lease – The tenant pays a fixed base rent plus a percentage of their gross income.

Personal Guarantee – An agreement between a business owner / director and a lender that the director will be personally liable for repaying a loan if the business can’t. they can have conditions like only covering part of the loan or apply for a limited time.

Premium – A one-off sum paid by a tenant to a landlord at the beginning of a lease.

Rent – The amount a tenant pays to the landlord in exchange for the use of a property.

Rent Deposit – Money paid by a tenant to a landlord as security for the performance of the lease and payment of rent. The deposit protects the landlord from the risk of the tenant breaching the lease or not paying rent.

Rent Deposit Deed – An agreement that sets out the rules on how the landlord may use and return the rent deposit, and when the tenant may have to top up the rent deposit.

Rent Reviews – A reassessment of rent, often based on the market rent for similar properties.

Searches – Helps identify potential risks and liabilities associated with the properties. This can include:

  • Local authority search.
  • Highways search.
  • Water and drainage search.

Security of Tenure – Allows commercial tenants to remain in their premises after their lease ends and request a new lease on similar terms.

Service Charge – An additional payment due under a lease from a tenant to a landlord, in respect of services provided by the landlord, e.g., heating, security, communal areas, cleaning, etc.

Statutory Declaration – A legal statement sworn in front of a solicitor or commissioner of oaths.

Term – The number of years for which the lease is granted.

Transfer – A legal document which transfers title in the property from buyer to seller.

Use Classes Order – A list that sets our what a property may be used for, depending upon the class of use for which an application has been made to a local council.

VAT – Value Added Tax

Water and Drainage Search – Reveals how foul and surface water drain to a public sewer.

Please do not hesitate to contact our experienced Commercial department on 01753 486 777.