LEASING AND LETTING Flashcards
1) What is the Code for Leasing Business Premises (2023)?
A voluntary code which relates to new lettings in England and Wales. It is not an RICS publication but is considered best practice. RICS has been working on a new code for which the consultation period ended in May 2019. The implementation date is due soon however no formal timescale yet. It will be the RICS Professional Statement Leasing Business Premises.
2) What is included in the Code for Leasing Business Premises?
Divided into 3 sections, providing a guide for landlords, a guide for occupiers and advice for model heads of terms.
3) What is included in the landlord code?
- Lease negotiations – Landlords must promote flexibility stating whether alternative lease terms are available and must propose rents for different lease terms if requested by prospective tenants
- Lease terms – all terms must be put in writing
- Rent deposits and guarantees – lease terms should clearly state any rent deposit or guarantees proposals and release mechanisms
- Break clauses – only pre-conditions for tenant’s being able to exercise break clause should be that they’re up-to-date with rent, give up occupation and leave behind no subleases
- Rent review – clauses should be clear and headline rent review clauses not used.
- Assignment – leases should allow tenants to assign whole premises with LL’s consent not to be unreasonably withheld or delayed
- Authorised Guarantee Agreement – should not be required as a condition of assignment unless at proposed date of assignment the new tenant is of a lower financial standing than the assignor or is registered overseas.
- Subletting – if subletting allowed, sublease should be at market rent at time of subletting
- Service charges – landlords must provide best estimates of service charges and other outgoings. Must state if VAT is payable.
- Repairs – obligations should be appropriate for length of lease and condition of property
- At the end of the lease, tenants should only be obliged to hand back property in condition it was at the start of the lease unless otherwise expressly stated in Heads of Terms
- Insurance – should be fair and reasonable
4) What is included in the occupier guide?
Sets out advice for prospective tenants as to how to negotiate HoTs. Provides 37 tips / practical advice. Highlight risks and kind of questions which a tenant should ask. Tips in relation to areas set out in landlord code section.
Examples of advice includes:
- Making sure you understand every term and condition in offer
- Understanding the total cost of the lease – rent, service charge, business rates, other outgoings
- Making sure offer clearly states extent / demise of the property
- Make sure you know when and how you can get your deposit back
- Avoid strict time limits in rent review clauses
5) What is in the model heads of terms section of code?
Model heads of terms document and headings to include. Template is enclosed for good practice. Comprehensive / detailed checklist of what to include
6) What are the main principles of the code for leasing business premises 2007?
FAT – fairness, accountability and transparency
7) What is the legislation governs marketing material?
Misrepresentation Act (1967)
8) What are the key principles of the Misrepresentation Act?
Act relates to misrepresentation or a false statement of fact made by a party during pre-contractual enquiries, which is intended or has the effect of inducing the party to purchase.
- Vendor and / or agent can be sued for damages and / or contract rescinded
- Civil offence not criminal – form of negligence
- Misrepresentation can be fraudulent, negligent or innocent
- Agent must check advice / info / opinion is reliable
- Exclusion (disclaimers) clauses may be effective in protection vendor and their agent if they are fair and reasonable
Leading case is Hedley Byrne & Co v Heller & Partners (1964) – relates to liability of negligent statements. Refers to test of reasonableness. Case created 3 tests to decide agent’s liability for negligent statements:
- Foreseeability
- Proximity
- Fairness – is it regarded as fair and reasonable for duty of care to arise
Court held that no duty of care owed by bank to plaintiff relying on advice as to customer’s creditworthiness because there was no special relationship involving undertaking of responsibility.
9) What are the key Principles of the Consumer Protection Regulations 2008?
Key principles:
1) Regs apply to all letting and sales
2) Agents have duty of care to not just to clients but all interested parties
3) Agents must declare everything they know about property – good and bad
4) Must not exert undue pressure on buyers
5) Newly discovered info during process must be passed on
6) Any omissions can also lead to break – mind what you don’t say!
7) Full DD required for all instructions
8) Validated by client
9) Policed by Trading Standards Office
10) Disclaimers to not apply to this criminal offence
10) What are the key differences between the Misrep Act and Consumer Protection Regs?
Misrep – civil offence
CPR – criminal offence
Misrep – disclaimers allowed if reasonable and fair
CPR – no caveat emptor
Misrep – relates to pre-contractual enquiries
CPR – relates to entire agency process
Misrep – sued for damages / negligence
CPR – Unlimited fine and / or prohibition order and prison up to 2 years
11) What is the key RICS published material for this competency?
RICS Global Real Estate Agency and Brokerage Professional Statement 2016
12) Has anything replaced RICS Purple Book 2014?
Yes. RICS UK Commercial Estate Agency Professional Statement 2016. Mandatory professional statement providing mandatory standards for RICS members involved in agency and real estate management work in the UK.
13) What are the headings of the RICS UK Commercial Estate Agency Professional Statement 2016?
Scope
Standards & ethics
Securing instructions
Disposals – marketing
Implementing the disposal
Acquisitions
Ending the instruction
14) What are the key principles of the RICS UK Commercial Estate Agency Professional Statement 2016?
Very similar to the global statement. Sets our 12 core principles:
- Be honest, fair and transparent
- Competence – carry out work with due care, skill & diligence
- Ensure clients provided with clear TOE including CHP details
- Try to avoid COI and where they do arise, deal with them openly and fairly
- Don’t discriminate
- All communications with clients fair, decent & timely
- All advertising / marketing is honest and truthful
- Client money held separately and covered by adequate insurance
- PII cover
- Make clear identity of your client and ensure all parties clear of obligations to all parties
- Give realistic assessments of prices / rents / financial costs
- Ensure all meetings, inspections and viewings carried out in accordance with clients wishes having regard for security & safety
Also provides advice on: acting ethically (duty of care, gifts, COI); securing instructions (legal checks, AML, H&S); marketing (legal requirements, market appraisal); implementing the disposal (methods of sale); acquisition of property
15) What is the key estate agency legislation?
Estate Agents Act 1979
16) What does the Estate Agents Act 1979 relate to?
Disposal / acquisition of interest in land
Freehold and leasehold property
Land as well as buildings
17) What are the key principles of the estate agents act 1979?
To promote:
- Clarity as to terms of agency (section 18)
- Honesty & accuracy
- Agreement and liability for costs
- Openness regarding personal interests (Section 21)
- Absence of discrimination
- Legal obligation to report all offers to client in writing
- Keep client’s money separate
18) What are the key regulations set out in the estate agents act 1979?
Specify all costs and fees in advance in writing (section 18)
Itemise all payments – no global budget allowed
Specify nature of agency and selling rights to be agreed
Advise client on any services available to applicant
Disclosure of personal interests – a ‘connected person’ – someone who could benefit financially from transaction such as relation (section 21)
Misrep of offers – can only tell truth regarding offers received
Handling client’s money – follow RICS rules
19) What are the key sections of the estate agents act 1979?
Section 18 – requires estate agents to give clients info before entering into contract for estate agency work including details on fees and other remuneration
Section 21 – specifies what interests must be declared by the agent
20) What are the penalties for breaching Estate Agents Act 1979?
Policed by Trading Standards office
Negative licensing – right to be an estate agent can be taken away
Act allows for prohibition or warning order to be made against agent
Prohibition order – stops agent practising
Warning order – less punitive. Written warning.
Usually around 10 orders issued each year.
Can be against an individual or firm and costs can also be awarded
21) What are the Business Protection Regulations?
2008 too. These mirror the consumer protection regulations but relate to business to business activities. They prohibit misleading B2B advertising. They also impose restrictions on how businesses compare their products to products from other companies.
22) What are the different bases of agency?
Sole letting rights – fee due if let during agency agreement. Private / other party introductions included.
Sole selling rights - fee due if let during agency agreement. Private / other party introductions included. Also exist after contract period ends if firm introduced the purchaser during the agency agreement.
Sole agency – exclusive right to introduce tenant in agency period but does not include private introductions. Fee only payable if agent introduced purchaser within term of instruction. If client finds purchaser by other means, agent will not get fee.
Joint agency – a number of agents instructed in one contractual period with joint agency rights. All agents will receive a fee regardless of which agent introduces tenant / purchaser. Will also receive fee if client finds tenant / purchaser by other means if it is within period of agency agreement.
Multiple agency – a number of agents instructed on a no win no fee basis. Only the agent who introduces tenant / purchaser will receive a fee. No one will receive a fee if the client finds the purchaser. Agents competing with each other.
23) What is the difference between a lease and a license?
The difference between a lease and license was underpinned in Street v Mountford 1985.
Lease – exclusive possession. Grant of an interest in land for a fixed period of time.
Licence – personal permission granting license to occupy. Makes legal what would otherwise be illegal, i.e. permission to trespass. Short term only, typically 6 months or less.
24) What are the regulations in relation to marketing boards?
Town & Country Planning (Control of Advertisement) Regulations 2007. Permitted development rights.
- Planning consent required for non resi boards over 2 sq m (flat) and 2.3 sq m (v board)
- Only one board per building
- Must not project more than 1m from face of building & not above 4.6m from ground in safe condition
- Illuminated board not permitted, planning consent needed for this
- Planning consent also needed for remote boards, boards erected on listed buildings and in conversation areas
- Must be removed 14 days after completion of transaction
- Certain authorities have more restrictive requirements
- Must have owner’s approval
- Policed by Local Planning Authority who can remove boards and issue fines and order costs
25) What is some of the key legislation relating to Leasing & Letting?
- Bribery Act 2010
- Control of Asbestos Regulations 2012
- General Data Protection Regulations 2016
- Data Protection Act 2018
- Equality Act 2010
- Energy Act 2011 (EPCs)
- Health and Safety Act as Amended 1974
- Money Laundering Regulations 2017
- Town and Planning (Control of Advertisement) Regulations 2007
26) What is a lease?
Legally binding contract between lessor and lessee. Lease gives tenant right to use specified premises for a permitted use for a fixed period of time for money paid to landlord. Outlines rights and responsibilities (covenants) of both parties during lease term.
27) What are the different types of lease or lease agreements?
- New lease – fresh contract between willing landlord and tenant which does not operate under existence of or is influenced by existing lease
- Sub-lease – a tenant leases all or part of a leased premises to a sub-tenant. Right to sub-let will be stipulated in alienation clause of lease. May permit or prohibit subletting whole or part. Original lease between landlord and tenant remains in force, new contract created between tenant and sub-tenant. However original lease will govern terms of sub-lease. Must get LL consent. Tenant must continue paying passing rent. Sub-tenant pays market rent to tenant unless otherwise specified in the original lease, i.e. LL may include clause prohibiting sublease rent from being higher than passing rent.
- Assignment – transfer by original tenant of legal right to a sub-tenant to use leased premises exclusively. Party ultimately liable for holding up provisions of lease depends on provisions set out in alienation clause of original lease. If landlord has included clause requiring authorised guarantee agreement, assignor remains liable under original lease and will act as guarantor for assignee. If LL does not require or request an AGA then assignor can legally pass all liability onto assignee. Assignee takes on existing lease and must operate under the obligations of this lease.
- Agreement for lease – legal contract between landlord and tenant agreeing to enter into a new lease at a specified point in the future. Usually agreed when tenant cannot immediately occupy premises, i.e. in cases of pre-lets and extensive refurbishments. In cases of pre-let, tenant may have had significant input into design of building, AGL prevents tenant from changing their mind and backing out of lease, leaving LL with bespoke building which may only be suitable for that occupier.
- License
- Head Lease
- Ground lease
28) What are Heads of Terms?
Before lease can be drawn up, LL & T must first agree at high level key terms of the lease. Typically 2-3 page document drawn up by LL’s agent and negotiated with tenant or tenant’s agent if represented. Once agreed, the HoTs are passed onto solicitors who will use them to begin drawing up the lease contract.
Key aspects of HoTs are – parties involved, rent, lease length, property address, break option, rent free, service charge, rent deposit, inside or outside of the act (security of tenure), rent review, permitted use, repairing obligations, alienation
29) Which clauses affect the value of the lease?
- Security of tenure
- Rent review pattern
- Alienation
- Repairing obligations
- Permitted use
- Break clause
- Service charge
30) What is a use class?
Permitted use of a specified premises is governed by local planning authority and will fall into one of the use classes outlined by the Town and Country Planning (Use Classes) Order 1987
A1 = Retail
A3 = restaurants
B1 = Business
B1(c) = for any industrial premises
B2 = general industrial
B8 = storage and distribution
C1 = hotels, hostels etc
C3 = resi
D2 = leisure
31) What is security of tenure?
When a lease is contracted inside S.24 – S.28 of the Landlord and Tenant Act 1954 Act then the tenant has security of tenure which gives the right to renew their lease when their current contractual term comes to an end. There are only 7 grounds of opposition available to LL:
- Breach of repairing covenant
- Persistent delay in paying rent
- Other substantial breach
- LL available to provide alternative accommodation (non fault no payment)
- Uneconomic subdivision (compensation)
- Redevelopment (compensation)
- Owner-occupation (compensation)
If the lease is contracted out of these sections then the tenant does not have security of tenure and has no right to renew however can request a renewal from the LL. LL not obliged to say yes.
32) What is an incentive?
May constitute rent free period which relieves the tenant of paying rent for a specified time and allows them to fit out the unit before they can become operational and start trading. Reverse premium, fitting out costs contribution. Sometimes agreed in side letters to protect headline rent.
33) Is Stamp Duty Land Tax payable on leases?
Yes. The stamp duty bands are (based on total rent over life of lease):
£0 - £150,000 = 0%
£150,001 - £5,000,000 = 1%
£5,000,000 = 2%
34) What is an EPC?
Energy Performance Certificate – a certificate showing the energy performance of that particular premises. It is assessed by an EPC specialist and uploaded onto the online EPC register (maintained by Ministry of Housing, Communities and Local Government). A building is assessed on a scale of A-G. A certificate will also make recommendations of how to improve the property’s energy performance.
35) What is the Registration of Overseas Entities Bill?
- New bill designed to help prevent money laundering in property sector and make UK world leader on corporate transparency
- Requires overseas companies to provide more in-depth detail and details of ultimate owners
- Info to be placed on public register
36) VAT
- Specialist advice always recommended
- Some occupiers cannot register for VAT such as financial institutions and charities
- Landlord can choose to elect property to charge for VAT, to recover VAT on costs expended
- When this happens rent and any service charge is also subject to VAT
- This has implications for occupiers who cannot be VAT registered
37) What is the Land Registration Act 2002?
- Act provides framework for electronic property conveyancing by allowing formal documents to be executed electronically
- All FH and new leases granted for over 7 years or existing leases sold or assigned with 7 years left must be registered with land registry with compliant lease plan
- Introduced new regime for adverse possession – making claimant prove 10 years possession
- All FH must have compliant plan as well as:
o Drawn to metric scale
o Scale measurement bar
o Scale noted on plan
o Full address including post code
o North point
o Demise in red outlined on inside edge of property
