In part two of this mini-series we explore property management terminology surrounding accounts, authorities and ownership.

Expenses, Operating Funds and Accounts:

OPEX – Refers to the ongoing operating expenses associated with a property. Usually these are expenses that are payable by the tenant which is set out in the Lease.

CAPEX – Stands for capital expenditure which are usually major or long-term expenses.

Trust Account – Unlike a regular business account, a trust account is an account in which funds do not belong to the one managing it. Trust accounts are frequently used in real estate and property management and are designed and used to keep any payments from tenants, such as rental and outgoings payments which are considered to be client’s funds and not funds of the agency. In property management, the property owners are the beneficiaries. This means the property owners benefit from the property management (trustee) oversight of the funds coming in.

Types of ownership in NZ:

Freehold – Exclusive ownership of the land and any associated building, subject to any interest registered on the title.

Leasehold – Someone else owns the land, and you will have to pay them a ground rent. You purchase the exclusive right to that land and/or building for a specific period of time according to the lease document.

Cross Lease – You own a share of the freehold title in common with the other cross lease holders and a leasehold interest in the building and area you occupy.

Unit Title – The owner owns a defined part of the building and shares ownership of the common area. Run by a Body Corporate.

Common Property – An area of unit titled property that is shared by all users and not owned by one particular owner.

Common Sale/Leasing Terms:

Lessee – Someone who rents land or property from a lessor. The lessee is also known as the tenant and must uphold specific obligations under the lease agreement by law.

Lessor – Someone who grants a lease to someone else. The lessor is the owner of an asset that is leased under an agreement to lease.

Deed of Lease – This is the formal document entered into for a commercial property by the tenant and landlord after an Agreement to Lease is signed. It’s typically prepared by a solicitor and provides detail about the day-to-day operations of the lease.

Agreement to Lease – An agreement to lease is a binding contract between the landlord and prospective tenant, which outlines the basic details of the lease.

Deed of Renewal – This is usually entered into after a renewal set out in the lease term is exercised. The deed of renewal is the formal granting of the new term.

Deed of Variation – This is used to vary the terms of a lease, mutually agreed between the landlord and tenant. For example, a variation may be drawn up if the parties agree to add a further right of renewal to the lease.

Deed of Rent Review – This may be carried out when a rent review is due as per the lease. This is a formal way of documenting the review citing the relevant rent review clauses and determination of the new rental payable.

Fixtures and Fittings – In commercial property these are defined in the lease agreement. For example, if the landlord owned the air conditioning or the carpet, this would be listed.

Chattels – Chattels are moveable and removable items of personal property. In real estate transactions, chattels can be included in the sale of the premises. Chattels may include items such as the carpet, blinds, light fittings, air conditioning units.

Common Property – An area of unit titled property that is shared by all users and not owned by one particular owner.

NZ Real Estate Authorities:

REA – The governing regulator of the New Zealand real estate industry. The REA is the licensing and disciplinary body for the real estate industry in NZ. It is an independent government agency that sits under the Ministry of Justice (separate organization to REINZ).

The REA’s job is to promote a high standard of service and professionalism in the real estate industry in NZ. They help protect buyers and sellers of property. The REA offers information for buyer and sellers and provides guidance for agents and deals with licensing of agents and agencies.

REINZ – The Real Estate Institute of NZ. A membership organisation for real estate professionals in NZ.

*Please note that these definitions may not be interpreted the same for tax purposes.