Case Study Flashcards
How did you know the building was built in the 1970s
I knew front he as built drawings and Triennial report my client had on file
Describe the building
4,825 Sq ft GIA
End of terrace warehouse of steel framed construction with a pitched roof.
Benefits from a full height loading door, WC and Kitchenette
Eaves Height of 9.8 meters
What was the SC
£0.88 per sq ft
What does the SC cover
Maintenance of the external areas, ad-hoc car park repairs
Landscaping
RFM Fee
Gritting
Management Fee
What was the use class
B1(c) or B8 - Industrial Warehousing, production and distribution of printed clothing
What effect does an assingment have on rent
Dependent on the alienation provisions, the LL can demand that the rent is at Market Rent
What specification was the unit
Had stone floors, double glazing
Own WC, kitchenette
Full height loading doors
What was the floor loading capacity
30 KN/m2
How was the unit measured
Measured by Workman BC prior to my management, on GIA basis in line with the RICS code of measuring practice 2015
How did you come to £13.75 as market rent
On advice from local agents
Table of comparable evidence assisted, best comparable was unit 6 in the estate which achieved £13.75 in Dec 2022, however was of better spec so I adjusted accordingly
Acted in line with RICS Comparable Evidence in Real Estate Valuation 2019
What is a hierarchy of evidence
Is where you attach weightings to comparables in the following order
1)Open Market Lettings
2) Lease Renewals
3) Rent Reviews
4) Independent Expert
5) Arbitration
6) Court Determinations
Why is a lease renewal given more weighting
As negotiations are free, party can walk away
Rent Reviews usually can only stay the same or go up as are upwards only
Where did I get my comparables
Internal Sources - For Cornwallis
External Sources - Co-Star & Local Agents Data
What is the code of measuring practice
RICS Code of Measuring Practice 6th Edition (2015) - Guidance Note but best practice to follows, sets out how to measure
- GEA
- GIA
- NIA
What are the traditional Quarter Days
- 25th March
- 24th June
- 29th September
- 25th December
What are the modern quarter days
- 1st Jan
- 1st April
- 1st July
- 1st October
What was the initial payment plan for the Dec 22 Q
£2k per week until debt was cleared - c.9 weeks
Why did you recommend against a Stat demand
At the point that debt recovery was required I recommended using CRAR as it was more effective at recovering the rent arrears
How much debt do you need for a stat demand
- £750 for a company
- £5,000 for an individual
Why did you delay using debt recovery
I spoke with the client who was happy to allow the tenant time to proceed with the more tenant friendly options, assingment and shared occupation
Why did you recommend against the assingment
As the assignee was unable to provide proof of funds as recommended by the financial reviewer
What is the process of CRAR
Introduced in April 2014 under Tribunals, Court and Enforcement Act 2007. No minimum rent amount for CRAR, min unpaid 7 days rent.
- 7 Day notice to be served.
- If no response EA can re attend to take control of goods,
- If another 7 days passes without payment EA can dispose of goods
What are the fees for CRAR
- 75 + VAT for 7 day letter
When disposing
- Arrears under £1.5k = £235
- Arrears over £1.5k = £235 + 7.5% of arrears less first £1.5k
Why did you not surrender and regrant
This was disregarded as the main concern was clearing the arrears on the account, the tenant also requested an assignment
Difference between surrender and forfeiture
You surrender by operation of law (i.e. giving the keys back) or by deed.
Surrender gives a clean title whilst forfeiture allows for tenant to go to court and claim relief
How long do tenants have to apply for relief
6 months
How do you forfeit a lease
Lease must have forfeiture clause
In this instance we could forfeit on the basis of the Dec Q being outstanding 15 business days. Allows for EA to peacefully re-enter and change the locks and display a Tort notice.
Once actioned lease ends immediately.
If in breach of repair the LL has to serve notice under Law of Property Act 1925 - S146
What were the vacant liabilities the client would have to pay
SC, insurance, business rates, utilities
What were the rates payable
RV of £56,500
x bigger multiplier = £28,928
What was the D&B rating for the assignee
NB3 - New Business with higher than average risk
What was the EPC rating
B34
What does an EPC certificate have to display
- Certificate ref number
- Property address
- Rating
- Benchmark
- Graph
- Size of unit
- Recommendations
Where are EPC certificates held
Government register
What EPC changes in legislation are there
Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015
- Rented building must be minimum EPC E from April 2023
How to know if assignee met LL’s financial benchmark
If operating profit was 3 x liabilities due under the lease
What are found in company accounts
Chairman’s statement
Auditors report
Balance sheet
Income statement
Remuneration report
When can abridged accounts be used
If small company, has to have two of the following
- Turnover of £10.2 million or less
- £5.1 million on balance sheet or less
- 50 employees or less
What is to be included in abridged accounts
Simpler balance sheet with notes
Can include simple P&L report but not mandatory
How do you benchmark a SC
JLL Oscar Report
What are the current industrial yields
5.25%
How do you calculate management fee
Set by PIC, reflected amount of time/resources needed to manage a building/unit
Difference between headline and net effective rent
Net-effective is the rent payable when incentives such as RF are taken into account, calculated using a straight line methods. Headline discounts this
What was the size of the estate
28,860 sq ft
What was the tenant’s rent deposit
6 months rent + VAT
Initially £27,818.50
However was £34,356.50 at time of case study due to interest
What was the tenant’s annual rent
£55,637 + VAT
When are business rates payable by the LL,
For Industrial - 6 months
3 months for offices
What H&S concerns were there with the unit being vacant
Risk of illegal occupation
Define Market Rent
Estimated amount for which a property will be lease on an open market on the valuation date, between a willing lessor and lessee in an arms length transaction, after a period of proper marketing.
Where your comparables inside or outside the act
outside
How can you waive right to forfeit
- Issue/accept rent
- Communicate with tenant
- Recognise lease as existing
Did you recover any rent
No, only depsoit
If there had been a guarantor, how would you have pursued this
In accordance with the L&T covenants act 1995
What did the L&T Covenants Act 1995 replace
Privity of Contract
What did you do with dilapidations
As the tenant absconded we were able to claim the cost on insurance of removing any of their remaining items.
Summarise the Coronavirus Act 2020
S82 - Introduced moratorium on rent arrears
Prevented LL from forfeiting lease form non payment of rent between 21 March 2020 and 25 March 2022
LL was unable to use CRAR until 25 March 2022
What was the D&B rating of the assignee
NB3
What was the D&B rating of the tenant
F3 (Higher than average risk)
You said you ran a credit safe report, what was this?
- Calculation of the overall creditworthiness of an organisation, based on evidence provided by their previous dealings
- Details how likely it is that a debtor will fulfil obligations to creditors
Was the lease inside the Act
No
How was the lease contracted out
Under Section 38(a) of the L&T Act 1954
What is contained in a Credit Safe Report
- Financial strength analysis, based on balance sheet
- Financial risk analysis, likelihood of tenant defaulting on liabilities
What credit safe score did you receive for the tenant
28 - High Risk
What credit safe score did you receive for assignee
27 High Risk
What does High Risk Mean
Tenant likely to default
Would your client have got any BR relief
6 months after expiry
What is a S146 Notice
S146 Law of Property Act 1925
Notice of intent to forfeit the lease for a breach of covenant
How are comparables changed if they are outside the act?
Less weight applied to them
You state that the lease was contracted out of the LTA act 1954, how would you do this?
Serve a notice under Regulatory Reform Order (2003)
+ 14 Days to new tenancy = Simple Declaration
- 14 Days to new tenancy =Stat declaration in with solicitor as witness
Under S38 of Act
What is the advantage for the tenant in contracting out
Lower rent
In a Dun and Bradstreet check, what two companies of a company are measured
Financial Strength
Risk Indicator
When conducting an assingment, what acts should be considered
S19 L&T Act 1927
L&T Act 1988
L&T Covenants Act 1995
How did you factor in the client’s short term business plan when undertaking this case study
- In keeping the unit occupied as far as practical, minimise void costs
What is the difference in the process of forfeiting the lease for non-payment of rent v breach of other covenant
Rent = peaceful entry and change locks
Other covenants = S146 L&P Act 1925
What was the main risk associated with forfeiture
Tenant can pay and then apply for forfeiture, would then gain reoccupation
What are the timescale on tenant’s applying for relief
6 moths
Was any considering given to a surrender after drawing down RD
No, as tenant had absconded and due to results of financial review the risk of the tenant successfully gaining relief was negligible
If you were to refurbish the subject property would there be concern of asbestos
Yes as building was constructed in 1970s
Can the interest in the rent deposit be used to clear arrears
Yes, however must check RD deed first
How would you confirm if a tenant was a Group Company
Check Lease
General def = group of companies controlled by a single economic entity
How long is an EPC valid for?
10 years
What exact year was the building built
1973
How do you know the construction date of the building
Clients as built drawings
Triennial report
Online planning register
Why did you opt for CRAR over stat demand
- Inventory as leverage
- Quicker
- Cheaper
How would you check for the presence of Asbestos in the premises
- Unit FRI so tenant responsible for asbestos
- Could check online register
What information is provided on BCIS
- Gives estimates on construction costs per m2
- Measured on GIA basis
Where is Eaves height measured to?
To the eaves, i.e. Where the edge of the pitched roof meet the top of the wall
How did you know the tenant was still trading prior to CRAR
RFM inspected October, confirmed in inspection report they were still trading
What goods can be seized in CRAR
- Goods owned by tenant (not let machinery)
- Goods within demised premises
- Tools of trade
- Up to value of £1,350, beyond that cap they can
be seized
- Up to value of £1,350, beyond that cap they can
What form was the payment plan for Dec 22
- Informal, direct with client on without prejudice basis
What was the headline rent
£57,750 p/a
What would the cost to the client be for a stat demand
Depends on solicitor, c. £1k
Beyond the financial review, what other forms of security could you have obtained from the assignee
- Landlord reference
- Bank reference
What type of FRI was the unit let on
Effective FRI
Define Effective FRI
- Landlord is able to recover costs of repairs to
common parts - Landlord to insure demised premises, but
recharge
What advise would you give if you were on the tenant’s side
- To sublet unit, as passing rent was lower than
market rent
