Leasing and Letting Flashcards
What is the RICS Professional Statement Code for Leasing Business Premises 2020?
Mandatory professional statement that seeks to improve the quality and fairness of negotiations on lease terms and promote use of a new set of comprehensive heads of terms to make lease drafting more efficient.
It also includes lease negotiation best practice advice and an appendices with a guide for LL+Tenants and HOTs template
What are some mandatory elements of the Code for Leasing Business Premises 2020 and what must be included in HOTs?
Negotiations must be approached in a constructive and collaborative manner
Negotiations should aim to produce letting terms that achieve a fair balance between parties.
Written HOTs must include:
Extent and identity of the premises
Length of term
L&T 1954 apply or not
Options for renewal or break
Amount and frequency of rent
Rights to assign or sublet
Permitted use
What Lease Negotiation best practice advice is given in the Code for Leasing Business Premises 2020?
Includes specific advice on lease terms included in the HOTs such as rent reviews, repairs and alienation clauses.
What is included in the appendices of the Code for Leasing Business Premises?
Model HOTs
Guide for Landlords and tenants on a range of lease terms and letting issues.
What is tenant covenant and how can it be strengthened?
It is an assessment of the ability of a tenant to comply with the terms of lease.
It is usually whether the tenant can pay the rent.
It can be strengthened with additional security like guarantors or deposits.
How must rental deposits be used?
Personal to the tenant
Must be legally deposited and held in separate bank account
Any interest accrued is tenants
Agree terms for release of monies
Can included a top up mechanism for rent review uplifts
What is information is usually requested from a new tenant?
Bank, accountant and 2 trade references
Previous/existing landlord reference
3 years audited accounts/business plan/credit rating
What test is commonly used to assess tenant covenant?
Profits test which is the net profit of the proposed tenant must be 3x the rent for 3 consecutive years.
or the net asset value of the business must be more than 5 times the rent.
What might you consider when choosing a tenant and assessing their covenant?
Market conditions and demand for the property. Can choose a tenant with a stronger covenant if there is high demand.
What are some major lease terms that effect the value?
Lease length
Break clauses
Alienation
Repair obligations
User clauses
Rent review pattern
Security of tenure
Any restrictive lease clauses
What are some issues to consider with break clauses?
Is it mutual or one party?
What is the notice period
Is their penalty rent or rent to be reimbursed
Are there any pre-conditions for the option, e.g full payment of rent, returning premises in order
Tenant right to break usually conditional on payment of all rent, vacant possession and compliance with tenant covenants
What are some typical conditions for tenant to exercise right to break?
Compliance with tenant covenants
Payment of all rent
Vacant possession
When might occupiers consider pre-lettings?
If there is a market shortage
They require specific facilities
Allows the delivery of a bespoke building designed to their needs
What are the disadvantages of pre-letting?
Lengthy and complex process
Risk of the developer or contractor not delivering as promised.
What does the legal framework require to be attached to an agreement for lease?
The lease
Licence for alterations
Specs and plans for scheme
Developer guarantee if weak covenant
Warranties - from contractor
What is a collateral warranty?
Gives tenants a direct contract with the construction team
What is 3rd party rights?
Increasingly popular as cheaper, quicker and more certain that collateral warranty.
What are some core principles in the Commercial Estate Agency Professional Statement 2016?
Act in a honest, fair and transparent manner
Do utmost to avoid conflicts of interest, deal with them openly and fairly when they do arise
Not to discriminate
Carry out work with skill, care and diligence
All communications fair, clear and timely
Be clear of obligations to the client
What other advice does the Commercial Estate Agency professional Statement 2016 contain?
Provides guidance on
Acting ethically
securing instructions
Marketing property
Implementing the disposal
Acquisition of property
What is included in the RICS Residential Real Estate Agency Professional Statement 2017 (Blue Book)
Contains guidance on
Relevant estate agency legislation
Standards and ethics
Securing instructions
Property marketing
Acting for the vendor, purchaser or landlord
Ending the instruction
When is the Estate Agents Act 1979 applied?
Disposal or acquisition of land
Freehold property
Leasehold property with a capital value
Land and buildings
What are the principles of the Estate Agency Act 1979?
Clarity
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 are you required to do under the Estate Agents Act 1979?
Specify all costs and fees in advance
Specify nature of agency and selling rights to be agreed
Itemise all payments
Disclose personal interests
Cannot misrepresent offers received
What are penalties for violating Estate Agents Act 1979?
Negative licencing - right to be estate agent taken away
Prohibition order to stop agent practising
Warning order not to undertake action again
Can be against individual or practices
What is the cooling off period?
14 days for client to change their mind on instructing agent.
What is the Consumer Protection from Unfair Trading Regulations 2008?
Prohibits unfair business to consumer commercial practices.
Duty owed to not just clients but potential clients, viewers, buyers.
Unfair practices can include false or misleading information, omitting information, exerting undue pressure on consumers or failing to show professional diligence
All agency processes/systems must be demonstrated with due diligence audit trail
What is the penalty for breach of Consumer Protection from Unfair Trading Regulations 2008?
Unlimited fine and/or prohibition order.
Compensation up to £25,000
What is Caveat Emptor?
“Let the Buyer Beware”
Common law principle means that buyer should satisfy itself on all matters relating to the property.
What are the key points in the Consumer Rights Act 2015?
Letting agents must clearly display a summary of their charges in office and online for letting and managing property
Info must be provided based on calculation of charges and who is responsible for payment.
If an agent holds any money then the firm is required to publish a statement as to whether they are a member of a client money scheme.
What are the key points in the Misrepresentation Act 1967?
Related to a misrepresentation or false statement of fact which has an effect of inducing the other party to purchase.
Agent has duty of care to check that advice, info or opinion is reliable.
Misrepresentation can be fraudulent, negligent or innocent.
Vendor/agent can be sued for damages.
What is the test of reasonableness to decide agents liability for negligent statements?
3 tests to decide agents liability.
Foreseeability (damage reasonably foreseeable)
Proximity (of the relationship)
Fairness (fair just and reasonable duty of care)
What is the difference between Misrepresentation Act 1967 and Consumer Protection Act 2008?
Consumer Protection Act is broader, covers exerting undue pressure.
Also broader in defining duty of care to cover relationships to all interested parties not just the buyer.
Applies during whole sales and letting process, not just during pre-contract enquiries.
Harsher punishments - imprisonment and unlimited fine.
What is the Tenant Fees Act 2019?
Aims to improve transparency and affordability in residential lettings market.
Bans various fees for new lettings
Caps deposits at 5 weeks, or 6 weeks if annual rent is above £50k
What does the Regulation of Property Agents Propose?
Independent regulation of all property agents
Mandatory qualifications for agents
Code of practice
Agencies need to be licenced
Prioritises transparency of charges, disclosing conflict of interest and administration of service charges
What are some rules for marketing signage
Planning consent required for larger than 0.3m boards, illuminated boards, remote boards, boards on listed buildings and in conservation areas
Must be removed 14 days after completion of transaction
What are the rules for VAT in Estate Agency?
Specialist advice recommended
Some occupiers cannot register for VAT like charities and medical practitioners
A landlord can choose to elect a property to charge VAT to recover VAT on costs expended so rent is subject to VAT.
What are capital allowances?
They are a form of tax relief upon the capital expenditure for the construction or purchase of a commercial property or business asset.
What different forms of taxation are related to estate agency work?
Capital gains
Inheritance
Stamp Duty
Business Rates
VAT
What is the Land Registration Act 2002
Allow formal documents to be executed electronically.
All freeholds and new leases for terms over 7 years must be registered with Land registry with compliant lease plan.
Adverse possession requires 10 years proof of use.
What must a Land Registry compliant plan have?
Drawn to a metric scale
Scale measurement bar
Scale noted
1:1250 scale
Full address
North point
Demise outlined in red
What is an authorised guarantee agreement? AGA?
It is used when a lease is assigned, the outgoing tenant guarantee’s the performance of the incoming tenant to meet the lease obligations. They act as a guarantor and will be responsible for the payment of rent and other obligations if the new tenant fails to do so.
What are average rents in Manchester for different uses?
