Case Study Flashcards
Describe the construction of the building.
94 Mostyn Street is a three-storey Grade II listed building, constructed in the 1860s. It has rendered brick walls, timber floors, and a slate mansard roof. The ground floor has been modernised for retail use, while the upper floors have traditional timber sash windows and have deteriorated significantly due to prolonged vacancy.
Describe the location of the property within Llandudno.
The property is in the prime retail area of Llandudno, surrounded by a mix of national and independent retailers. Llandudno itself is a popular seaside resort with strong tourist footfall, particularly in summer. Its well-connected transport links, including a railway station and proximity to the A55, make it a desirable retail location.
How did you agree your instructions with your client?
My instructions were agreed upon with my managing director, who sought to acquire the property to prevent further deterioration, protect the value of adjacent assets, and generate long-term rental income. The instruction was agreed in a minute’s meeting and followed up by email.
Did you complete any conflicts of interest checks?
Yes, in line with RICS professional standards, I conducted a conflict-of-interest check. As I was acting on behalf of my employer, Mostyn Estates Ltd, there was no direct conflict. However, I documented the process to ensure transparency.
Why was an asbestos survey necessary for this building?
The building was constructed in the 1860s, and an initial asbestos management survey had identified asbestos-containing materials (ACMs). Given the age and lack of recent maintenance, I suspected further ACMs might be present. A secondary asbestos survey was necessary to fully assess the risks before purchase.
How did you approach the inspection given that the property had been vacant for 5 years?
I conducted desktop research on previous reports, leases, and planning permissions before the physical inspection. I also ensured I wore appropriate PPE, including steel toe cap boots, high-vis jacket, hard hat, gloves, and a torch. I also spoke to the vendor to see if there were any hazards I needed to be aware of.
Are the upper floors self-contained or ancillary to the retail?
The upper floors are self-contained and could potentially be converted into residential use, but currently, they are ancillary to the retail unit, as no planning permission exists for conversion.
Why was this an important purchase for your client?
My client owned the adjacent property, which was negatively impacted by the vacant unit. Acquiring 94 Mostyn Street allowed them to refurbish it, secure a tenant, and improve the overall high street environment, enhancing the wider portfolio.
Based on your analysis what Zone A rate did you adopt?
I adopted a Zone A rate of £440.70 per sqm, based on market comparables and adjustments for condition and location.
What rate did you assign to the upper floors?
The upper floors were valued using a £29.38 per sqm rate, reflecting their ancillary use and lack of residential planning permission.
Why did you adopt a yield of 12.5%?
A 12.5% yield was selected due to the property’s long-term vacancy and associated risk, the estimated refurbishment costs of over £100,000, the leasehold nature of the asset, which may limit investor interest, and comparables for retail properties in similar conditions in Llandudno.
Why did you allow an additional £20k special purchaser value?
As my client owned the adjacent property, acquiring 94 Mostyn Street provided strategic benefits. This allowed for a justified uplift in value, as they were a special purchaser with unique incentives to buy.
Why did asbestos become an issue in the negotiations?
The initial asbestos survey identified ACMs, but a second survey uncovered additional materials in voids and service ducts. This increased removal costs, which had to be factored into negotiations.
Did the second asbestos survey identify additional asbestos containing materials?
Yes, it confirmed additional ACMs that had not been previously documented, increasing the remediation costs.
Why was it important that the vendor removed the asbestos?
If my client had inherited the liability, they would have faced additional costs of £25,000–£30,000. To protect my client, I negotiated that the vendor complete the removal before completion.
What information did you include in the Heads of Terms?
The Heads of Terms included: Agreed purchase price (£220,000), vendor-funded asbestos removal, terms of transaction - simultaneous exchange and completion strategy, confirmation of leasehold structure and responsibilities, and condition - subject to contract and subject to removal of asbestos materials.
How did you report to the client during the acquisition process?
I provided regular updates through written reports, valuation summaries, and verbal briefings to ensure informed decision-making.
Why was it necessary to analyse the head lease when your client was the freeholder?
Although my client was the freeholder, the acquisition was for the leasehold interest (999 years). It was crucial to check for any restrictive covenants or lease conditions that could impact investment potential.
Why did the courtyard become an issue during due diligence?
The courtyard had rights of access for adjoining properties. However, as my client was already the head lessee of these properties, they retained control, mitigating the risk.
How was the courtyard issue resolved?
Legal advice confirmed that my client’s existing leasehold position ensured control over access rights, so no further action was required.
Why did you recommend simultaneous exchange and completion?
This reduced risk by ensuring the vendor completed asbestos removal before transfer. It also allowed for immediate commencement of refurbishment.
Do you consider that you paid a fair price for the property?
Yes, the final price of £220,000 was in line with my valuation of £210,000, adjusted for strategic purchaser value. This reflected the property’s true market worth, considering its condition and investment potential.
What are the estates investment objectives?
Mostyn Estates Ltd seeks to protect and enhance its portfolio by investing in Llandudno’s high street. Their strategy includes preventing asset deterioration, increasing rental income, and ensuring long-term investment value.
How did you know the property was listed?
I confirmed its Grade II listing through a desktop study using the local authority’s planning database and Historic Wales listings.
How did you know it was 1860s build?
We had this information available to us from the Head Lease.
What are common defects found with timber sash windows?
Rot, distortion, paint failure, and draughts due to age-related deterioration and lack of maintenance.
What was the reason for being vacant for 5 years?
The previous owners were reluctant to reinvest, leading to property deterioration that made it unlettable.
What are the risks to the Freeholder for having a vacant unit?
Financial risks (lost rental income, higher insurance premiums), deterioration (structural issues worsening over time), security risks (vandalism, squatters), and market perception (impact on surrounding assets).
Would the Freeholder be liable for any costs when the building is vacant?
Yes, including business rates, maintenance, and insurance premiums.
Why was the property next door being negatively impacted?
A poorly maintained neighbouring property can deter potential tenants, reduce footfall, and negatively impact adjacent rental values.
What is unified ownership?
It refers to a single entity owning a large portion of a town or area, allowing for coordinated management and long-term investment control.
Why did you review the head lease?
To confirm rights, obligations, rent terms, and any restrictive covenants.
What key terms did you consider when reviewing the head lease?
Lease length, repairing obligations, ground rent, service charge provisions, and restrictions on use or alterations.
Did you carry out any other DD before the inspection? If so, what and why?
Yes. Desktop research included title review, planning permissions, lease terms, and asbestos reports. I followed RICS guidance on due diligence and inspections.
What RICS guidance did you adhere to when inspecting?
RICS Surveying Safely 2018.
Talk me through your inspection methodology.
Desktop study → On-site inspection → PPE use → Photographic documentation → Measurement survey → Condition assessment.
How did you ensure you inspected safely?
Wore PPE, used a torch for dark areas, and noted structural risks.
What site notes did you take and how did these help you?
Notes on defects, asbestos risks, access issues, and measurements. These formed the basis for valuation and negotiations.
What specific recommendations did you make to the Board?
Proceed with acquisition contingent on asbestos removal, budget £100k for refurbishment, and target rent of £42,000 p.a.
What areas were inaccessible and how did this impact your measurements?
Some roof voids and upper floor sections were inaccessible, requiring assumptions and verification with historic plans.
What is ITZA?
ITZA (In Terms of Zone A) is a method of standardising retail rental values.
Why is ITZA used?
To allow for comparable valuations of retail properties by adjusting for layout and frontage.
Talk me through your zoning.
I applied Zone A for the main frontage, Zone B for secondary areas, and reduced rates for ancillary spaces.
Why did you use the investment and comparable method?
Investment method reflected income potential, while comparable method ensured market alignment.
What RICS guidance did you adhere to when sourcing comparable evidence?
RICS Valuation – Global Standards 2024 (Red Book), ensuring evidence was recent, relevant, and verified.
Why does a mixed use building lower the rental potential?
Mixed-use properties often have higher management costs and more risk.
How did you adjust for location?
Adjusted based on footfall, retail demand, and comparable transactions on Mostyn Street.
How does tenant covenant impact value?
A strong tenant reduces investment risk, supporting a lower yield. A weaker tenant increases risk, requiring a higher yield.
10a Mostyn Street - what adjustments did you make and how did you justify these adjustments?
Adjusted down due to poor condition and withdrawn offer history, ensuring comparability.
How did you adjust for condition?
I applied deductions for refurbishment costs.
What do you mean by quantum?
Quantum refers to price adjustments based on size discrepancies.
What evidence did you have to support the 12.5% yield?
Comparable transactions, market analysis, and risk factors (vacancy, leasehold structure, refurbishment needs).
What is the definition of a special purchaser?
A buyer who has unique benefits in acquiring a property.
What are the risks of not openly marketing a property?
Potential undervaluation, lack of competition, and reduced transparency.
How do you identify asbestos?
Surveys, visual indicators, and historical construction records.
Why were you given asbestos survey?
To assess risks and negotiate liability for removal.
What type of asbestos was found in the property?
Chrysotile (white asbestos) in the ceiling voids, service ducts and partition walls
What are the risks to the buyer with the presence of asbestos?
Legal liability, removal costs, health risks, and reduced tenant demand.
How do you remove asbestos?
Via a licensed contractor, ensuring safe disposal and air quality testing.
What is the importance of HoTs?
Defines key deal terms, reducing legal disputes.
What are the key principles of Valuation – Global Standards 2024?
Transparency, market evidence, risk assessment, compliance with Red Book guidance.
What are the key principles of Due Diligence for Property Investment?
Legal, financial, and physical investigations to assess risk.
What legal elements did you examine?
Title documents, lease terms, restrictive covenants, planning constraints.
What financial elements did you examine?
Purchase price, yield analysis, refurbishment costs, investment return projections.
What is the Importance of the title documents?
Confirm ownership, rights, encumbrances, and legal restrictions.
Provide an example of a hidden encumbrance?
Restrictive covenants limiting use or requiring additional consents.
What is chancel liability?
An old liability where properties may be liable for church repairs.
What are the key principles of RICS Property Law and Leasehold Management?
Understanding rights, responsibilities, lease structures, and risk mitigation.
What is the LTT for?
Land Transaction Tax (LTT) is paid on property acquisitions in Wales.
How did you handle data securely and safely throughout this example?
Compliance with GDPR & RICS regulations, confidentiality of valuation data, and secure document storage.
What would you do differently next time?
Earlier asbestos assessment, better communication with seller and tenant engagement pre-acquisition.
How did you act ethically?
Followed RICS professional conduct, maintained transparency, and adhered to due diligence.
What were your key achievements?
£80,000 price reduction, asbestos removal at vendor’s cost, and successful acquisition.
