Leasing and Letting - Level 1 Flashcards
What is the difference between an assignment and a sub-letting?
An assignment is when the new tenant has a direct relationship (privity of contract) with the landlord.
Subletting - the new sub-tenant has a direct relationship with the tenant in situ and pays them rent, who then pays the landlord.
What kind of alienation clauses are there?
Absolute, open or restrictive alienation clause - allowing alienation, subject to some conditions or not allowing sub-letting or assignment
What is the usual alienation clause?
The landlord’s consent is not to be unreasonably withheld or delayed
What are the reasons to sub-let rather than assign the lease?
- Requirements of the lease
- For part of the demise, not the whole
- If the MR is higher than the passing rent, then there is profit rent
- If the head tenant wants to re-occupy in the future, they can
- The new party is of a lesser covenant strength
What actions need to be taken when dealing with an application for consent to assign or sublet?
- Read the existing lease
- Will the tenant pay for the surveyor’s and legal costs?
- Is the proposed rent the market rent and/or the same as passing rent?
- What will be the effect on the investment value of the property?
- What do the terms of the lease state regarding the grant of consent for assignment and subletting? Are there any reasonable grounds for withholding consent?
- What is the strength of covenant of the proposed new tenant? Are there accounts and references to consider?
- Has a rent deposit been agreed? Is there an AGA clause?
- The client will need to be provided a report setting out the surveyor’s recommendations
- Obtain the client’s approve to proceed
- If consent is to be granted, a license for assignment or sub-letting will be required.
What is the Landlord & Tenant Act 1988?
Aims to ensure that a statutory duty exists on the landlord to deal with consents diligently and not be unreasonably withheld or delayed
Failure to do so can result in a successful claim for claims
What is the Landlord & Tenant (Covenants) Act 1995?
This relates to the assignment of leases
Gives landlords more scope for setting conditions regarding the approval of an assignee.
Introduced Authorised Guarantee Agreements (AGAs)
What is is AGA?
Authorised Guarantee Agreements
The most recent former tenant only to guarantee the lease obligations of the immediate assignee as a voluntary agreement to be agreed between the landlord and tenant.
What happens if the tenant defaults?
A Section 17 Notice must be served upon a guarantor within 6 months of the tenant defaulting - the guarantor must pay the arrears
Can a tenant assign a lease to its guarantor?
No
What is the RICS Professional Statement for leasing business premises?
RICS Professional Statement Code for Leasing Business Premises, 2020
What does the RICS Professional Standard: Code for Leasing Business Premises, 2020 aim to improve?
Aims to improve quality and fairness of negotiations of lease terms.
Promotes use of new HOTs to make legal drafting of leases more efficient.
What are some of the mandatory requirements of the Code?
The agreement of terms must be recorded in a heads of terms document marked ‘subject to contract’
You must advise unrepresented parties to get representation
What does the RICS Professional Standard Code for Leasing Business Premises state in regards to alienation?
Leases should allow tenants to assign the whole of the premises with landlord consent, which is not to be unreasonably withheld or delayed.
Landlords may set out circumstances as to why they would refuse but should be reasonable
Leases should allow tenants to sublet the whole of the premises and may allow subleases of parts with LL consent, which is not to be unreasonably withheld or delayed and at rent not less than market rent.
Subleases should be required to be on terms consistent with the tenant’s own lease.
What must you consider when there is an empty building?
- Building insurance - tell the insurers it is empty and note their requirements
- Maintaining the fabric of the building
- Obtain an EPC, and consider MEES
- Undertake regular inspections
- Agreement of disposal strategy and marketing initiatives
Who is responsible for insurance?
Landlord - then re-charged to the tenant
What does the insurance cover?
Cover for reinstatement of the building for a range of insurance scenarios such as:
- Fire
- Storm
- Flood
- Subsidence
- Loss of rent
What is the definition of repair?
Liability cannot arise in the absence of repair
Repair is distinct from renewal - a tenant cannot be expected to hand back wholly different premises
Tenants may be responsible for inherent defects
Repair is not an improvement
What are the four main options open to a landlord to deal with a tenant who is not repairing their property?
- Serve a repair notice
- Forfeit the lease
- Serve an interim schedule of dilaps
- Do the works and charge the tenant (Landlord’s entry to do works)
What are schedules of conditions for?
These limit the tenant’s repairing obligation in respect of agreed items of disrepair for the duration of the lease
What happens at the end of a lease when a schedule of condition has been done?
Reinstatement at the end of the lease by the tenant will be limited by the terms of the schedule of condition
When are schedules of conditions used?
Often in new lettings where LL is not prepared to undertake repairs
What is in the schedule of condition
Supporting photographs and plans
What are user clauses?
These relate to the planning use of the property and how the property can be used
What is the difference between a lease and a licence?
Street v Mountford (1995) – set out the difference:
Lease – contractual agreement where a tenant agrees to pay rent for exclusive possession for a fixed term.
Licence – Landlord grants a tenant permission the right to occupy for a fixed term without exclusive possession. Can be revoked at any time. Licences cannot be assigned
What are the four requirements of a lease?
- Exclusive occupation
- Payment of rent
- Duration for a specified term
- If more than for 3 years, the terms must be in writing, signed and registered as a deed
What does the Landlord and Tenant Act 1954 cover?
Provides security of tenure to commercial tenants
What are the advantages of granting a lease inside the act?
Tenants: Security and peace of mind - if set on the building and location
Landlords: Secure income
What are the advantages of granting a lease inside outside the act?
Landlords: Can maintain control over their property, can get rid of bad tenants and provides flexibility
What is the RICS document for estate agency?
RICS UK Commercial Estate Agency Professional Statement, 2016
What does the RICS UK Commercial Estate Agency Professional Statement outline?
Outlines 12 mandatory principles that estate agents must comply with. Examples of some below:
- Honest, fair transparent
- Carry out work with skill, care and diligence
- Ensure that clients are provided a terms of business with details of CHP
- Try to avoid conflicts of interest
- All advertising and marketing material should be honest and truthful
- Client money should be held separately
What is the Blue Book?
RICS UK Residential Real Estate Agency Professional Statement 2017
What is the Estate Agency Act 1979?
Applies to the disposal or acquisition of an interest in land.
What are the 7 key principles?
- Clarity as to the terms of the agency (Section 18)
- Honesty and accuracy
- Agreement and liability for costs.
- Openness regarding personal interests (Section 21)
- Absence of discrimination
- Legal obligation to tell the client about offers received
- Keep clients’ money separate
How does Section 18 relate to your practice?
All costs / fees must be agreed in advance and written in terms of business.
Specify the nature of agency – sole or joint
How does Section 21 relate to your letting practice?
Personal interests must be disclosed
Must tell the truth on offers received
Penalties of not complying with the EA Act 1979?
- Licence to practice can be removed
- Warning order
What is misrepresentation?
Misrepresentation of facts during negotiations which is relied upon.
What does the Misrepresentation Act 1967 cover?
Misrepresentation or false statements made in pre-contractual enquiries.
Agent has a duty of care to ensure that information is reliable.
Could be sued for damages.
What is the test to decide agents liability for damages (MA 1967)?
3 part test derived from Hedley Byrne & Co Ltd v Heller & Partners (1964):
- Foreseeability – damage is reasonably foreseeable
- Proximity – relationship is sufficiently proximate
- Fairness – fair, just and reasonable for a duty of care to arise
What legislation do you have to consider for erecting a lettings board?
Town and Country Panning Regulations 2007
What planning regulations relate to marketing boards?
- Consent required for non-residential boards over 2 sq m (flat boards), 2.3 sq m (v boards)
- Must not project more than 1m from the face of the building and not above 4.6m from ground
- Need planning for boards erected on listed buildings or in conservation areas
- Must be removed 14 days after transaction completion
- Must have owner’s approval
What are the different interests that can be marketed for a property?
New letting, assignment or sublease
What different techniques have you used to market a property?
Brochures, online portals - Agents Society, launches
What is contained in Heads of Terms?
- Address
- Term
- Options for renewal
- Break clause (If there is one?)
- Rent, frequency and rent free period
- Rent reviews, frequency and basis
- Rights to assign or sublet
- Repairing obligations
- Permitted use
- Guarantor / rent deposit
- Service charge
- Included / excluded from 1954 Act
What is included in agency terms of engagement?
- Fees
- Basis of agency (sole or joint)
- Marketing costs
- ML regulations requirements
- Details of CHP
What should you do before an acquisition?
- Agree terms with the client and have ToE signed
- Understand the client’s requirements
- Issue a search for the client and present suitable options for consideration
What are the typical requirements of your clients?
What negotiations take place for agency work?
Negotiations regarding:
* Term
* Rent / rent free
* Rent deposit
* Commencement date
What rent free period would you expect on an office lease?
Depends on the market.
In the City, typically 12 months’ rent free for a 5-year term certain or
24 – 27 months’ rent free for a 10 year term.
Often granted additional RF if a break is not exercised.
How do you calculate the net effective rent?
Headline rent, less incentive, average across term certain.
What are incentives?
- Improvements to property e.g. fittings
- Monetary incentives – e.g. rent free period, floor box contribution, etc
What is a rent penalty on a break? Why use this?
Tenant is required to pay a penalty for exercising break.
It is used where a tenant wants a reduced term certain but increased rent free.
Negatively affects income and asset value of the Landlord’s property.
Does a break clause alter the net effective rent?
Yes, because it reduces the term certain.
What is included in your marketing brochure?
Address, description, specification, location, photos, floor area, EPC rating, terms of the lease, rent, Misrepresentation disclaimer, subject to contract, agents contact details
Can you act for both the landlord and the prospective tenant?
Yes, although not best practice.
Must receive informed consent in writing from both parties and conflict must be managed. Information barrier needed.
Name the current RICS leasing and letting guidance?
RICS UK Commercial Real Estate Agency Professional Statement, 2016
RICS Real Estate Agency and Brokerage Professional Statement 2016
Can you disclose offers to other tenants?
Yes, as long as you inform both parties and have consent
How long do you have to confirm offers in writing to your client?
Offers should be put forward to client within 1 working day and followed up within 2 working days.
If the tenant’s covenant is weak, what else might you do to secure the letting?
Deposit
Guarantor
Out of 1954 act
Profits test
What checks do you undertake on a tenant?
- Covenant strength (Credit safe report)
- Company accounts (profits test)
- AML checks (CDD / EDD) – If rent is over £8,250 a month
What is the profits test?
Tenant must provide 3 years audited accounts showing net profit of 3 x annual rent.
Where is a deposit held?
In a designated bank account, clearly labelled.
How much is a rent deposit?
- 3 – 6 months
- Can be higher if covenant is weak
Who keeps interest accrued on a deposit?
To be predetermined and agreed beforehand.
What is an agreement for lease?
A contract between 2 parties to enter into a lease at some point in the future.
Examples of use: when a building is not yet complete
What are the EPC requirements for letting a property?
Since April 2018, to let a property you now must have a minimum EPC rating of E (MEES 2015).
Minimum standards are expected to increase to C by 2027 and B by 2030.
Must be included in marketing brochures.
If a Tenant was about to vacate a property and you had not secured a new tenant for your client yet, what would you advise them?
To apply for empty business rates.
* 3 months for commercial properties
* Additional 3 months for industrial (6 months)
What other buildings are exempt from business rates?
- Agricultural land and buildings
- Buildings used for training / welfare of disabled people
- Buildings used for public religious worship or church halls
- Listed buildings don’t pay business rates if empty but will once re-occupied
What is the current business rates multiplier?
- Standard multiplier – 51.2p
- Small business multiplier – 49.9p
What questions do you ask on an inspection?
- Ask for asbestos register and fire safety register
Was your property VAT elected?
Charities and financial institutions cannot be VAT elected.
Will ask client to contact an accountant as I’m not well versed in tax.
How do you know your property was VAT elected?
My client provided documentation from HMRC opting in to VAT.
When is the abortive fee payable?
When there is a willing lessee and lessor, however the client wants to pull out.
What are the penalties of the Misrepresentation Act 1967?
At what point does a document become legally binding?
On exchange - each parties holding signed document
What is a Health warning?
A document that a landlord serves to a tenant under the Landlord and Tenant Act (LTA) of 1954 to inform them that their lease will not include security of tenure
What is the abortive fee?
How would you negotiate an AGA
