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APC - RICS > Leasing and Letting L2 & 3 > Flashcards

Leasing and Letting L2 & 3 Flashcards

1
Q

Level 1 - Submission Lead

A

Level 1 - Submission Lead

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2
Q

What is your L1 commentary

A

Aware and understand the importance of the Estate Agents Act (1979)

As well as the RICS Code of Leasing Business Premises (2020).

I am familiar with the Consumer Protection from Unfair Trading Regulations (2008)

Business Protection from Misleading Marketing Regulations (2008),

along with the importance of treating all parties fairly and diligently.

I have attended CPD sessions on the lettings market and the impacts Covid-19 had on office and retail spaces.

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3
Q

The Estate Agents Act (1979)

A

Came into force on 3rd May 1982

This Act regulates estate agent’s work.

Purpose - make sure that an agent works in the best interests of your clients, and that both buyers and sellers are treated honestly, fairly and promptly.

Brought in to promote honesty and accuracy.

Ensure agents are seen to be acting with honest, accuracy, transparency, clearly.

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4
Q

The Estate Agents Act (1979) seeks to promote:

7 KEY Principles

A

7 key principles (Seeks to promote):

  • Honesty and Accuracy,
  • Clarity in terms of engagement/business (Section 18)
  • Agreement and liability for costs
  • Openness / clarity regarding personal interests (Section 21)
  • Absence of Discrimination
  • Legal obligation to tell the client about all offers
  • Keep client’s money separate
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5
Q

Section 18 of Estate Agent Act 1979 - Terms of Business

A

Section 18 - Specifies information agent must give to the prospective client before entering into an agency contract – in writing

Deals with info that agent must give to client before entering into contact

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6
Q

Examples (from section 18)

A

Deals with info that agent must give to client before entering into contact – what going to be owed, additional expenditure

  • When the client will become liable to pay remuneration (payment for doing the service).
  • Amount of agent’s payment/fees
  • Particulars which don’t form part of agent’s remuneration e.g. marketing exp.
  • Nature of instruction (e.g. sole)
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7
Q

Unrepresented tenant must get professional advice

–> Prof Standard, Code for leasing business premises

A

A party that is not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of this code and its supplemental guide and must be recommended to obtain professional advice.

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8
Q

What to include in my terms of engagement

A

TERMS OF ENGAGEMENT – need to be signed

  1. Basis of Agency Instruction (sole or joint) – exclusivity – we have been appointed as sole agent i.e. 3 months
  2. Rights of the Agency (sole selling rights or ready willing and able purchaser)
  3. Proposed fee – i.e. 10% of rent, plus % of premium. I would say fee basis is confidential however would follow market guidance and would be 10% of annual rent.
  4. Marketing expenses and disbursements – what are we going to do, board, brochure, website etc.
  5. Confirmation of no conflicts of interest
  6. Money Laundering checks – make sure up to date and on file.
  7. Timetable for payment of fees and disbursements
  8. Details of the firm’s complaints handling procedure
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9
Q

What must I do first

A
  1. Competent? do i know the area etc
  2. Conflict of Interest?
  3. Issue Terms of Engagement
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10
Q

Section 21 of Estate Agent Act 1979

NOT THE SAME AS CONFLICT OF INTEREST – DEALS WITH FAMILY MEMBERS AND FRIENDS

A

Declaring personal interests and connected parties = family members / friends

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11
Q

Key Points - Estate Agency Act 1979

A
  1. Specifies all costs/ fees in advance in TOE in writing (Section 18)
  2. Specify nature of agency and selling rights to be agreed:
  • e.g. Sole selling rights or sole agency rights
  • e.g. Sole, joint sole agency or multiple agency
  1. Advise client of any services available to application (i.e. financial advice)
  2. Disclose any personal interest (Section 21) - a connected person is someone who cold benefit financially from the transaction such as a relation or business associate.
  3. Any personal interests should be declared
  4. Misrepresentation of interest/offers - you can only tell the truth regarding offers received.

7.Handling client’s money - Follow RICS rules

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12
Q

Conflict of interest

A

Means have to stand down from instruction unless both sides are happy with you undertaking it.

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13
Q

RICS PROFESSIONAL STANDARD Code of Leasing Business Premises (2020).

–> Mandatory Professional Statement

A

Mandatory Professional Statement RICS Code for leasing business premises came into effect on 1 September 2020.

The aim of the Code is to improve the quality and fairness of lease terms and to improve efficiency by having a comprehensive set of heads of terms at the outset to make legal drafting of leases more efficient

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14
Q

Consumer Protection from Unfair Trading Regulations (2008)

A

The Property Misdescriptions Act 1991 was repealed in October 2013, replaced with the new Customer Protection Regulations (CPRs) under the trading regulations 2008 for estate agency work.

Relates to Business –> to –> Consumer

Regulations are:
- Principle based with wider definitions

  • Give accurate and necessary material information and not to make any misdescriptions in the material
  • CPR defines the average consumer as reasonably well informed.
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15
Q

CPR’s and BPR’s

A

When dealing with the sale and letting of land and property (both residential and commercial), you must comply with the CPRs and BPRs.

CPRS = Relates to Business –> TO –> Consumer

BPR prohibits misleading Business TO Business advertising

Breaching CPR’s and BPR’s is a criminal offence

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16
Q

CPRS

A

The CPRs are legislation to stop businesses from ‘engaging in unfair commercial practices’ (RICS, 2014).

  • CPR’s prohibits unfair business to consumer in commercial practice. They apply to lettings, sales and online agency.
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17
Q

CPRs/BPR policed/penalty

A
  • Policed by the Trading Standards Office of the local authority
  • Max pen for breach of CPR & BPR is unlimited fines and / or a Prohibition order from undertaking agency work
  • Compensation may also have to be paid to the complainant up to £25K

Plus Bad publicity, Damage to your reputation & Loss of business

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18
Q

(CPRs) What commercial practices are considered to be unfair?

A
  • Unfair practices could include giving false or misleading information, hiding or failing to provide information, omissions and exerting pressure on consumers or failing to show professional diligence

Giving false/leading information

Hiding/failing to provide material information

Acting aggressively/exerting undue pressure

Not acting with sufficient professional skill/care and in good faith

Engaging in banned practices

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19
Q

Material information occupiers should be informed of or find themselves? Plus taking responsible steps to source it

A

This is what is required by the average consumer to make an informed transactional decision, taking into account the relevant context.

This might include:
- Quoting rent / price
- Location
- Floor areas
- Tenure
- Proposed lease terms

May need to signpost consumers to publicly available information relevant to the wider context, e.g. flood risk, flight paths, listed building status, planning.

You need to take reasonable steps to identify the information E.G.:

  1. Addressing any gaps by speaking to client third parties, e.g. building surveyor, lawyer, architect
  2. Verify information if it’s accuracy is questionable
  3. Challenge or investigate further if you are concerned about the information
  4. If you become aware of further information later on, disclose it at the earliest opportunity
  5. Keep an audit trail of the information you hold and where it was sourced from
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20
Q

Business Protection from the Misleading Marketing Regulation (BPR’s 2008)

A

Business Protection from the misleading marketing regulation.

RELATES TO BUSINESS TO BUSINESS activities and mirror CPRs

The regulations prohibit misleading business to business marketing/advertising

They impose restrictions on how businesses compare their products from other companies

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21
Q

CPD - the lettings market and the impacts Covid-19 had on office and retail spaces.

A

Retail -
More movement towards online shopping, less people/footfall on high streets. Decline in transactions: lease terms change i.e. more rent free periods, shorter leases, break clauses.

Office -
- Increased hybrid/flexible, working from home, hot decking - reducing the need for physical offer space
- changing occupier demands/requirements e.g. sustainability and ESG
- Changing lease terms - i.e. shorter leases etc

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22
Q

Misrepresentation Act 1967

A

Act relates to a misrepresentation or false statement of fact made by a party during pre-contractual enquiries, which has the effect of inducing the party to purchase

Agent can be sued for damages - agent has a duty of care

CIVIL offence (not criminal)

23
Q

Level 2

A

Level 2

24
Q

What is your first level 2 example

A

Retail unit tenant covenants - Clarendon Road, Watford

I carried out a letting of a retail unit in Watford.

I was concerned about the incoming tenant’s covenant strength owing to them commenting that they are inexperienced in business. I requested a landlord’s reference and instructed my accounts team to complete a credit check.

Following a review on Companies House, I noticed that the tenant had only been trading since 2021 and already had a business dissolved in 2020.

As a result, I commented to the client that it would be sensible for the tenant to have a guarantor in place and an assignment clause. Additionally, I suggested a deposit equivalent to the first month’s rent to provide security for the client.

25
Q

Assessing tenant’s covenant strength?

A
  1. Companies House check (accounts)
  2. Landlord Reference - this tenant had a small unit in existence so I did a Landlord reference
  3. Credit Safe check
  4. Dun & Bradstreet Business Credit Report
  5. Profits test - A typical profits test would be for the tenant to provide 3 years’ audited accounts showing a net profit of, say, 3 times the annual rent.
26
Q

Level 2

A

Level 2

27
Q

Why did you do a landlord reference check

A

Despite this tenant commenting they were inexperienced, they already had an existing business in a small unit in Watford.

Landlord said they were a good tenant with no outstanding arrears, on time payment and no issues.

28
Q

How did you do a credit check

A

I use the Credit Safe website to which my company subscribes to access company’s accounts.

  • See if there is a low credit rating
  • A low return on equity
    A falling cashflow statement

Companies House:

  • Users can view the company’s filing history, including its confirmation statements, accounts, and other documents filed with Companies House.
  • Using the tenants company reg number and name, i completed a check on CH. This gave a detailed understanding of the financial position of a company.
29
Q

Why did you recommend to have a guarantor?

A

Guarantor in place. Conscious of the tenants covenant strength.

Recommended appropriate alienation clauses to protect the client

30
Q

Why did you recommend to have an assignment clause?

A

Aware of the The Landlord and Tenant Covenants Act (1995). Came into effect 1st Jan 1996, which relates to the Assignment of Leases.

A guarantor fulfil the obligations in the commercial lease agreement. Protect the tenant, ensure lease obligations are fulfilled.

31
Q

what online platforms did you upload the rooms onto and why did you choose this platform?

A

All provide flexible office spaces:

  • NearU
  • Flexi-office
  • Zip Cube
  • Cavendish Collective Website - tasked my destination marketing colleague to redesign the website
  • Hubble
32
Q

Why did you recommend to have a deposit equivalent to the first month’s rent

A

The request for additional devices for additional security such as a rent deposit or guarantee can depend upon market conditions and the strength of the covenant.

Despite my advice, the client and tenant agreed that a deposit would not be necessary - mainly because the client was keen to get the retail unit fill as it had been vacant for a long time.

However I am aware of the use of rental deposit:

  1. Must be legally documented in a rent deposit deed & money held in a separate bank account
  2. Agreed terms for the release of the monies
  3. Interest to the tenant
  4. Details of the release mechanism to be stated in the deed
  5. Can include a top up mechanism for rent review uplifts
  6. Personal to the tenant and is a separate deed to the lease.
33
Q

Example 2:

Cavendish Collective meeting spaces - Wigmore Street, London

A

I was tasked by my client to market and let four office meeting spaces to assist with their rental income.

Upon inspection, I measured the offices and determined the rent per square foot using comparable evidence and the existing pricing to create a new pricing scheme.

The client requested a marketing strategy which I subsequently provided.

This included instructing a professional photographer, redesigning their existing website, creating and printing a sandwich board to place outside the property and uploading the rooms onto online platforms to create a larger reach.

I also recommended to the client that short to medium lettings would be a good way to create stable income.

34
Q

Use Class E

Town and Country Planning (Use Classes) Amendment England Regulations 2020

A

Town and Country Planning (Use Classes) Amendment England Regulations 2020

Class E = Commercial, Business and Service

Retail = E (a) (retail sale of goods)

Use classes determine what type of activity can take place in a property.

Class E amalgamates the former Class A1 (retail), A3 (restaurants/cafes), B1 (offices).

35
Q

What standard did you measure the office to and why?

A

Measured on IPMS 3 as per the IPMS All Building Standards - although I also measured on a NIA to assisted with comparable evidence.

36
Q

Talk me through your inspection.

A

Arranged my visit with on site security, did not require PPE but I ensured by line manage knew where I was going, clear diary instructions, consulted/mindful of Tandem’s lone working policy. Went during day light hours, took fully charged phone.

Took lease plan to cross reference. Pen / notepad

Bought disto laser measurer.

37
Q

How did you determine the rent PSF and determine the new pricing scheme

A

There was an existing pricing list which was out dated and following my research it did not reflect the market.

I used the comparable method to ascertain Price psf - using online platforms and local agents –> using Zip cube, Flexi-offices, NearU - provided current and useful indications of value.

Using the measurements, i cal a Price psf for each office space.

38
Q

New pricing strategy

A

Used to just be on an hourly rate.

Now we do hourly, Half day and Full day rates.

We are also considering a discount for regular members and i have recently suggested a loyalty scheme as majority of our customers are return members

39
Q

Define what you mean by short to medium letting

A

Short term - letting for a few weeks/months

Medium term - a year or two

A licence is merely a right to occupy. A licence may be for a fixed term or ongoing. A licence does not grant the tenant ‘exclusive possession’ of the property.

40
Q

What marketing did you use?

A
  1. Photographer to take images of the office spaces
  2. Updated the CC website - I designed it - establishing a brand i.e. colours and inputted a short description, rates (hourly, half and whole date, office space capacity i.e. 10 people. Plus book now icon.
  • All bookings are managed our receptionist - who reports to me
41
Q

What’s happening with the CC

A

Report monthly - profit and loss accounts which Tandem oversee. Also update the client monthly on bookings/upcoming booking

We get adhoc interest, mainly through the online platforms i have posted it on - mainly done on repeat business.

42
Q

Level 3

A

Level 3

43
Q

L3 Commentary: The letting of Retail Unit - Barking Riverside

A

Letting of Retail Unit - Barking Riverside

I was instructed by my client to let a vacant retail unit in a newly developed estate.

My client wanted to secure a lease with a member of the local community with minimum term of 10 years.

Having completed market research and liaised with local agents, I advised this would prove challenging owing to the current retail market conditions. As such, I advised the client to consider expanding their target market to a wider pool of enquiries beyond the local community.

This would ensure a stronger tenant covenant and increase the chances of securing their long lease objective. I also advised that considering tenant favourable terms such as a rent free period and break clause would attract the locals to enquire.

44
Q

Why was it a challenge to get a long lease?

A

Local agents said - narrow target market and nature of the estate/demo would make it difficult to achieve a long lease.

Market conditions - covid, cost of living, decline in retail transactions, move to online shopping, decline in tenant confidence.

45
Q

Expanding the target market

A

Would go against client’s objectives but would secure a stringer tenant cov and maybe be easier to achieve long lease.

46
Q

Tenant fav terms

A

Attract interest and increase likelihood of tenant securing a lease.

Rent free, break, assignment, subletting

47
Q

Level 3 - commentary
Tenant Mix - Retail unit, Dorset Street, Southampton
–> Dentist

A

I received three offers for a vacant retail unit. However, after reviewing the proposed tenants’ uses for the space including two hairdresser enquiries and a convenience store, I advised the client that they should not proceed with any of the enquiries.

The reasoning for this was because this would not offer a strong tenant mix owing to there being similar services close by.

After receiving an offer for a dentist at the same rate, I advised the client that this would be a more appropriate tenant mix.

Following the client’s approval, I negotiated a 5 year lease inside the act with an annual rent of £18,000.00 and a 6 month rent free period to allow the tenant to complete a fitout.

48
Q

Why did you not go for hairdressers & convenience store

A

Already convenient store close by as well as a small supermarket.

Already a hairdressers in the close vicinity as well.

I knew it was important for my client to have a good tenant mix to bring a useful service,

49
Q

What do you mean by inside the act?

A

Having a lease that is ‘inside’ the 1954 Act means that the tenant will have a right to automatically renew the lease and remain in occupation of the premises upon the expiry of the old one, with the landlord having only a limited number of grounds to object.

50
Q

What are the problems of not having a strong tenant mix?

A

it can drive higher sales and popularity

putting together a collection of tenants so as to help maximize sales traffic which would in turn increase the sales revenue of the tenants. - good variety, encourages people to come to the area/ spend money, generate extra footfall

51
Q

How did you arrive at an annual rent of £18,000?

A

Using the comparable method - based on a variety of recently transacted lettings/activity, open market lettings in the market.

Allocated appropriate weighting allocation to the most comparable items based on square footage, use class, distance from subject unit.

Using online platforms and advise from local agents i determined a annual rent of £18K per year.

I measured the retail unit to be 900 square foot - so £20 per sqf when applying the £18K.

52
Q
A
53
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APC - RICS (17 decks)

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