Leasing and letting Flashcards
1What is the professional standard relating to Leasing and Letting
1RICS Professional Standard: Code for leasing business premises, 2020
What are the objectives of the code for leasing business premises
To improve the quality and fairness of negotiations on lease terms and promote the use of a new set of comprehensive heads of terms to make legal drafting of leases more efficient
What is the structure of the code for leasing business premises
Part 1 - introduction
Part 2 - mandatory requirements
Part 3 - Lease negotiation best practice
Part 4 - Appendices
What does Part 2 cover in the code for leasing business premises
Negotiations over the lease must be approached in a constructive and collaborative manner
A party that its unrepresented by an RICS member must be advised on the existence of the code and be recommended to obtain professional advice
What are key points to be included in the heads of terms
- identity and extent of premises
- Any special rights to be granted
- length of term
- Whether it is inside or outside the Landlord and Tenant act 1954
- Any options for renewal or break rights
- Guarantor or deposit
- Rent, frequency of payment
- VAT on the rent
- Rent free period or other incentives
- Rent reviews
- Liability to pay service charge
- Rights to assign, sublet
- Repairing obligations
What is Part 3 in the Code of Leasing
Lease negotiation and best practice advice
What does Part 3 include
Specific advice on lease terms to include rent deposits, rent reviews, service charges, repairs and alienation causes
What is Part 4 in the Code of leasing
Appendices
What is included in Part 4 of the Code of Leasing
Model Heads of Terms
A guide for landlords and tenants
What are key points in a lease that could affect value
- Lease length
- Break clauses
- Alienation
- Repairing obligations
- User clauses
- Rent review pattern
- Security of tenure provisions
- Inside or outside the act
What do you have to consider if there is a break clause in a lease
- Is it mutual?
- Do you need to serve notice if the lease is inside the act
- What is the required notice period
- Is there a penalty rent to be paid if the lease is terminated
Can you pre-let a building?
Yes, particularly is there is a market shortage or they need specific facilities
Main advantage is the tenant will receive a bespoke fit out
What documents need to be attached to an Agreement for lease?
The lease - in a pre-agreed form
License for Alterations
Specification and plans of the proposed scheme
Developer’s guarantee
Warranties
Who pays the rent to the landlord upon sub-letting
The new sub-tenant has a direct relationship with the first tenant who they pay the rent to who then passes the rent on to the landlord
What are some reasons to sublet rather than assign a lease
- Requirement of the lease
- For part of the demise and not the whole
- If the market rent is higher than the passing rent then there is a profit rent
- If the tenant wants to re-occupy in the future
- The new party is of a lesser covenant strength
What is the difference between assingment and a sublease
Upon assignment, the new tenant has a direct relationship with the landlord
Upon a sub-let the original tenant acts as a middle man between the sub-lease tenant and landlord
What is the landlord and tenant Act 1995
Relates to the assignment of leases
Came in to force Jan 1996
It gave landlords more scope for setting conditions regarding the approval of an assignee
Can alterations be carried out by the tenant
Yes but they must be approved in writing by the landlord prior to undertaking the works
Subject to reinstatement at the end of the lease
What has to happen before alterations can begin
Licence of alterations to be completed before work commences
Obtain an undertaking for costs at the commencement of the instruction
What are the two useful functions of a licence for alterations
To protect the parties at rent review and dilapidations at the end of the lease
What actions should be undertaken when dealing with an application for consent for alterations
- Read the lease - do you need approval from the Landlord
- Ask for a full set of plans
- All alterations documents
- Check the long term impact on the property
What are key points to note when it comes to dilapidations
- Always read the lease
- Check the lease terms to understand the repairing responsibilites
What are the two choices Tenants have in terms of dilapidations before the lease expiry date
- Tenant can do the agreed words
- Tenant can pay a sum to the landlord to undertake the works
breach + loss + evidence = recovery
What are the three forms of schedules outlining repairing obligations
Interim schedule
Terminal schedule
Final schedule
What is an interim schedule
Served by the landlord or tenant during the lease with at least 3 years remaining
What is a terminal schedule
Served normally in last 3 years of the lease
What is a final schedule
Served at or after the lease expiry/break clause date when the tenant is out of occupation and the landlord wants to agree a claim for the damages
What is the format of a schedule
Outline repairing obligations
State the remedy and cost of the breach
Loss of rent, if appropriate
Fees and VAT for surveyors and lawyers
What is the RICS professional standard regarding dilapidations
RICS professional standard: Dilapidations 2016
What is the aim of the professional standard on dilapidations
Aims to reduce claims between landlords and tenants
Who’s responsibility is it to arrange insurance for the property
The landlord to arrange and re-charge the tenant
What does building
insurance cover
Reinstatement of the building for a range of insurance perils (fire, storm, flood) plus VAT and fees
What a key points to action when a building is empty
- Inform insurers
- Maintain the fabric of the building
- Clear the building to remove any combustible material
- Undertake and record regular inspections
- inform the local rating authority for the payment of empty rates
What is the definition of repair
Liability cannot arise in the absence of repair
Repair is distinct from renewal
Tenant may be responsible for inherent defects
Repair is not an improvement
What is relevant case law in terms of repair
Ravenseft Properties v Davstone (Holdings) ltd 1978
What is an effective FRI lease
When the landlord is responsible for repairs and re-charges via the service charge
What are the landlords remedies for breach of repairs
- Serve a repair notice
- Forfeit the lease
- Serve an interim schedule of dilapidations
- Do the works and charge the tenant
What is Notice to repair
Details the repairing or decorating breach which has occurred
The timescale allowed to remedy the breach
A course of action proposed if the tenant fails to remedy the breach
What is forfeiture
A landlord wishing to forfeit the lease for disrepair will have to serve a section 146 notice on the tenant
The tenant must be given a reasonable amount of time to undertake works
What is an interim schedule of dilapidations
a document that a landlord can issue to a tenant during a lease to remind them of their repair obligation
What is the landlords entry to do the works
The landlord has the right to pursue an effective remedy against defaulting tenants
What is a key case regarding landlords entry to do works
Jervis v Harris 1996
What is a schedule of condition
It limits the tenants repairing obligation in respect of agreed items of disrepair for the duration of the lease
When is the schedule of condition agreed
Agreed by negotiation between the landlord and tenant prior to the commencement of the lease and attached to the lease
When is a schedule of condition normally used
Often used for new lettings where the landlord is not prepared to undertake repairs
What does the schedule of condition limit
Reinstatement costs at the end of the lease by the tenant are limited by the schedule of condition
What is a user clause
The planning use of the property and/or how the property can be used
Changes of use usually subject to landlords consent and not to be reasonably withheld
What is the basis of value in a rent review
Normally upwards only to the market rent using standard assumpyionsW
What are 4 usual assumptions of a rent review
- Property available to let on open market by willing landlord to a willing tenant for a term of years
- Property is fit and availble for immediate occupation
- All covenants observed by landlord and tenant
- Property may be used for purpose set out in lease
What a three usual disregards in a rent review
- Any effect of goodwill on tenants occupation
- Ignore goodwill attached to the property
- Tenants improvements if landlord consent has been granted for works
What are headline rent review clauses
Ignores all incentives/concessions granted on a letting
Headline rent review clauses are rare in modern commercial leases
how does the length of term affect rent reviews
The length of term is likely to be the unexpired term remaining unless explicitly states in the lease
What are deeming provisions
In older leases, the landlord is required to specify the rent in the trigger notice
What is included in the hierarchy of evidence when considering a rent review
- Open market lettings
- Lease renewals
- Rent reviews
What is a without prejudice to save as to cost offers
to afford a party to a dispute some protection against the high costs of dispute resolution
What is dispute resolution options for rent reviews
Identified in the lease
Two options - the appointment of an arbitrator or the appointment of an independent expert
What is an arbitrator
is an independent professional, often a surveyor or expert in the built environment, who resolves disputes through arbitration, a formal alternative dispute resolution process that is private and legally binding
What are reasons why a letting may be contracted outside of the Landlord and Tenant act 1954
A requirement of the head lease to grant any subletting outside the act
The landlord will want to re-occupy the property in due course
The landlord wishes to redevelop the property in due course
The rent may be lower
What are ways to terminate a lease
Forfeiture
Surrender and negotiation
Merger
Disclaimer (due to insolvency)
Break clauses c
What is the profits check
To see if a tenant has a strong covenant
Must earn/make 3 times the annual rent
What would happen if the tenant had a weak covenant
Pay a deposit
Have a guarantor
What are heads of terms
A preliminary document which reflects the deal agreed between the two parties
What is a schedule of condition
Detailed inventory of the condition of the property before the lease begins
What are the restrictions on marketing boards
No advertisement may exceed 2 sq m
Not more than one advertisement is permitted in respect of each premises
Must not project more than 1m from the building and not above 4.6m from the ground
In an area of special control, the advertisement may be displayed only if the authority could have granted express consent for its display.
What is alienation
the right granted in a lease for a tenant to assign, sublet, or share occupation of their property.
What is assignment
transferring your lease to another person so that they become the new tenant.
What is the Estate agents act 1979
ensures that estate agents act in the best interests of their clients and treat buyers and sellers fairly and promptly
What is the misrepresentation act 1967
Protects consumers from false or misleading claims that result in a contract being agreed
What is the consumer protection regulation 2008
prohibit businesses from engaging in unfair commercial practices in their dealings with consumers
What does the consumer protection regulation prohibit
practices prohibited in all circumstances, misleading actions and omissions, aggressive practices, and general duty not to trade unfairly
What are prime rents for Grade A fully fitted offices in the City of London
£65 per sq ft
What are prime rents for Southbank
£52 per sq ft
What is the market yield for city core
6.8%
What is the market yield for southbank
6.2%
When does the misrepresentation act apply?
Mis-statements, false statements
Is misrepresentation a criminal or civil offence
Civil
What are the different types of misrepresentation
Fraudulent
Negligent
Innocent
What is a leading case on negligence
Hedley Byrne & Co Ltd v Heller and Partners (1964)
What are the three tests to decide an agents liability for negligent statements following on from the leading case in negligence
- Foreseeability - The damage is reasonably foreseeable
- Proximity - The relationship can be characterised in law as being sufficiently proximate
- Fairness - It is regarded as fair, just and reasonable for such a duty of care to arise
What is the RICS Statement about agency
RICS Professional Statement: UK Commercial Real Estate Agency 2016
What does the RICS Professional Statement: UK Commercial Real Estate Agency 2016 mention
Mandatory standard for members involved in agency
Sets out 12 core principles
Acting ethically
Securing instructions
Marketing the property
Implementing the disposal
What are the 12 core principles in the RICS PS: UK Commercial Estate Agency
Act in a fair, honest, transparent and professional manner
Carry out work with due skill, care and diligence
Ensure that clients are provided with terms of business that are fair and clear
Do the utmost to avoid conflicts of interest
Not to discriminate unfairly in any dealings
All communications with clients are fair, decent, clear and timely
All advertising and marketing is honest and truthful
Any client money is held separately and covered by insurance
Hold appropriate PII cover
Make it clear the identity of your client
Give realistic assessments of selling prices etc.
Ensure all meetings, inspections and viewings are carried out in accordance with the clients wishes.
How does the square footage of a property affect the price per sqft
The smaller the property, the higher the rent
The larger the property, the lower the rent - discount for size
What are the typical fees for agency
Sole agency = 10%
Joint agency = 15%
Multiple agency = 10% (where multiple agents market the property and whichever actually completes the deal gets the fee)
What are the disadvantages of multiple agency?
- Agents might not be as committed
- Periods of no interest
- Negative environment
What other documentation should you be aware of with regard to L&L?
Estate Agents Act
Consumer Protection Regulation
What are key factors to take into account when negotiations lease terms?
Tenants Covenant
Incentives
Rent
Lease length
Repairing obligations
Why is a tenant’s covenant important?
A tenants covenant is important as if they have a strong covenant, the landlord can be assured that the rent will not go into arrears. If a tenant has a weak covenant strength, then a deposit or guarantor is necessary
What are the 12 core principles within the UK Commercial Estate Agency (2016)?
- Act in an honest, fair, transparent and professional manner
- Carry out wok with due skills, care and diligence and ensure all staff employed have the necessary skills to carry out their tasks
- Ensure that clients are provided with terms of business that are fair and clear, with details of the firms complaints handling procedure
- Do the utmost to avoid conflicts of interests and where they do arise, deal with them openly and fairly
- Do not discriminate unfairly in any dealings
- All communications with clients are fair, decent, clear and timely and transparent
- All advertising and marketing material is honest and truthful
- Any client money is held seperately and is covered by adequate insurance
- Hold appropriate PII/errors or omissions insurance to ensure a customer does not duffer loss because of a negligent act
- Make it clear the identity of your client and ensure all parties are clear of your obligations to each party
- Give realistic assessments of selling prices/rents/financial costs having regard to market evidence and using best professional judgment
- Ensure all meetings, inspections and viewings are carried out in accordance with the clients’ wishes having due regard to security and personal safety
When does the Misrepresentation Act apply
Applies for mis-statements/false/fraudulent statements or misrepresentations made during the pre-contractual enquiries by vendor or their agent to the proposed purchaser.
What are the penalties for non-compliance to the misrepresentation act
Penalties involve suing for financial damages and/or contract rescinded
What are the differences between the Misrepresentation Act 1967 and the Consumer Protection Act 2008?
- CPR 2008 runs throughout the whole letting process whilst the MA 1967 only applies to the pre-contractual stage of the negotiation.
- Penalty for non-compliance with MA 1967 in a civil offence, whereas for CPR 2008, it is a criminal offence.
What is the RICS Professional Statement on Global Real Estate Agency and Brokerage?
It outlines the principles that shape the culture of fairness and transparency that underpin all activities undertaken by real estate agents within whichever country they practice.
What are the penalties for non-compliance with the Estate Agents Act 1979?
(policed by the National Trading Standards Estate & Letting Agency Team (NTSEAT))
Negative licensing - the right to be an estate agent can be taken away and not granted
The Act allows for a prohibition or warning order to make against an agent prohibition order stops an agent practising warning order is less punitive - gives an agent a written warning not to undertake the action again usually only 10-12 orders are issued each year can be against an individual or firm
What are the principles within the Estate Agents Act 1979?
- Clarity as to the terms of the agency (s18)
- Honesty and accuracy
- Agreement and liability for costs
- Openness regarding personal interests
- Absence of discrimination
- Legal obligation to tell the client about offers received
- Keep clients’ money separate
What is s.18 in the estate agents act 1979
S18 - clarity in the terms of agency (any kind of transaction - set terms of agency in place - scope of work, fee basis, client expectations, timeframes, costs)
What is s.21 in the estate agents act 1979
Declaring personal interests
What constitutes a lease
Exclusive occupation, on a defined property on a defined term, for a set rent.
What is a licence?
Licence is a personal permission that grants a tenant to occupy something on someone else’s property - not exclusive occupation and no legal obligations.
What is the difference between an assignment and sub-lease?
Assignment - new tenant’s relationship is directly with the LL
Sub-let - new tenant’s relationship is with the original tenant and pays them rent
If you assign your lease, has the responsibility for the original tenant completely gone?
I would consider whether there was an Authorised Guarantee Agreement in place. If there was, the original tenant may still be responsible if the new tenant defaults on their rent.
Why would you want to do a sub-let instead of an assignment?
- It is required in the lease
- For part of the demise and not the whole
- Profit rent if MR is above PR
- If the tenant wants to reoccupy in the future
What is the purpose of the Code for Leasing Business Premises (2020)?
To have a uniform and consistent understanding of the letting process. Example heads of terms, the process for how deals should be undertaken fairly.
What are the mandatory requirements of the Code for Leasing Business Premises
Mandatory requirements:
1. Negotiations must be approached in a constructive and collaborative manner
2. A party that is not represented by an RICS member or other property professional must be advised by the other party about the existence of this code
3. The agreement must be recorded in Heads of Terms ‘subject to contract’
Also a model heads of terms in the appendices
How has the Code for Leasing Business Premises changed in recent years
No material changes though it was recategorised as a professional standard from statement in 2023.
What are grade A office specifications/requirements
Grade A offices will typically be in a prime business location, feature high-quality contemporary design, and are equipped with cutting-edge facilities and amenities
What are sole selling rights
The renumeration will be payable if contracts are exchanged in a period when sole selling rights exist
What are sole agency rights
Can be agreed which means fee is only due if the agent introduced purchaser within term of instruction agreement
What are the different types of fit out and why did you advise CAT B as the best ?
Shell and core
CAT A
CAT A +
CAT B
What evidence do you have for market trends demonstrating occupiers preferring fitted space?
Why is it important to reduce a void period?
To reduce costs for the landlord as they will lose rent, have to cover the service charge and pay business rates
Did you consider comparable evidence? How did you make adjustments?
gave a stronger weighting to the comparable properties there were very similar in age, location and specification/
Did you assess the tenant’s covenant strength?
Looked at their accounts, considered their D&B rating – profit rating?
Were you involved in the negotiations in the office disposal in Midtown - what were they
What were you looking for when inspecting the office in Midtown
Internally - defects
Externally - Condition
Did you consider a marketing board for the office in Midtown? If so what should you consider
The Town and Country Planning (Control of Advertisements) (England) Regulations (2007).
Planning consent is required for non-residential over 2sqm (flat) and 2.3sqm (V-board) and only one board per building
The board must not project more than 1m from the face of building and not above 4.6m from the ground
Need planning consent for:
Illuminated board, remote boards, boards erected listed buildings, must be removed 14 days after completion
What documentation should you be aware of when drafting marketing particulars?
Misrepresentation Act 1967 which sets out the importance of ensuring accurate and up to date information on particulars which have a direct impact on contracts and negotiations
OFFENCE: form of negligence - can be fraudulent, negligent or innocent. Civil offence.
How can agents protect themselves against misrepresentation on particulars?
Have a disclaimer in their marketing particulars stating that all information was written to the best of their knowledge at the time of drafting. Must include a date.
Should also include that parties should make their own investigations
Do you always include the rent in marketing particulars?
No, not always. Rent can be excluded as often the rent is dependent on the tenant, incentives, covenant strength and deposit.
How do you prove your client’s covenant strength?
Profit Test - profit has to be three times the annual rent required for three consecutive years in a row.
If your net profit has been 3 times what you’ve been paying in your annual rent, you shouldn’t need to pay a deposit.
How can you structure your rent free period so that it is more favourable to the LL?
- 6 months half rent
- Incentivising - pay back/half after break
What did you include in the HOTs?
Subject to contract
Property address
Tenant and LL details
Rent
Lease term
Break clause
Rent review clause
Rent free period and structure
How did you determine the best offer?
Created an offer schedule detailing:
Rent
Term
Break clauses
Covenant
What did the Landlord and Tenant (Covenants) Act 1995 replace
The old rules of privity of contract and privity of estate for covenants in leases, particularly those entered into on or after that date.
What are the principles of the RICS professional statemen: Global Real Estate Agency and Brokerage
- Act in an honest, fair, transparent and professional manner
- Carry out work with due skills, care and diligence
- Ensure that clients are provided with terms of business that are fair and clear
What is the advice given in the RICS professional statemen: Global Real Estate Agency and Brokerage
Advice:
1. Acting ethically -e.g. gifts
2. Securing instructions - legal, AML, H&S
3. Marketing the property - appraisal, particulars
4. Implementing the disposal - method
5. Acquisition - COI, client communication
