Lease term, rent, outgoings and other property management_MUWONGE RAPHAEL
CEDAT SCHOOL OF BUILT ENVIRONMENT, DEPARTMENT
LEASE TERM, RENT, OUTGOINGS AND OTHER PAYMENTS
Names reg. NO.
• MUWONGE RAPHAEL
• NANGENDO SANDRA
• KASASIRA M. BELAYE
• LUMU ALVIN
• KALASI MOSES
• NAKIMPI REGINA
• KIZITO MAJORINE EMILLY
A lease refers to a proprietary interest in land granted by one
person (lessor) to another (lessee) for certain duration.
The older term that was used to mean a lease was a demise
According to Wikipedia, a lease is a legal contract, and thus
enforceable by all parties under the contract law of the applicable
In England and Wales by virtue of section 62 of the Law of
Property Act 1925, the grant of a lease is deemed to include all
rights and easements which the premises demised enjoy at the
time of the grant, as well as all fixtures attached to the premises
at that time (the premises demised enjoy at the time of the grant,
as well as all fixtures attached to the premises at that time
A lease term is one of the formal requirements for a lease determined by
the law and custom of the jurisdiction in which real property is located
According to the Business dictionary.com, a lease term refers to a fixed,
non-cancelable period for which a lease agreement is in force.
It can also be defined as the interval between the time a lease goes into
effect and its expiration.
It is the life of a lease including any renewal options, (Financial
According to Wikipedia, a lease term may be fixed, periodic or of a
A periodic lease is one that exists from year to year or month to month.
A fixed term lease is one where the maximum duration is fixed from the
very commencement of the lease e.g. a lease for ten years.
LEASE TERM IN WALES AND UK (HISTORICALLY)
Historically, commercial leases were granted
usually for a lease term of 20 or 25 years,
with rent reviews once in every fifth year of
the lease term and with no right to terminate
the lease before the expiry of the lease term
LEASE TERM IN UK AND WALES (RESEARCH BY
According to the research made by the British Property
Federation (BPF) IPD Annual lease Review for 2007, on what
the ‘average’ lease term in the current market is, the trend
was generally downwards indicating are drop in the average
length of all the recent leases taking breaks into account
and weighted by the rent passing.
In their report BPF indicated that less than 4% of the leases
completed recently were for more than 15 years, and these
leases accounted for 14.5% of passing rent. It also noted that
17.5% of leases in 2006-7 for 5years or less had break
LEASE TERM IN UK AND WALES (CURRENT
In the current market, leases are now usually granted with lease terms of
not more than 10 or 15 years and sometimes include the tenants’ right to
terminate the lease before the expiry of the lease term. Leases of more
than seven years now need to be registered at the Land Registry so that
plans used must be Land Registry compliant.
The shorter the lease the more likely it is that the lease will be excluded
from the security of tenure provisions which are automatically
incorporated unless excluded.
The shorter the lease i.e. around five years or less, tenants are more
likely to be able to agree some form of cap on service charges and
possibly, some limitation on their repairing liability for instance, by
reference to a schedule of condition.
A longer lease will almost invariably have a greater repair/dilapidations
LEASE TERM IN UK AND WALES (BREAK
A Break clause is a clause in the tenancy agreements that provides
an opportunity for the tenant and/or the landlord to give notice
during the fixed-term of the tenancy to end the tenancy early.
Break clauses with any conditions are fraught with difficulties and,
as a result, they may not be operable, legal and detailed surveying
advice should be taken well in advance of any break date.
Where a lease has a break clause, ensure that any sublease can be
terminated in time to comply with that break clause and that it
excludes any statutory renewal rights.
LEASE CODE’S ADVICE TO THE TENANTS
The Lease Code’s advice to the tenants is, “When granting any
subleases and or in sharing possession with any suppliers or
business partners, always make sure your agreement with them
expires on the date before your right to break and that you have
not given them any rights to stay in the property beyond the term
of your agreement with them”.
The Lease Code also advises the tenants to, “Be careful that it is
only principal rent and not any other sums such as service charges,
insurance premiums and even penalty interest etc. that must be
paid in the cleared funds before the break date”.
LEASE CODE’S ADVICE TO THE LANDLORDS
The Lease Code urges landlords to be flexible in
terms they offer tenants: “The only preconditions to
tenants exercising any break clause should be that
they are up to date with the main rent, give up
occupation and leave behind no continuing
subleases. Disputes about the state of the premises,
or of what has been left behind or removed, should
be settled later like the normal lease expiry.
LANDLORD’S BREAK RIGHT AND THE
LANDLORD AND TENANT ACT 1954
The landlord still has to follow the statutory
termination provisions of serving relevant notices in
addition to any contractual procedure although he
or she may have a contractual break right.
This is true if the lease has not been excluded from
the from the renewal rights under the 1954 Act.
LEASE TERM UNDER COMMON LAW
The lease term must be determinable, however this does not
mean that it must be fixed.
According to the case of Lace Vs Chantler (1944) ALLER305,
at common law the duration of the lease must be certain or
its end has to be ascertainable from its beginning.
In his ruling Lord Greene MR quoted that “A term created by
a leasehold tenancy…must be expressed with certainty…at
the time when the lease takes effect”.
LEASE TERM UNDER THE LAND ACT 1998
The Ugandan position on this point is set out in the Land Act
Cap 227 S.3 (5) (c) which is to the effect that the duration of
the lease is usually but not necessarily defined.
This means that it is not mandatory to have the duration of
the lease defined.
On the other hand, the practice more often than not is that
the duration of the lease is usually defined.
This is because of the fear of land owners to create interests
in their land whose termination time is uncertain.
THE EFFECT OF THE STAMP DUTY LAND
The introduction of the SDLT in December 2003 in
place of the Stamp Duty, introduced another
influence on lease terms, namely that the longer
the lease the higher the tax.
It is now that case that a short lease with an option
to renew is better from a tax position than a long
lease with a break clause.
Income from property is called RENT.
Rent is a requirement of leases in some common law
jurisdictions, but not in civil law jurisdictions
Rent is an annual or periodic payment for the use of land or
land and buildings.
According to the Merriam-Webster Dictionary, rent refers to
the usually fixed periodical return made by the tenant or
occupant of the property to the owner for the possession
and use there of.
It is also said to be an agreed sum paid at fixed intervals by
a tenant to the land lord.
TYPES OF RENT
This rent paid in building leases for the bare site alone. It excludes payments for
improvements on the site.
This is the rent paid by the superior tenant or the head lessee.
This is the difference between rent received, or potentially receivable, by a
tenant and the rent paid to the tenant’s superior landlord.
This is the lump sum of money paid by a lessor for the granting of a lease in
consideration for the reduction in the rent payable under the lease.
Virtual or Sitting Rent
This is the actual rent paid plus the annual equivalent of the premium or any
capital expenditure incurred by the tenant in additions and alterations to the
Maximum Rent for which a property could be let in the open market on a
given set of letting terms is called FULL RENTAL VALUE.
The letting terms can be for instance:
Full Repairing and Insuring Costs (F.R.I)
Where a property is let on FRI terms, it means that the tenant is obliged
to meet full repairing and insuring costs in addition to rent he will be
paying to the lessor. Rent received will therefore be net income.
Internal Repairing (I.R)
Under here the tenant contracts to meet internal repairing only and the
lessor is responsible for external repairs and insurance. The lessor
receives gross rent.
RENT AND VAT IN UK AND WALES
The rent will normally be expressed as being payable in advance and, if
the landlord has exercised its option to tax in respect of the property,
will attract VAT. The tenant will be able to recover the VAT paid under
the lease in accordance with its usual VAT status.
The lease will usually specify that the rent is payable on ‘the usual
quarter days’ which are 25 December, 25 March, 24 June and 29
September in any one year, although it is becoming more common that
the quarter days are 1 January, 1 March, 1 June and 1 September usually
referred to as the ‘modern quarter days’.
There is also pressure from retailers for rent to be payable monthly in
advance instead of quarterly. The advantage of this to tenants is that it
helps them to manage cash flow and bring rental payments into line with
other outgoings. Landlords would lose out on the interest they earn on
“NO DEDUCTION OR SET OFF” PRINCIPLE
The lease will usually contain an express statement to the effect that ‘no
deduction or set off’ can be made from the rent.
If properly drafted, this should prevent the tenant, say in a service
charge dispute, from deducting the disputed service charge payment
from the rental payment.
If the clause just refers ‘no deduction or abatement’ then this will not be
enough to prevent set off, there must be a specific mention of and
exclusion of ‘set off’.
Some leases do specifically allow the tenant to deduct tax, if required,
usually by adding the words ‘save to the extent required by the
TAX DEDUCTION AS PER HM REVENUE AND
If the landlord’s usual place of abode is outside the UK, the tenant
or letting agent should ensure that the landlord obtains approval
from the HM Revenue and Customs (HMRC) for the landlord to
receive rents gross, with no tax deducted.
This is known as ‘The Non-Resident Landlords Scheme’. The
scheme requires letting agents to deduct basic rate tax from any
rent collected on behalf of the non-resident landlords and pay the
tax deducted to HMRC quarterly. If the non-resident landlord does
not have an agent, then the tenant himself has to make the
deduction and payment to HMRC.
Outgoings are “periodic costs incidental to the ownership of
They are costs and expenses incurred by the owner or
occupier of the property in connection with its ownership,
occupation, use, management and maintenance.
In other words outgoings are taken to be primary issues
related to the paying of rent and other amounts payable like
electricity and water bills etc.
MAIN CATEGORIES OF OUTGOINGS
The allowance for repairs will generally depend on the age of the property,
extent and the type of construction.
Capital expenditures for example heavy repairs on accrued dilapidations are not
This is generally borne by the tenant. Sometimes for example where a property is
let on a monthly tenancy or where blocks of offices or flats are let in suites to
numerous tenants, the cost of insurance is borne by the landlord.
The main management costs are rent collection, supervision of repairs, issuing
out payments, answering tenant and Local Authority queries. Management costs
are normally estimated as a percentage of rent received (5%-10%).
MAIN CATEGORIES OF OUTGOINGS
Rates are payments to the Local Authority for communal services e.g. road
surfacing, street lighting, refuse collection, central sewage disposal and so on.
Voids refer to loss in rent due to the property being unoccupied. It is common
practice for Valuers to make an allowance for voids. The amount of allowance for
voids will depend on tenant turnover and demand for that type of property.
The Cost of Provision of Services
These costs occur when the property, mainly blocks of flats and offices are let in
suites to multiple tenants and the services can only be provided through a
MAIN CATEGORIES OF OUTGOINGS
These are sometimes referred to as running costs. They include;
• Cleaning and lighting of common parts e.g. the central hall,
staircases, toilets, corridors, parking lots etc.
• Running and maintenance of lifts.
• Central cooling or heating.
• Employment of watchmen, porters etc.
• Provision of furniture in the entrance hall and other common parts.
In practice the charge for these services is levied separately from rent as
a service charge and is assessed each year based on the actual cost of
providing such services.
NB; The property types and locations can also affect the size of the
Aside from outgoings, they are also other payments incurred by the property
managers in the management of commercial, residential, retail and public real
Outgoings are more or less compulsory expenses that are occasionally incurred by the
property managers whereas the other payments are optional expenses that may be
snubbed by different property managers.
Other payments are extra expenses incurred other than outgoings. Some of these
other payments include;
Reserve or Sinking funds
This is an arrangement where uniform or equal deposits must be contributed within
fixed periods at a given rate of compound interest in order to have a specified sum
available at some given future time period. In other words, rather than putting aside
a single lump sum of cash into an account as reserve to cover a future expense, one
could opt instead to meet that objective with a sinking fund that incorporates
periodic payments. For instance could create a sinking fund as a reserve to cover the
future cost of some capital expenditure like a roof refurbishment, replacement of
windows that he/she has scheduled for their rental property.
Professional body subscription
Property management Associations are bodies statutorily registered for the purpose of
bringing together knowledgeable, ethical and innovative property managers in the
country to provide a platform for discussion, serve as a collective voice and driving
force for issues pertaining to the property management industry.
As a pre-requisite, members are required to fulfill the payment of a periodic
membership subscription fee that may either be annual or monthly depending on the
stipulated terms and conditions of the particular association.
These include legal payments that may be unexpected in case of breach of contract
by some tenants, it may necessitate court action, the property manager will therefore
have to incur expenses in the form of legal fees. Another instance may be in case of a
disagreement between the property manager and government enforcement body such
as NEMA that may lead to settlement in the courts of law will also lead to the
unplanned expenditure on legal fees.
OUTGOINGS AND OTHER PAYMENTS IN UK AND
Penalty interest; this is a charge interest at a specified rate of around 4% above
the bank base lending rate from the due date until the date of payment usually
paid by the tenant if he or she is late in paying any sums due under the lease.
Rates; these are considerable expenses to the tenant which are paid to the
local rating authority and not to the landlord. In some circumstances the rating
liability can be reduced or relief claimed. The levels of rating relief were
reduced to 6 months for empty industrial property and to 3 months for empty
office and retail property, this was 01/04/08.
Dilapidations; in cases where the landlord serves a schedule of dilapidations or
takes on proceedings to terminate the lease or enforce the lease terms, the
costs incurred in doing so can usually be recovered from the tenant.
Costs; the landlord is entitled to charge the tenant for any costs incurred in
relation to considering any application and these charges can extend to
lawyers’, accountants’ and surveyors’ fees, depending upon the nature of the
• Analyzing of outgoings in income generating properties in Lagos Metrolis_UKABAM,
Titilayo; Department of Estate Management, Yaba College of Technology.
• Bannister Edward (2008), Commercial Leases 2009; Surveyor’s Guide, Royal
Institute of Chartered Surveyors, Surveyor Court: Westwood Business Park,
Coventry CV4 8JE: United Kingdom.
• Dr. Medard Lucas Geho, (June 2002). Principles, Techniques and Methods of
Valuation; A Technical Manual