Case Study Flashcards
What were the fundamentals of the Tenants proposed payment plan?
- Payment of £32,998
-W/O of £98,999.
-Accounted for reduced rent when trading and no rent whilst not trading.
Why was the payment plan not acceptable to your Client? It was unprecedented times.
Because my client was not getting anything in return. and My client and I had experience of negotiating better terms elsewhere at the time and therefore knew we could negotiate further.
What was the outcome of the financial review?
- Deemed to not be able to meet the liabilities commanded by the lease.
- D&B rating of N3 (Greater than average risk)
How did the outcomes of the financial review factor into your advice?
This allowed me recommend a more amicable approach on the basis my client would not be able to recover sums from the lessee due to their weak financial position.
What was the rationale for the ‘negotiation’ strategy you recommended?
The fact that the tenant was not able to meet liabilities at present and therefore the most likely way to reach a beneficial solution was through negotiation.
What was the impact of non-payment of rent on your Client’s business?
Little, given the size of my client’s business, however, they also have financial obligations to their investors, which they were struggling to meet given the widespread tenant struggles across their portfolio
On account of the CRAR not being available, what options did you assess to meet your Clients objectives and formulate the advice you gave?
- Stat demand unavailable
- Forfeiture unavailable
- No RD or Guarantor to pursue
Did you identify what the void costs would amount to for the unit?
- Service Charge: £6,207 (£3.67/SqFt)
- Rates: £29,440 (using 0.512 CoL multiplier)
-Insurance: £1,135
What were the repairing obligations under the Tenancy?
Internal Repairing and Insuring
How did you record your findings from the inspection?
In Workman’s standard inspection checklist
Where these findings ‘agreed’ or documented with the Tenant?
They were agreed with the tenant via email, I found no breaches of covenant.
Turning to the comparable evidence and research around market activity, did you ascertain average void periods in the months leading up to reporting to the Client?
Yes, between 6-12 months based upon recent activity, reports and validation from local agents
Did you assess the cost-benefit of seeking a new tenant?
After realising the 6-12 month void periods and stagnant rents, it was deemed that this course of action would not satisfy my client’s aims and objectives
How did you do that and was there any chance of a benefit?
I reviewed the aims and objectives of my client against the risks involved of the surrendering and locating a new tenant. No benefit
How did the use of a Guarantor overcome the lack of covenant strength of the proposed assignee?
- The ultimate parent company was of stronger covenant strength and will provide security of all liabilities under the lease to the tenant.
- D&B rating of 4A2 (Low Risk)
How did the guarantor protect your Client’s position?
As my client could recover liabilities from the guarantor in the event the lessee defaulted.
What was the basis for LL’s consent to assign under the Tenancy agreement?
Qualified Consent
What were the terms of consent to the assignment?
-T to provide Assignee accounts
-Not to assign part of premises
-Assignee conducts materially same business as current T.
-Consent not to be unreasonably withheld or delayed
What legal effect does the side letter have?
LL may revoke the concession granted if terms of the letter are not met or rectified immediately.
Were there any other options to document the agreed arrangements
We could have documented via a Workman letter, however, this would hold less gravitas
What would you do differently next time?
I could have recommended CRAR sooner, however, I did not wish for the negotiations to break down, resulting in adverse consequences for my client
How did you act ethically?
By understanding the tenant’s financial struggles but upholding my primary duty of care to my client.
What were your key achievements
Meeting all 3 of my clients objectives
You say it is a period office building, describe this to me
- 5 floors of commercial office space
-Typical Georgian construction with solid load bearing elevations.
-Passenger Lift
-Flat roof with asphalt waterproofing - Fan Coil units
Is the building Listed?
Yes, Grade II Listed, for the externals of the property, including some red brick above painted stone ground floor.
I see there was a RF incenctive, how did you account for this?
I did not, the headline rent is used for the rent per square foot
What do the tenant’s contribute towards the SC
Office Tenants contribute towards the internal cleaning and lift maintenance.
Coffee shop contributes to the external cleaning and maintenance.
What was the basis of the Rent Review?
Turnover rent
What is a turnover rent?
The tenant would provide a turnover certificate containing the turnover derived from the premises for the turnover periods. The rent would increase if 80% of this turnover was greater than the total basic rent and paid turnover rent for the previous year
What was the company structure of the tenant?
They are a private limited company, meaning that the directors are not liable for business failure.
There was a gap between your client approving the deal and the tenant, what was the reason for this?
The tenant’s agent had to gain approval from the tenant and ultimate parent company to proceed which resulted in the delay.
What was the EPC for the building?
For the subject unit: 91D
For the office: C/B Ratings
Why do the EPC’s differ?
Timing of assessment and the office element has VRF whereas the subject unit has FCU
How do these AC systems work?
VRF: Uses refrigerant to capture and repurpose heat from the environment
2 pipe FCU: Combines a fan with a heat exchanger and can either heat or cool. Less efficient
What is the unit size?
-1690 SqFt
-157SqM
What are the use classes at this property?
Town and Country Planning (Use Classes) Order 1987 - Came into force September 2020
- Subject unit now E (formerly A1)
-Rest of property : E (formerly B1)
Is the side walkway shared?
It is the land of the adjoining owner and 14 Austin friars has a right of way over for access purposes.
You mention your client’s usual financial benchmarks, what are those?
1) Pre-tax profits to exceed the level of annual rent commitment by three times over three consecutive years.
2) Balance sheet net assets to exceed the level of annual rent commitment by 10 times
What has the tenants turnover been?
approximately 250-350 thousand per annum.
Have you applied for planning permission?
No, but a tenant was required to obtain Listed Building Consent from the City of London for licence for alterations.
If your client wanting to change the use, what would you need?
Planning permission with listed building consent
What was the protected period and quantify this
21st March 2020 - 18th July 2021
£85,937
What are the roofs
flat roof system with asphalt layer
What are the windows?
sliding sash windows
Could you stat demand?
Yes from March 2022, but would have adversely impacted
Whats the difference between freehold and leasehold?
- Freehold: Property you have bought and the land beneath it
- Leasehold: interest in a property for a set number of years
You say there was a 2xWCs, breakout area and kitchenette, what did you include in your measurement?
- WCs excluded
- Breakout area included
- Kitchen Included
How did you determine the vacancy periods
Spoke to investment agents and also there was less than 10 retail lettings in Q2 2022, with a 28% vacany rate in the City
What are the modern quarter days?
1st Jan, 1st April, 1st July, 1st October
What was the footfall during 2022?
40/50% of pre pandemic levels
What were the benefits of the coffee shop to the property?
Increased footfall, office workers benefit from coffee and coffee shop benefit from footfall derived from office tenants
How did you effectively negotiate?
- open and honesty
- transparency and clarity
-research and understand clients objectives - understand what it will take to reach a amicable solution
what is a winding up petition?
Legal tool used by creditors who are unable to settle debts, first step to liquidation
How did you make use of RICS Comparable evidence in Property Valuation 2011?
I ensured that i analysed the comparables and outlined in my report that there was limited number of direct comparables
What were the total of non rent arrears?
£13,800
Why didnt you undertake a mid year adjustment to the SC and credit the tenant’s account?
Because the decrease would have been negligible
You say you have experience in dealing with other struggling occupiers during COVID?
Yes, T approach me for rent write off, however, managed to switch to monthly instead of quarterly.
Whats the difference between a surrender and forfeiture?
Surrender is an agreement between parties, whereas forfeiture is regaining possession due to breach of lease
What is a dormant company
A company which has no business activity/trading in a given period of time
Did the assignment clause not prohibit assignments to group companies?
It did, unless the assignee was of greater financial strength (which they were)
How did you manage without the tenant’s contributions to the service charge?
All other tenant’s paid and I was able to make savings due to reduction in services for COVID.
What does the insurance policy cover here?
Loss of rent, Loss of Service Charge, Material Damage, Escape of water, subsidence, fire
What is a reversionary lease?
A lease granted ahead of time to commence in the future - usually to exisiting tenants
But the reversionary lease starts in 2028, how did you protect your clients position with regards to rent?
Day 1 rent review Upward only
What is loss of rent insurance?
Policy to cover lost income if your property becomes uninhabitable
Why didn’t you zone the unit?
Because all comparable information was measured on an overall basis
How would you have zoned the unit?
I would halve back in 6.1m incriments to determine the value in terms of zone A. I would then determine reliable evidence to determine a market rate per square foot and multiple to determine the rent.
But I see there is maybe a return frontage, how would you have accounted for that in Zoning?
I would have applied a percentage increase to the rental value to reflect the benefit of this RF.
When was the deadline for referral to Rent Arbitration Scheme
23rd September 2022
What powers did the arbitrator have?
Can award a reduction in protected debt, or longer time to make payment.
Legally binding
Looking at your comparable evidence Property B had a rent per sqft of £31 and let one month ago with similar spec, condition, location. Why is the market rent £38?
Because the other 2 comparables were located closer and therefore a greater weight applied
Did you consider the rent arbitration scheme?
Briefly yes, however, as my client and the tenant were already agreeing the terms, there was no need for aditional aribitration costs
What did the N mean in the D&B rating?
Negative net worth of the company
