Leasing And Letting Flashcards
What is the RICS professional standard that covers leasing and letting?
RICS PS: code for leasing business premises
What is the purpose of the RICS PS: Code for leasing business premises, 2020
- improve fairness of negotiations on lease terms
- promote the use of a new set of comprehensive HOTs to make legal drafting of leases more efficient
What is the structure of the PS: CFLBP 2020
Part 1: introduction
Part 2: Mandatory requirements
Part 3: Lease negotiation best practice
Part 4: appendices
What is part 2 of the PS: CFLBP 2020
Mandatory requirements of the Code
How many subsections of Part 2 (mandatory requirements) are there?
5
What are the 5 mandatory sections of part 2 of PS: CFLBP 2020
1.1 Negotiations must be approached in a constructive and collaborative manner
1.2 A party not being advised by an RICS member must be advised on the existence on the code and recommended to obtain professional advice
1.3 agreement to the terms of a lease must be recorded HOTs stating subject to contract and summarising information
1.4 at a lease renewal or extension, the HOTs must comply with previously agreed HOTs unless explicitly stated that they are subject to reasonable modernisation
1.5 Negotiations should aim to produce letting terms that achieve a fair balance between the parties having regard to their respective commercial interests
Under part 2 of PS: CFLBP 2020 part 1.3 what must be included within a HOTs document?
• the identity and extent of the premises (and requiring the landlord to arrange the provision of a Land
Registry-compliant plan if the lease is registrable)
• any special rights to be granted, such as parking or telecom/data access
• the length of term and whether the Landlord and Tenant Act 1954 will apply or be excluded
• any options for renewal or break rights
• any requirements for a guarantor and/or rent deposit
• the amount of rent, frequency of payment and whether exclusive of business rates
• whether the landlord intends to charge VAT on the rent
• any rent free period or other incentive
• any rent reviews including frequency and basis of review
• liability to pay service charge and/or insurance premiums
• rights to assign, sublet, charge or share the premises
• repairing obligations
• the initial permitted use and whether any changes of use will be allowed
• rights to make alterations and any particular reinstatement obligations
• any initial alterations or fit-out (if known), and
• any conditions of the letting, such as subject to surveys, board approvals or planning permission
What is part 3 of the code?
Lease negotiation best practice
- includes specific best practice on rent deposits, rent reviews service charges, repairs and alienation
What does part 4 of the code include?
The appendices
- model set of HOTs
- guide for landlords and tenants
Name some of the key lease terms that impact value
• Lease length/term certain
• Break clauses
• Alienation
• Repairing obligations
• User clauses
• Rent review pattern & basis of valuation
• Security of tenure provisions
• Impact of a restrictive lease clause upon value
• Check planning use by visiting local authority planning office in person or online
• Inside or outside the Act - what is the difference?
Know how a lease is granted outside the Act
• If there is no mention in the lease of it being contracted outside s.24-28 of the Act then it is protected
What is a pre letting
Occupier will pre let a premises often what market supply is constrained main advantage is can make the space bespoke
What is a disadvantage of a pre let
A developer may not deliver
Could be a lengthy process
What is the legal framework the outlines a pre let?
Agreement for lease
What documents should be attached to an agreement for lease?
• The Lease - in a pre-agreed form, which shall be executed once the developer has fulfilled its obligations under the Agreement to Lease, usually at Practical Completion of the work
• Licence for Alterations - to allow the tenant to undertake fitting out works
• Specification and plans of the proposed scheme
• Developer’s guarantee/bond - if dealing with a weak covenant
• Warranties - any tenant taking an FRI lease will want collateral warranties from the professional team, main contractor and any sub-contractors with any design input
• A collateral warranty gives tenants a direct contract with the construction team (privity of contract). Rather than obtaining collateral warranties from the professional team, third party rights are increasingly popular as a cheaper, quicker and more certain way to give tenants potential recourse
• Most developers are unwilling or unable to give guarantees for latent defects, and may put decennial insurance in place to cover this risk.
