Real Estate Dictionary: Know what the jargons mean - Part 1

CAM Charge: Common Area Maintenance charge to be paid by tenants/occupiers for common areas such as lobby, elevators, parking, etc. and common services such as security, power backup, central air-conditioning, upkeep of various electro-mechanical equipment, consumables utilised for various building aspects and creation of a sinking fund for equipment replacement. Such charges are payable on a monthly, annual or lumpsum basis. Such charges are calculated basis each tenant’s pro rata share of the common areas based on the area leased by the tenants.

Title Deed: A legal document issued by the relevant authority, pertaining to the ownership of a property and various terms and conditions of continuing ownership.

Foreclosure: The legal process adopted by the lender to terminate the right, title and interest of the owner in his property in case the latter stops repaying the loan. The lender takes over the property and sells it to recover the loan amount.

Floor Space Index: Also referred to as the Floor Area Ratio (FAR), it is the ratio of the total floor area of a building to the land area on which the building has been constructed. It indicates the total area on all floors that can be built on a plot of land. FSI of 150 means that 1.5 times the land area can be constructed on the land. Over and above the FSI, other building portions are certified or allowed to be constructed based on the prevailing bye-laws and building design provisions.

Ground Coverage: Total covered area on the ground by the built component, expressed as a percentage of the plot area.

Hard Option: Option for a certain space offered by the developer to the tenant for a fixed duration of time wherein the developer will not offer the same area to other prospective tenants for that specific timeframe. A hard option could be on a no charge basis for the duration or may have a holding cost defined as a percentage of rent the tenant is paying for his exiting space. It is usually exercised at the notice of the tenant and is usually accompanied by a new agreement being signed.

IBC: Acronym for Insolvency and Bankruptcy Code. It provides the regulatory framework to resolve corporate bankruptcy issues in India within a fixed timeline, including those in the real estate sector. Insolvency resolution process is initiated through the National Company Law Tribunal (NCLT), which invites bids for an insolvent company followed by approval from the Committee of Creditors (COC), consisting of financial creditors of the bankrupt company.

Institutional Investor: An entity which pools money to purchase securities, real estate property and other investment assets. Institutional investors include banks, insurance companies, pensions, hedge funds, private equity investors, REITs, and mutual funds who are allowed by their country’s laws to raise pooled capital and invest on behalf on their investors.

Occupancy Certificate: A certificate which is granted by a municipal authority certifying a specified premise as complete and fit for occupation with adherence to all regulations and safety and compliance norms as defined by multiple agencies designated for giving such approvals. This certification is a pre-requisite for physical occupancy in a building.

Lease Agreement: A signed agreement recording a lease (for a property) between a lessor (legal owner or his authorised representative) and a lessee which sets out the terms and conditions on which the lessee is given the property for occupation and the representations and warranties the lessor makes to the lessee. It needs to be compulsorily registered with the appropriate legal authorities (if tenure is beyond 11 months). It is recommended that for legal recourse to be made available for any of the parties in case of breach of any conditions by the other, all such documents should be registered, irrespective of tenure.

Leasehold: The right to use and have possession (but not ownership) of a property for a specified period and against rental payment on a monthly, quarterly, annually or lump sum basis, as agreed upon in such a lease agreement. Usually seen in cases where government of local authorities retain legal ownership of the land but allow development and management based on pre-agreed terms and conditions for a long period.

Leasable Area: Building's total floor area that is designated for tenant leasing and acts as basis for rental calculation. It excludes non-leasable spaces such as foyers, areas devoted to heating, air conditioning, elevator shafts, stairways and other utility areas.

Net Floor Area: The usable floor area of a building for a specified use, which is based on the gross floor area (GFA) of the building excluding the common areas that include parking spaces, air shafts, elevator shafts, stairways, structural columns and walls. In certain cases, for net floor area calculations, areas under the columns is also subtracted.

Preferential Location Charge: Additional charge that is to be paid by a buyer for any residential unit that has a certain location advantage over other units in the project. This is based on where the unit is located. Such charges may be because of the facing of the unit (inward, green facing, pool facing, etc.) or based on the floor with higher and lower floors being charged differently based on prevailing market norms.

RERA: Real Estate Regulation & Development Act 2016 which has laid down norms for establishing a regulatory authority in each state for regulating the real estate sector. This authority also acts as an adjudicating body for speedy dispute resolution. To ensure greater transparency in the sector, the Act makes it mandatory for all commercial and residential projects, where land is over 500 square metres, or eight apartments, to get registered with RERA before formally offering the project for sale in the open market.

Subvention scheme: A scheme under which real estate developer, home buyer and bank enter into a tripartite agreement where the buyer pays a limited upfront payment for purchase of a property. The balance is paid by the bank on behalf of the buyer in pre-defined timelines to the developer. The developer then pays interest on the amount released by the bank or the financial institution on behalf of the buyer till the buyer takes possession of the property or till such time as mentioned in the buyer-developer agreement.

Term Renewal: Start of a new lease term for the lessee through a fresh agreement upon completion or expiration of the full term of the existing lease. Typically leases have 3 terms of 3 or 5 years each.

Tenant-favourable market: A market that has considerably higher available space for lease in comparison to existing demand and thus offers favourable and more flexible terms for tenants.

Underwriting: Undertaken by large financial institutions or lenders to assess the creditworthiness of a borrower or the investment being considered. It is the process through which the lender assumes risk on his balance sheet having undertaken a thorough due diligence to ensure that the appraised value of the property or investment is enough to cover the amount given and the additional return expectation.

Workplace readiness: A term used increasingly during the COVID times to indicate the preparedness of an organization to resume operations with adequate attention to health and safety factors after addressing the risk factors. It includes establishing pandemic-specific practices and procedures to ensure a safe, hygienic and secure work environment for returning workers.

Yield: Yield is calculated as the annual return on the capital investment, expressed as a percentage of the capital value of the asset. A yield takes into account the current and future income or earning potential from a real estate investment. A yield is based only on the rental income and does not include the component of capital gains from the property.

Real Estate Dictionary: Know what the jargons mean - Part 2