Legal jargon can be confusing. To make things clearer, Winckworth Sherwood's PRS team has put together a jargon buster of the various terms that are used in relation to the Private Rented Sector.

Please browse the list of terms or use the A-Z navigator below:

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To download a PDF of the jargon buster please click here.

Arrears

The amount of money or time in which a tenant has fallen behind in paying the rent.

Asset class

The type of investment an investment structure makes. It could be residential property, gold, art, commercial property, shares, gilts etc.

AST

Assured Shorthold Tenancy. An AST cannot be for a term of more than 12 months.

Authorised

A financial adviser or investment structure which is authorised by the FCA.

Branding

Designing and marketing living spaces in such a way that they evolve into a brand so that a premium can be added to the rent that would be otherwise payable for a non-branded development. Branding does not necessarily rely on the location of the development.

Churn

Selling properties rather than renting them out. The investor gets a capital gain once a property is sold rather than an income gain which is reflected in the net rent received by the investor. Traditionally the capital gain has been higher than the income gain. A capital gain also tends to be taxed less. This is not necessarily the case at the moment. A REIT is severely restricted in how much it can churn.

Closed ended fund

A fund in which you invest at the beginning. Once the fund is closed, no further investment is allowed and you are locked-in until the end of the term. Usually only available to HNWs Co-investment An investment structure where the fund and the tenant part own the property. Similar to shared ownership. It makes it easier for the fund to churn and derive a capital gain for the fund.

Construction risk

The risk that a development may or may not be completed, including the liability to make good any defects during the defects liability period.

Defects liability period

The period of time in which the developer or builder is liable to fix any defects in the buildings construction.

Development risk

See construction risk.

Distribution

The return paid on equity such as a dividend (if it comes from a company) or a distribution (if it comes from a partnership).

Double tax

An investment structure where tax is paid twice, once by the investment structure itself (such as happens with an onshore company) and again when the structure makes a distribution (the investor pays tax on the amount of the distribution received).

Dumbbell design

A design which encourages multi-letting of a single property to unrelated renters (sharing) and would normally have an ensuite in each bedroom rather than a communal bathroom, similar sized bedrooms and a larger communal living area, possibly a communal area shared by more than one dwelling.

Equity

The amount of money an investor contributes or investments in an investment structure

Exit

The end of the expected term of an investment structure . The point at which you get your initial equity back.

FCA

Financial Conduct Authority which regulates residential property investment structures in the UK. Almost all residential property investment structures comprising more than two people are regulated by the FCA in some manner.

Fund

An investment structure which has a separate legal identity from its Manager or Promoter.

Gearing

The amount an investment structure borrows to buy investments over and above the amount of equity invested by an investor. It means an investment structure needs to find less equity from investors and because of favourable taxation treatment of gearing increases the investment return an investor may receive.

Gilts

In times of economic strife there is often a flow of money available for investment to government backed investments such as gilts. They are considered low risk and therefore offer a low rate of return.

Gross return

The return before deducting the effect of inflation, all costs and expenses.

HNW

A “high net worth” investor. Typically a person with more than £500,000 of net assets, not including their principal home.

Inflation

CPI or RPI, important because its rate determines the effectiveness of an investment over the medium to longer term. Any investment needs to outperform the median inflation rate over the term of the investment otherwise you have lost money.

Institutional Investor

A bank, pension fund, hedge fund. It does include local authorities, some charities and housing associations in certain circumstances.

Investment

Where an investor risks money by putting equity in an investment structure which invests that equity on the investor’s behalf in a medium or long term investment with the expectation that the investment return will exceed infation and the costs of the investment over time. It cannot amount to trading.

Investment return

The rate of return an investor receives on their investment. It can be expressed as gross return or a net return.

Investment structure

The legal structure (such as a partnership) set up to receive equity from investors, find an asset class to invest in, to hold those investments and presumably pay an investment return which exceeds inflation.

IRR

See investment return.

Liquidity/liquid

A reference to how easy it is to get your principal investment sum back

LLP

Limited Liability Partnership

LP

Limited Partnership

Manager

The property expert who manages an investment structure on the terms of the mandate. The manager will normally be regulated and authorised by the FCA.

Mandate

An investment management agreement between the investment structure and the Manager setting out how the Manager may invest, what they are paid and other management matters.

Migration

The process by which a renter might move towards home ownership.

Multi-tenure

A building which may offer different types of rental tenure (short term, medium term or long term). A fund itself may offer investments across a range of tenures as well.

Net return

The return (which might be a capital gain or an income gain) after deducting all taxes (including any double tax), fees (such as those charges by the Manager) and gearing costs.

New build properties

Dwellings that are less than 3 years old and usually are still within the defects liability period.

Offshore

A fund which is set up in an offshore jurisdiction to the UK such as the Channel Islands, Isle of Man, Cayman Islands etc. Tax minimisation is not the only reason why an offshore fund might be used.

OMV

Open Market Value.

Open ended fund

A fund in which investors can come and go during the life of the fund. An open ended fund gives greater liquidity to an investor when compared to a closed end fund. It is also highly regulated relative to a closed ended fund. Available to HNWs, Institutional Investors and Retail Investors.

Partnership

A structure that is commonly used in residential real estate investment as it is normally tax transparent. The most common structures are an LLP and an LP.

Place making

A housing design concept (usually within a single building) targeted to certain renters such as young professionals, young families, empty nesters, retirees etc.

Portfolio

The different types of houses/investments within a single investment structure.

Promoter

See Manager.

PRS

Unsubsidised residential tenancy market

QIF/QIS

A qualified investor fund. UK regulated offering double tax exempt structures but usually only available to HNWs.

REIT

A real estate investment trust offering an onshore, liquid double tax exemption for property investments.

Retail Investors

Means Dads. Investors who are not Institutional Investors or HNWs.

Street properties

Typical terrace house or stand-alone residential property – not a unit development or scheme.

Target returns

The returns the Manager hopes to get and often advertises to potential investors. Advertising target returns is highly regulated.

Tax transparency

Where the investment structure itself does not pay tax. Tax is only paid when a distribution is received by an investor. If a structure is not tax transparent then double tax is usually payable.

Trading

The ordinary day to day activities of a business which are performed repeatedly. An investment which amounts trading will be more heavily taxed than one which isn’t.

UCIS An unregulated collective investment scheme. An investment structure which is only lightly regulated by the FCA . It is only available to HNWs.

Voids

The period of time a rental unit is not let to a tenant and is therefore not receiving any rent.

This table does not constitute legal advice. It is a generic description. Specific legal, accounting and financial advice should be sought in all matters. © Winckworth Sherwood LLP 2015


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