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RICS APC > Case Study > Flashcards

Case Study Flashcards

1
Q

What was the instruction?

A
  • Review the Tenant’s request for an incentive
  • Re-gear the lease to secure a contracted-out tenancy with a rolling Landlord break option.
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2
Q

What is a re-gear?

A

A re-gear is the renegotiation of the terms set out in the existing lease to benefit the Landlord and the Tenant (via a surrender and new lease).

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3
Q

Explain the process of the conflicts of interest check?

A
  • Confirming that myself nor any of my colleagues involved with the instruction have had no previous relationship, involvement etc with any other related parties or personal interest in the Property.

I undertake this check by undertaking a search on through our file and discuss this with colleagues involved to check if they have any personal conflict.

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4
Q

If there had been a conflict, what would you have done?

A
  1. Conflict avoidance - Consider if the conflict is irresolvable and if the instruction would compromise advice/judgement.
  2. Written advice to both parties - Write to the parties to disclose the nature of the conflict (transparent) and how this will be managed. Obtain informed consent (in writing).
  3. Conflict management - Agree to put an information barrier in place. Obtain informed consent (in writing). Onus on the regulated firm and RICS members involved to ensure works in practice.
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5
Q

What would be included within Terms of Engagement (TOEs)?

A
  • The instruction
  • Agreed proposed fee basis
  • Payment of expenses / marketing disbursements (and calculation)
  • That a copy of the firms complaints handling procedure is available on request
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6
Q

What is the Landlord and Tenant Act 1954 (LTA 1954)?

A

The LTA 1954 provides business tenants with the right to renew their lease (protection via security of tenure).

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7
Q

Why did you review the existing lease agreement and extract the key terms?

A
  • Understand the current position / terms previously agreed.
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8
Q

What were the conditions of the Break Clause?

A
  • 6 months written notice
  • All payments up to date
  • The tenant has given up occupation of the whole property free of from any sublease
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9
Q

What is an internal repairing and insuring (IRI) lease?

A

An IRI lease:

  • Tenant responsible for repairing and maintaining the internal parts of the premises
  • Landlord responsible for the external (i.e. roof)
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10
Q

When is IRI usually granted?

A

Where buildings are in multiple occupation (external is shared).

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11
Q

How does this differ from Full Repairing and Insuring lease?

A

FRI lease is where the Tenant has responsibility for all internal and external maintenance / repair.

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12
Q

Why did you undertake checks with the accounts team?

A

To ensure the tenant was up to date on payment and had no arrears on their account.

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13
Q

What if the tenant was not up to date on payment / arrears?

A

I would inform my Client that the Tenant was in arrears, there is a risk they won’t pay their rent and advise accordingly (i.e. allow break and market on a flexible basis.)

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14
Q

What are holding costs? Can you give an example?

A

Holding costs for the Property include business rates, insurance, security costs, maintenance.

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15
Q

What is a S25 Notice?

A

A s25 notice is served on the Tenant by the Landlord as either:

  • A notice to end the existing lease but confirm the landlord is prepared to enter a new lease (sets out the terms the landlord is prepared to accept.)
  • A notice which ends the existing lease and opposes a new lease on one of the limited grounds available.
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16
Q

What is the process of a s25 notice? / What would the landlord have to do to terminate the tenancy given that the lease is inside the 1954 Act?

A

The LL would have to issue tenant with a Section 25 notice:

No more than 12 months and no less than 6 months before the date for the termination of the tenancy

  • It is set out in the lease how the notice is to be served, if not, section 196 of the Law of Property Act 1925 will normally apply.
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17
Q

What are the grounds for opposing a renewal?

A

Section 30 (LTA 1954) states there are SEVEN grounds for opposition to grant a new tenancy:

A. Breach of repairing covenant

B. Persistent delay in paying rent

C. Other substantial breach

D. Provide suitable alternative accommodation

E. Tenancy was created by a subletting i.e. landlord could get more from renting out the property as a whole (compensation payable)

F. Landlord intends to demolish / redevelop the property (compensation payable)

G. Owner occupation - LL intends to occupy (compensation payable)

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18
Q

In this circumstance what is the grounds for opposing renewal?

A

Ground F.

The Landlord would need to back this up with evidence (i.e. plans, drawings, relevant consents, proof of finance, building contracts)

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19
Q

What is statutory compensation?

A

A tenant is entitled to statutory compensation from a landlord where a landlord opposes renewal on grounds (e), (f) or (g) only.

  • Compensation is assessed at 1x the rateable value of the property
  • Where the tenant has been in occupation for 14 years or more, at 2x the rateable value.
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20
Q

How much is the tenant entitled to? How is this determined? Why?

A

The tenant is not currently entitled to any compensation, although due to redevelopment aspirations, the tenant is likely to be entitled to this in the future.

As the tenant has been in occupation over 14 years, they are entitled to 2 x the rateable value (verified with BR team)

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21
Q

What is commercially viable?
How did you check this?

A

Unit let at the market rent with the opportunity for an increase in year 6.

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22
Q

What was the key objectives?

A
  • Establish the Market Rent
  • Negotiate with the Tenants CPA to secure a contracted out lease with a rolling Landlord Break and complete the re-gear appropriately
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23
Q

What does the “Red Book” state about the inspection of Properties?

A

VPS2 states that valuers should take the necessary steps to verify the information being relied upon for a valuation to ensure the information is professionally adequate for its purpose

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24
Q

What was the age and construction of the property?

A
  • Brick Construction
  • Rendered and Tudor style cladding to the first floor elevation
  • Pitched roof with a tile covering to the front, flat roof to the rear
  • Glazing
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25
Q

How could you verify the age of the property?

A
  • Title register (Land registry)
  • Historic records
  • planning consent
  • PC certificate
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26
Q

How did you undertake an external and internal inspection?

A

I reviewed the information held on file, used GM and other to gather some information on the property and the immediate area.

Externally I checked / noted:
- Location and access
- Construction
- Repair and condition
- Neighbouring occupiers
- Any other marketing boards
- Car parking

Internally I checked / noted:
- layout
- specification
- fixtures and fittings
- repair and maintenance

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27
Q

What did you take with you?

A
  • Pen, notebook, phone / camera, laser disto.

(no floorpans on file)

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28
Q

What are your firms H&S procedures?

How did you comply with this?

A
  • supporting management to identify hazards in the work place.
  • working in accordance with any risk assessment control measures
  • equipment used is in a good condition
  • training
  • wear PPE where required
  • report any incidents
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29
Q

What is the RICS Surveying Safely Guidance Note (2nd edition) 2018?

How did you comply with this?

A

It provides a set of best practice principles on the management of health and safety for both RICS firms and RICS members.

e.g. risk assessments, PPE, lone working.

I carried out a pre-assessment, property is tenanted and no need for PPE. I advised my colleagues of where I was, how long I’d be and took my phone with me

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30
Q

Describe the internal specification of the Property?

A
  • Suspended ceiling
  • Glazed shop front
  • Flat panel LED lighting
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31
Q

What if the tenant wasn’t complying with the terms of the lease?

How would this effect the advice given to your client?

A

It would depend on the terms breached by the Tenant. I would inform my Client and advise accordingly (i.e. a reminder to the Tenant or allow to serve notice to break w/out additional incentive)

32
Q

How would you describe the (local) property market in Sunderland?

A

non-essential retailers had no option but to close their doors during the covid 19 pandemic and following this the affects of the pandemic have seen a number of businesses close for good

The high street still has a number of vacant units in Sunderland as the centre lacks space and places I.e. no real experience to keep consumers in the city centre - lack of F&B offer and leisure opportunity

33
Q

How would you describe the (general) property market?

A

The general property market has also been affected by covid 19 which has encouraged consumers to shop online as they recognise how easy it is to shop from the comfort of their homes especially with next day delivery.

This in turn has had an impact on the take up of industrial units.

Covid has also encouraged home and hybrid working and as such those who would usually shop in town after work has decreased.

34
Q

How would you describe the situation of the Property?

A
  • Located on a side street off the main pedestrianised high street.
  • Not very visible and therefore it is assumed the Tenant rely’s on a repeat customer base.
  • Close proximity to M&S, Sports Direct and multi storey car park
35
Q

What is Minimum Energy Efficiency Standards (MEES)?

A

MEES were introduced by the government to encourage landlords and property owners to improve the energy efficiency of their properties by restricting the granting and continuation of existing tenancies where the property has an Energy Performance Certificate Rating of below F or G.

36
Q

What is the current legislation (MEES)?

A

Part 3 of the Principal 2015 Regulations states that a landlord must not grant a new tenancy (including a renewal tenancy) of a property after 1 April 2018 or continue to let any property after 1 April 2023 where the property has an EPC Rating of F or G.

37
Q

What are the timeframes for the MEES?

A

1 April 2025 – all privately rented non-domestic buildings that are not exempt must present a valid EPC;

1 April 2027 – all privately rented non-domestic buildings must meet a minimum EPC standard of C or have a valid exemption registered;

1 April 2028 – landlords of all privately rented non-domestic buildings must check their EPCs to help identify any properties that require further improvements; and

1 April 2030 – all privately rented non-domestic buildings must meet a minimum EPC standard of B or have a valid exemption registered.

38
Q

If the Property has an EPC dated 2018, how long does this last?

A

An EPC is valid for 10 years however as the Property has a rating of D, this will need to be improved to meet the 2027 C standard.

39
Q

Where does the responsibility for MEES lie?

A

Landlord is responsible however costs may be able to be recovered from the Tenant.

40
Q

What is the rateable value of a property?

A

It is an open market rental value (based on an estimate) undertaken by the VOA.

Business Rates are based on this.

41
Q

What is the size of the unit?

A

542 sq. ft NIA
531 sq. ft ITZA

42
Q

How do you calculate rates liability?

A

I obtained the rateable value from the VOA website and x this by the business rates multiplier.

As the property has a rateable value of £10,750 (below £51,000) I used the small multiplier of 49.9p.

i.e. 0.499 x 10,750 = £5,364

(standard multiplier is 51.2p)

43
Q

What source of errors are associated with using a laser measuring device?

A
  1. Human error - Not using the device correctly (i.e. measuring to the wrong surfaces, take multiple measurements if they differ).
  2. Systematic error - The device should be regularly checked for accuracy (calibrated annually or after being dropped).
44
Q

What is NIA?

A

Net Internal Area is the usable area within a building measured to the internal face of the permitter walls at each floor level.

45
Q

What did you include / exclude from your NIA measurement of the retail unit?

A

Net Internal Area is the usable area within a building measured to the internal face of the permitter walls at each floor level.

Included: Permiter skirting

Excluded: Columns

46
Q

What is ITZA?

A

In terms of Zone A.

Zoning is used to create a unit of comparison for different sized retail properties.

47
Q

Explain the principle of Zoning?

A
  • The rental value of the property reduces away from the high street (shop front is the most valuable to a retailer as it will generate the most sales)
  • Zone A (first 6.1 m of a unit) is the most valuable. The value decreases with distance from the frontage
  • Halving back principle with 6.1m (20 ft) zones
48
Q

Explain how you applied the Principle of Zoning?

A
  • Property was 6.35m deep
  • Divided into 2 zones 6.1 m (A) and remainder 0. 25m (B/2)
  • removed the column from Zone A
49
Q

What is the RICS Code of Measuring Practice (6th edition) 2015?

A
  • Guidance Note
  • Provides precise definitions for a common and concise approach to measurement (Office and Resi - IPMS)
50
Q

What is the Comparative Method of Valuation?

A

Used to determine the Market Rent or Market Value of a commercial property or land.

It is determined by collating and analysing comparable evidence adjusting this where required to reflect differences with their subject property.

51
Q

What are the other methods of valuation?

A
  • Investment
  • Residual
  • Profit
  • Depreciated replacement cost/contractor’s method
52
Q

What is CoStar?

A
  • Large external data base providing lease and sales comparable evidence, information on the commercial market and other data.
53
Q

How did you determine the strength / weight the comparable evidence collected?

A

I placed the direct evidence (Cat A) at the top of the table followed by the data gathered from commercial database Costar (Cat B).

In retail evidence, I understand the importance of:
- Size
- Location
- Layout
- Surrounding uses and occupiers
- pedestrian flow
- parking / access to public transport
- lease terms

54
Q

How does the RICS suggest you weight the comparable rental evidence?

i.e. hierarchy of evidence

A

Comparable Evidence in RE Valuation (professional standard) 2019 sets out:

Category A: Direct Comparable
-direct transactional evidence and comparable data, most useful + reliable (includes completed transactions of similar or identical properties, up-to-date data.)

Category B: General market data
- information from published resources, commercial databases, historic valuations and sale prices, indices and publicly available sources. This type of data provides guidelines, rather than a direct estimate of the value.

Category C: other sources, such as background information / transactions related to other properties (e.g. data about interest rates and stock market movements for investment properties and transactional information from different types of properties or properties in different locations)

55
Q

How was Covid-19 affected the market?

Specifically retail?

A
  • Covid 19 affected most high street retailers as they couldn’t continue to trade as usual.
  • Since then consumers have recognised the ease of shopping online (from the comfort of their homes) and accelerated the shift to online sales.

It should be noted not all retailers have suffered, supermarkets and some neighbourhood retailers (i.e. general dealers, takeaways) etc have continued to benefit from trade.

56
Q

Why is there an absence in demand for physical stores?

A

Ease of online shopping, speed of delivery (i.e. industrial units closer to cities - utilised for last mile delivery).

57
Q

What is the headline market rent?

A

Headline rent is the rent that would be payable after any rent-free period, concessionary rent period or other incentive has expired.

58
Q

What is net effective rent?

A

The average monthly rental cost when taking into consideration incentives such as rent free periods etc

59
Q

What impact would lease length have on rental value?

A

The longer the lease length the more valuable (i.e.income security).

Tenant may request an incentive for taking a longer lease.

60
Q

What challenges did you face when establishing the market rent?

A
  • Location
  • Lack of evidence on side streets market
61
Q

What is the significance of location?
How did you arrive at 20%?

A

If the unit is less visible, located on a side street (away from the main high street i.e. high levels of footfall)

I spoke with local commercial property agents (RICS) that have the relevant expertise.

62
Q

Who were the agents you spoke to when collecting comparable evidence?

A

2 local commercial property agents with relevant expertise.

63
Q

What other factors influence the level of rent for a retail unit?

A

Location, Size (ITZA), transaction date, layout (i.e. split level), lease terms

64
Q

How did you arrive at a MR of £14.76 and £15.07 per sq ft Zone A for the retail accommodation?

A

I used the best comparable (Cat A) which was a recent transaction, same size, in the same building, I adjusted the rent to reflect the location.

65
Q

Why did you round this up?

A

Rounding the figure up provided room for negotiation.

66
Q

How do you ensure the tenancy is contracted out?

A
  • Landlord must serve a notice on the tenant and guarantor (if applicable) before entering into an agreement for lease, lease or before the tenant goes into occupation.
  • Once a notice has been served a statutory or simple declaration must be made before the tenant enters into the lease.

(If the notice is served at least 14 days before the new lease is entered into, the tenant can make a simple declaration, otherwise is must make a statutory declaration)

67
Q

What would the landlord have to do to terminate the tenancy given that the lease is inside the 1954 Act?

A

Would have to issue tenant with a Section 25 notice no more than 12 months and no less than 6 months before the date for the termination of the tenancy

68
Q

Why propose a Break Option on six months written notice?

A

As set out in the original agreement and provides my client with the ability to gain vacant possession sooner than 12 m notice

69
Q

In terms of reducing the rent, what other options could you have proposed?

A

Stepped Rent

70
Q

What are Heads of Terms?

A

HOTs is a document which sets out the terms of a commercial transaction agreed in principle between parties during negotiations.

71
Q

What is subject to contract?

A

Each party reserves the right to withdraw until a binding contract is made.

72
Q

What is your firms employee code of conduct?

A
  • deliver highest possible standards of service
  • provide advice impartially
  • report any unethical or illegal activities
  • disclose any potential conflict of interest
  • treat others with fairness and equality
  • refuse any gift and a hospitality offering should not create an appearance of improper influence (better to join in as a group than as an individual)
73
Q

How did you demonstrate Client Care throughout?

A
  • Discussed and understood the objectives from my client.
  • Presented options to my client (including pros and cons)
  • Confirming the client’s property ownership/tenure and they have no COI.
  • Kept clear records of my clients instructions and important details.
74
Q

What’s the difference between a street plan and a GOAD plan?

A

Goad maps/plans show town centres and retail occupancy with details of use, floor space and other detail.

75
Q

Why were you competent to value a retail unit?

A

I have gained experience during other instructions and applied the knowledge gained.

I received approval / sign off from my supervisor before sending this to the tenant.

76
Q

What if a Tenant served notice to request a renewal at the end of the tenancy?

A

If the Client served a s26 notice to request a renewal the LL could issue a counter-notice in response setting out the landlord’s grounds/s for opposing the grant of a new lease.

77
Q

What does without prejudice mean?

A

Enable’s parties to negotiate freely with a view to reaching settlement

without being used against them later in court

RICS APC (22 decks)

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