Case Study

Question 1

Use Class

Town and Country Planning (Use Classes) Amendment England Regulations 2020

Answer 1

Use Class E

If I had gone to the hot food and bev enquire (used to be A3). Use class E - sale of food and drink for consumption on the premises

Question 2

EPC use class

Answer 2

Now the use class is an E (a) - display or retail sale of goods (not hot food which is E(b))

EPC says property type A1/ A2 retail and financial / professional service.

Note - EPC is 2017 (expiring in 2027) & Use classes were amended in 2020.

Question 3

Why is the square footage on the EPCs different to your measurement?

Answer 3

EPC says unit is 98 square meters which is 1055 sqf

However I measured on NIA which got me to 75.2 square meters and 809 sqf

EPCs are measured on a different basis. The EPC floor area is based on Gross Internal Areas (GIA). GIA includes all internal areas even partition walls, columns, toilets, storage areas, corridors stairs etc - which under NIA I did not include.

I measured on NIA, as my main was for agency purposes whereas EPC is GIA.

Question 4

What are the implications of not having a valid EPC when letting a property?

Answer 4

• Any landlord who breaches this requirement will be exposed to a civil fine of up £5,000
• the Government has tightened the rules, and from 1 April 2023, all existing commercial properties must have an EPC rating of E or above with potentially tighter regs coming

Question 5

EPC and marketing & Penalities

Answer 5

Agents are responsible for procuring EPC and online marketing material must have link to EPC

Local authorities Trading standards team enforce the regulations - policed by the local authority

Non-compliance:

• Breach less than 3 months - up to £5K (or if greater) or 10% of the rateable value with max of £50K
• Where a breach has lasted more than 3 months - p to £10K or (if greater) 20% of the rateable value with max of £150K

Question 6

Why did you not use zoning

Answer 6

?? Client’s request and NIA was easier in terms of finding comparable evidence ??

Question 7

What would you do differently next time?

Answer 7

• Potentially assess feasibility of extractor fan/ ventilation to give the tenant some options. However, planning use wise hot food and bev was not allowed.
• Revise / redo the valuation
• however I based my reasoning on Units 2 & 4 and they are unchanged and not recent transactions took place in the immediate area - as such rental value would not have altered. I made client aware, client was happy to proceed as they did not want to disrupt negotiations.
• More assertive and realistic about the narrow target market

Question 8

How did you act ethically?

Answer 8

I noticed that the tenant was unrepresented and did not seek professional advice.

I recommended that the tenant should instruct a surveyor and solicitor to seek independent, legal and professional advice - this allowed the tenant to be fully informed about proceedings and legal agreement.

Question 9

Ethically –> RICS Professional Statement Code for Leasing Business Premises (2020)

Answer 9

AS PER RICS Guidance, mandatory requirements of the code

“A party (tenant) that is not represented by an RICS member or other property professional must be advised by the other party/agent about the existence of this code and its supplemental guide and must be recommended ti obtain professional advice”

–> AS SUCH I recommended that the tenant should seek professional advice which they did = so they could be well informed

Question 10

Ethics / CPRS are Barking

–> Well informed tenant

Answer 10

CPRS = Relates to Business –> TO –> Consumer

Plus protect client as the tenant would be fully informed THIS RELATES TO THE CPRS which defines the average consumer as reasonably well informed.

Question 11

What were your key achievements?

Answer 11

• Completed a 15 year lease in challenging conditions (post covid and cost of living, plus the usually nature of the newly developed estate
• Manged to lease to member of local community despite
• Providing the community with a useful serves as per the client’s objectives

Question 12

Give some examples of key terms of engagement that applied to this instruction.

Answer 12

TERMS OF ENGAGEMENT – need to be signed

1. Basis of Agency Instruction (sole or joint) – exclusivity – we have been appointed as sole agent i.e. 3 months
2. Rights of the Agency (sole selling rights or ready willing and able purchaser)
3. Proposed fee – i.e. 10% of rent, plus % of premium. I would say fee basis is confidential however would follow market guidance and would be 10% of annual rent.
4. Marketing expenses and disbursements – what are we going to do, board, brochure, website etc.
5. Confirmation of no conflicts of interest
6. Money Laundering checks – make sure up to date and on file.
7. Timetable for payment of fees and disbursements
8. Details of the firm’s complaints handling procedure

Question 13

Terms of engagement

Answer 13

As per the RICS UK Commercial Estate Agency Professional Statement

• Key principle is “ensure clients are provide with terms of business that are fair & clear with details of CHP”

Plus Estate Agents Act 1979 - There must be “Clarity as to the terms of the agency” (section 18) - where all costs/fees must be specified in advance

Question 14

Why were terms of engagement needed?

Answer 14

• Terms of engagement are needed to establish clear expectations, responsibilities, and boundaries for all parties
• They provide a framework for behaviour, communication, and performance, helping to prevent misunderstandings, conflicts, and disputes.

–> PREVENT DISPUTES, Provide clear instructions, set the scope of works expected

Question 15

Talk me through your conflict of interest checks.

Answer 15

Being in property management, conflict of interest are limited.

They were an existing client, however carried out COI check for my benefit using Tandem’s internal system (Coyote), I was able to look up the client and assess if anyone has worked for them before.

Emailed colleges asking for them to disclose conflict to ensure there was no personal/financial/commercial interest or acting for both parties

If a conflict was present, I would see if it was manageable, or insert an information barrier or else I would decline the instruction

Question 16

Before starting instruction?

Answer 16

• Competent
• No COI
• Issue TOE

Question 17

What is anti-money laundering (AML) checks?

Answer 17

• Anti-Money Laundering (AML) checks are designed to prevent and detect activities associated with money laundering and other forms of financial crime.
• Money laundering involves disguising the origins of illicitly obtained funds, making them appear as if they come from a legitimate source.

Question 18

What is the key AML legalisation in the UK?

Answer 18

• Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

Question 19

How did you carry out the AML check?

Answer 19

Customer Due Diligent checks on landlords, and tenants will have to be undertaken on new sales and any letting or re-letting.

So for the L&T, I:

1. verified their ID (i.e. passport/driving licease)
2. It’s name, company registration number and address of registered office was required.

Enhanced DD checks will need to be undertaken if any red flags occupier (i.e. high risk country, PEP)

Question 20

Why is it important to be aware of the client’s company corporate values?

Answer 20

• To ensure I align practices with their objectives and goals

For example BRL is in partnership with L&Q Housing association and The Major of London –> aim to transform area of Barking Riverside into new community/neighbourhood

Building over 10,000 new homes. Enhance connectivity e.g. Uber clipper, new Barking Riverside overground.

Place making scheme = enhance their objectives was community collaborate, engagement and belonging AND THEY WANTED to give an opportunity to a member of the local community in the form of a local, good service.

Question 21

What are the current and future MEES regulations for commercial properties?

Answer 21

• Current - from 1 April 2023, all existing commercial properties must have an EPC rating of E or above.
• Possible Future – EPC C by 2027, EPC B by 2030

Question 22

How did you ensure you kept safe on the site inspection? Talk me through your inspection process.

Answer 22

• Inform line manager, clear diary instructions/ fully charged phone,
• Consulted lone working policy
• Consulted RICS surveying safely
• Lease plan
• View area prior to identify where to go
• RICS guidance for surveying safely - safe person concept (meaning each individual assumes individual behavioural responsibility for their own, their colleagues’ and others’ health and safety while at work)

Question 23

Provide some examples of what would be included in HoTs?

Answer 23

‘Subject to contract’

MODEL HOT in Code of Leasing Business Premises Appendix A - good/useful guide for L&T

• Agreed annual rent
• Lease term
• Involved parties i.e. landlord, tenant, guarantor
• Premises /address
• Option for renewal or break rights
• Rent free period or other incentives
• Any rent reviews including frequency and basis of review i.e. IN THIS CASE OPEN MARKET
• repairing obligations
  *

Question 24

Assessing the tenant’s covenants

Answer 24

Usual request is for the following min information:

• Previous and existing landlord reference
• 3 years audited accounts/ business plan / credit rating (Dun & Bradstreet)
• Can add a guarantor and rent deposit to add to the quality of the covenants

Companies House check (accounts)

Landlord Reference - this tenant had a small unit in existence so I did a Landlord reference

Credit Safe check

Dun & Bradstreet Business Credit Report

Profits test - A typical profits test would be for the tenant to provide 3 years’ audited accounts showing a net profit of, say, 3 times the annual rent.

Question 25

Additional security for the client

Answer 25

1. Rent Deposit - despite my recommendation to have a deposit equivalent to a few months’ rent, the client did not think it necessary.

• if there was a deposit then there would need to be a separate legally documented rent deposit deed

Question 26

Did you consider social media marketing and if not, why?

Answer 26

• Did not have suitable/appropriate social media channels i.e., insta/Facebook/tiktok available.
• Instead used My Barking Riverside portal – much more appropriate to the target market

Question 27

What is an assignment?

Answer 27

• assign’ (transfer) the lease to another party who will take over occupation of the property and responsibility for the lease obligations including paying the rent to the landlord
• Benefits: Protects tenant and landlord and someone else could fulfill lease obligations
• Risks: remain responsible for obligations and liabilities incurred before the assignment and a landlord could sue the original tenant for back rent if the new tenant failed to pay

Question 28

Talk me through you approach of finding comparable evidence. Why did you choose the comparable method?

Answer 28

• Why comp? appropriate to assess the market rent
• Difficult to find comparables – used local agents and online platforms – used adjacent units and then wider surrounding area. - Unique nature of the newly developed estate
• Consulted The hierarchy of evidence - Category B - could use historically transacted data i.e. Unit 2 & 4

Question 29

Why is footfall an important factor to consider?

How did you measure footfall

Answer 29

• Good comparable factor to assess the popularity of the location – locational indicator
• Spent time in both locations -Units on Barking High Street had high levels of footfall - particularity commuters
• Subject Unit - Only 8:30-9am and 4-5pm owing to the school

Question 30

Talk me through your comparable evidence.

Answer 30

• Adjacent unit comps, newly developed estate, limited comps in immediate local area
• Looked in wider surrounding area, still struggled to find suitable comps – less appropriate but useful benchmark/indication

Question 31

The change in market since 2019 to valuation date (Feb 2022)?

Answer 31

2019 - units 2 &4 benefited from pre-pandemic market conditions.

Market changed since then - lease terms i.e. short leases for retail were more prominent thus making the long lease objective tricky.

shift to online shopping

Val date Feb 2022 - letting completed in May 2023 - bc i used immediate comp the chances of the rental value changing were slim. I informed the client and they were happy to proceed without redoing the valuation.

–> same factors at play such as reduced comps

Question 32

Why is covenant strength important?

Answer 32

• financial stability and reliability of a tenant to fulfill their lease obligations.

Question 33

Why choose an open market rent review over upwards only

Answer 33

An open market rent review sets the new rent based on what could currently be achieved on the open market if the property were let - it’s fair to the tenant

An open market review means that the rent is adjusted (usually upwards only) to reflect the rent the landlord could achieve on a letting in the open market.

Question 34

Why didn’t I use zoning?

Answer 34

ITZA - in terms of zone A. A valuation technique, Not a method of valuation

Rationale - the rental value of the unit reduces away from the street - the halving back priniciples with 6.1 metes or 20 feet zones

I did not use zoning owing to the small size of the retail unit - if used the majority of the retail unit would be zone A.

Also there was no natural zoning i.e. steps

For example:
Zone A = A/1
Zone B = A/2, i.e. Zone B is half of Zone A
Zone C = A/4, i.e. Zone C is a quarter of Zone A (or half of Zone B)
Zone D (or remainder) = A/8, i.e. Zone D is 1/8

Question 35

Return frontage - Non in Barking

Answer 35

Where a shop occupying a corner site has display windows to two streets this is known as return frontage from which the property may derive additional value.

Can add value to shop i.e. tenant can display more items, can attract passers-by to come in, increased prominence.

Question 36

Break options

Answer 36

Mutual break option at the 5th year - subject to 6 months written notice. If the tenant does not operate the break then they would be entitled to a further 3 months rent free.

Question 37

Bases of agency instruction

Answer 37

Tandem were a sole agent

THREE Types of agency:
1. Sole agent - only one agent

2. Joint agent - two or more joint agents sharing a fee on a pre-agreed basis
3. Multiple agency - any number of agents but only the successful agent gets a fee

Question 38

Risks of a narrow target market

Answer 38

Risks:

1. The time taken to search and secure appropriate tenant - i.e. took over a year from instruction to offering the unit to the interested party - relieving the client of void costs i.e. service charge
2. Poss achieving poor cov tenant
3. Poss not achieving a long lease
4. Niche target market - demographic of the estate - lower average income.

Question 39

Long lease difficult to acheive

Answer 39

Because of market conditions, post Covid, low tenant confidence, change in lease terms i.e. shorter leases.

Less transactions in the surrounding area.

Local agent told me that such a specific target market, it would be unlikely to achieve a lease longer than 5 years - bc of the nature of the estate, demo of area, market conditions, poss limitations of unit i.e. can’t cook.

Question 40

The area

Answer 40

Phase 1 (where unit is located), phase 2 being building, phase 3 to be built - due for completion 2038

Lack of local amenities

BLR wants a sense of community, collaboration, engagement with locals - place making scheme.

Unique nature of the newly developed estate / low overall footfall during day time hours.

Question 41

Why traditional methods?

Answer 41

Attract passers by - specifically targeted marketing to meet client’s objectives

Question 42

Types of marketing

Answer 42

A Board in the window with QR code which if scanned would take the ind to relevant contact details in which to enquirer

My Barking Riverside Resident’s Portal

No to other agents as this was a sole agency project and did not want to utilse their platforms in case attracted ppl outside the target market

Sales particulars - (yes they were dated)

Question 43

Tenant favourable terms

Answer 43

Rent free period - 6 months rent free for fitting out. If tenant does not exercise break then they will be entitled to another 3 months rent free.

Tenant only break? Ended up with a mutual break to benefit both parties and provide flexibility.

Assignment clause and Underletting/Subletting

Question 44

Code leasing business

Answer 44

leases should allow tenants to assign/sublet with landlord’s consent and not to be unreasonably with held or delayed. Gives tenant flexibility