Case Study Flashcards
Whats is the Address?
78-80 Perry Hill, Catford, London SE6 4EY
Who is the client?
City Mist Ltd
Who is the Landlord?
Kimberland Ltd
When were you initially instructed?
8th July 2019
When did you initially initiate an open marketing campaign?
29th July 2019
When did the first set of HOT’s get complete?
12th November 2019
Why did the first tenant pull out of the deal?
Covid-19 Uncertainty
When did you re-market the property?
13th July 2020
What were the client’s objectives?
- Retain public house use
- Grant between a 10-15 year term
- Contract the lease outside of the LTA 1954
When was the closing date for bids?
6th September 2020
HOT’s agreed for a second time??
26th October 2020
Simultaneous exchange of contract and Lease completed on what date?
25th November 2020
Handover of the property to the new tenant?
30th November 2020
What was the total site area?
1,496 sq m or 16,107 sq ft
What was the building footprint?
308 sq m or 3,319 sq ft
What was the turnover in the preceding year? Was this for the entire property?
£275,000, no just the public house
Did you have rental information for the flats above?
No, they were not managed effectively
Why was the property trading below what the REO would?
There was no kitchen equipment and the property needed substantial decoration.
What was your opinion of Fair Maintainable Turnover?
£375,000
How did you reach your opinion of FMT?
I had regard to the trading accounts and they looked lower than the levels seen in the comparable evidence. I made an adjustment to reflect this.
What was the Wet Trade?
£300,000 80% of FMT
What was the Dry Trade?
£75,000 20% of FMT
What was the Gross Profit?
£247,500 66% of FMT
What were the Wages?
£100,000 26.67% of FMT
How much were the other costs?
£67,500 18% of FMT
How much was the tenant’s capital?
£100,000 x 10% = £10,000 of 2.67%
What were the total operating costs?
£177,500 47.34% of FMT, not 59.17% as stated in my sub. I am afraid this was a typo and reflects the operating costs as a percentage of the wet trade.
What was the Fair Maintainable Operating Profit?
£70,000 18.67% of FMT
Rental Bid at 50%?
£35,000 9.33% of FMT
What is included in the other costs?
Cleaning, electricity, glassware, sundry, gas, water
What does the tenant’s capital reflect?
The £100,000 is for stock, fixtures & fittings, and initial redecoration. This figure was estimated from looking at other comparable lettings and the 10% rate of return is high to reflect this risk of this type of operation.
How did you check crosscheck the rent?
By seeing if the rental bid on FMT was similar to the comparable evidence I gathered. The comparable evidence range of rental bid on turnover was from 8.13% to 9.60%. My profits method was within the parameters defined here and I proceeded.
What was the landlord willing to grant to the upper parts? And how is it described?
An ‘Assured shorthold tenancy agreement’ (AST) allows a landlord to let out a property to a tenant while retaining the right to repossess the property at the end of the term of the tenancy. However, the landlord will need to give the tenant at least two months’ notice of any reoccupation.
What estate agency did you speak to?
KFH and Acorn
What did you and the estate agents conclude about the upper parts?
Their most likely use would be as shared living accommodation, to be let as separate rooms as opposed to as a whole.
Name the streets your residential comparables were on?
Nylon Grove £400
Cumberland Place £400
Datchet Road £450 not shared accommodation and slightly higher specification
Clarens Street £400
What rate did you apply to the residential upper parts before the adjustment?
£400 pcm or £4,800 pa
What discount did you apply to the resi upper parts?
30%
What did the 30% discount reflect?
To reflect the management obligation, insurance obligations, void, and other risks to the tenant company. I had reviewed other evidence locally and in a number of valuations, I saw a 30% discount was common.
The total residential rent after the discount was?
£16,800 pa
What was the combined value of the public house rent and upper parts?
£51,800
What was the property guide price and why?
£50,000 because this was viewed as a more marketable rent.
What were was the main criteria for the comparables?
Free of tie public houses in the London Borough of Lewisham
Then free of tie public houses in the wider area.
But I was looking for lower grade stock, in areas with low social-economic demographics.
What systems did you use to check for comparable evidence?
AG&G internal system
Liaising with other surveyors internally and externally
What did the RICS release in regards to covid-19 material uncertainty?
Valuation practice alert - COVID-19
What impact did covid-19 have in your opinion of value?
I recognized that the pandemic may have a material impact on rental value. However, there was a dearth of open market letting evidence in the locality. My firm had been busy doing lease restructuring work for pub and restaurant clients. They agreed on lots of 15% rent reductions. We also received offers on a restaurant/bar in Balham for 15% lower than the former rent.
What was Key Issue One?
Determining an appropriate Market Value
What was Key Issue Two?
Tenant selection and recommendation
When you found out the parties were unrepresented what did you do?
I suggested they should seek some representation and that they should review the code for leasing business premises 2020.
What is the rateable value of the subject premises?
£35,500
Can you tell me about the pubs construction?
Solid wall brick construction, multi level pitched roof. Traditional public house style.
What did Party A Offer
Year 1: £40,000 Net effective: £50,486
Year 2-5: £55,000
6.5 months rent free
15 year FRI
5 yearly upwards only reviews
Outside LTA 1954
6 month rent deposit
What does FRI mean?
A full repairing and insuring lease (“FRI Lease”) is a Lease which places the responsibility for all costs of repair and insurance of the let Property with the Tenant.
What did Party B Offer?
Headline £55,000 Net effective £50,875
12 month rent free
25 year FRI
5 yearly upwards only reviews
Outside LTA 1954
6 month rent deposit
What did Party C Offer?
Headline rent £40,000 £38,000 net effective
9 months rent free
15 years FRI, tenant only break at 5 & 10
5 yearly upwards only reviews
Outside LTA 1954
6 month rent deposit
What did you have regard to when analysing your offers?
My clients objectives
How did you devalue the rent free periods?
I assumed 3 months of the rent free period was for fit out and devalued the remanding rent free over a ten year period as is common when devaluing licensed property
Whose rents were acceptable?
Party A and Party B both had acceptable rental offers, Party c was far to low.
Why did you devalue the rent free period over 10 years?
It is what is most commonly done in the leisure industry. It represents a fair compromise between the landlord and tenant. The tenant would want the term to be devalued over a 5 years up until rent review to reflect a lower net effective rent. The Landlord for the entire term until lease expiry.
How do you check covenant strength?
Due diligence and checking the last three years audited accounts to examine the profitability and net assets, requesting proof of funds with their current bank or using credit agencies.
Asked for Landlord and trade references
How did you mitigate poor covenant strength
Requesting higher deposit
MEES 2020?
From 1st April 2020, the Minimum Energy Efficiency Standards of E or above apply to all existing tenancies – not just new ones or renewals.
When do you need a new epc?
You will only need to get a new EPC if you intend to let to a new tenant, or wish to sell the property.
Or it has been 10 years
Did you get approval to use comps?
Yes, I got written informed consent. Some of the information we freely displayed on letting and selling particulars.
What was most comparable property?
FMT = Edmund Halley and Fellowship FMOP = Fellowship
What was the range of rental bid of turnover?
8.13% to 9.60%
What were the HOTS marked with?
Subject to Contract
Why is rent paid quarterly in advance?
A landlord usually collects rent in advance to cover risks
What are the quarter days?
25th March
24th June
29th September
25th December
What was the repair covenant?
- Tenant to put and keep in good and substantial repair.
* Tenant to decorate internally and externally in every fifth (5th) year and in the last 6 months of the term.
Interest rate on arrears?
4% over nominated bank base rate if 7 days late
Permitted use?
Public house with ancillary letting accommodation to first floor
What use class does this fall into?
Sui Generis meaning in a class of its own.
What legislation governs the new use classes?
The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020
What use class was the public house at the start of the letting?
A4 of the The Town and Country Planning (Use Classes) Order 1987 (as amended)
What alterations are allowed?
Internal non-structural and external with prior written consent of the landlord such consent not to be unreasonably withheld.
What act governs alterations?
Landlord and Tenant Act 1927.
What must the tenant do with the premises license?
Maintain it
Transfer to landlord at expiry
What alienation as allowed?
- The tenant may assign or underlet the whole of the Premises only with the consent of the landlord, such consent not to be unreasonably withheld.
- Tenant can underlet part only – a “part” being defined as the entirety of the first floor which can be sub let on a single AST
Why must the underletting be no less than the open market value?
As to make sure the sub-tenant pays the full rent as opposed to the head tenant still having to pay a sum. As the head tenant may not be in a position to pay due to have no direct income.
Who pays the insurance?
Landlord and tenant reimburses full cost.
What are some of the assumptions of the rr clause?
- open market value or £55,000 - higher off
- Values as whole
- Willing
Covid-clause any impact on value?
No it not, conversly if one was not inserted the lease may have been less valuable.
Recent case law involving WH Smiths set this out.
What were the licensing hours?
M - Thurs 11 to 11
F to Sat 11 to 1am
Sunday 12 to 11
Is a House of Multiple Occupation needed for the upper parts?
Yes if the tenant was to have 5 people from different households sharing a common area.
What additional requirements are there for HMO’s?
- Send the council an updated gas safety certificate every year
- Install and maintain smoke alarms
- Provide safety certificates for all electrical appliances when requested
What was the split gross profit split between wet and dry
Wet profit higher at 67%
Dry profit lower at 62%
Joint 66%
Who did you perform money laundering checks on?
Client
Landlord
All 3 parties who submitted an offer
name a red flag for ML
if a young, non-working individual has no
cash assets but is buying a high-end apartment for the sum of millions, it would be appropriate to undertake further checks on the origin of this money.
What did you request from the companies in regards to AML
Its name, company number and address of the registered office is required
The names of the directors are required
What did you request in regards to AML for parties
Copy of valid passport or driving licence with photo
Copy of a bank statement, credit card bill, council tax statement or utility bill to show evidence of address, not more than 3 months old
Did you need to commission a new EPC?
Yes, the EPC was historic, a new one was needed for marketing.
What did you do when you noticed two shipping containers in the garden?
Checked that these were the former tenants and then checked the lease. The yeilding up clause stated that the tenant must remove all of their possessions upon expiry of the lease. I informed the landlord and the former tenant removed them.
How did you measure externally?
Using Promaps and cross checking with the Title Plan from the land reg
How did you measure the upper parts?
In line with IMPS 2 for residential. Close to GIA.
