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APC ASSESSMENT > Leasing And Letting (Level 3) > Flashcards

Leasing And Letting (Level 3) Flashcards

1
Q

What is the key RICS Professional Statement on leasing/letting practices?

A

RICS Code for leasing business premises, 2020

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2
Q

When does RICS Code for leasing business premises, 2020 become effective?

A

1st September 2020

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3
Q

What is the aim of RICS Code for leasing business premises, 2020?

A
  • Improve the quality and fairness of negotiations on lease terms
  • Promote the issue of comprehensive heads of terms to make the legal drafting process more efficient
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4
Q

What are the FOUR sections of the RICS Code for leasing business premises, 2020?

A

Part 1: Introduction
Part 2: Mandatory requirements (Negotiations and heads of terms)
Part 3: Lease negotiation best practice
Part 4: Appendices
(Appendix A - Template heads of terms and checklist; Appendix B - Guide for landlords and tenants)

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5
Q

What does the RICS Code for leasing business premises, 2020 say with regards to the negotiations of heads of terms?

A
  • Must be approached in a constructive and collaborative manner
  • An unrepresented party must be advised about this code and must be recommended to obtain professional advice
  • The agreed terms of a lease must be recorded in written heads of terms and must summarise the position on a number of aspects
  • Negotiations should produce letting terms that achieve a fair balance between the parties commercial interests
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6
Q

What items must be addressed in the heads of terms according to the RICS Code for leasing business premises, 2020?

A

ANY PARTY NOT REPRESENTED BY RICS MEMBER MUST BE ADVISED ON THIS CODES EXISTENCE AND ITS SUPPLEMENTAL GUIDE AND MUST BE RECOMENDED TO SEEK PROFESSIONAL ADVICE.

Negtoations always without prejudice and subject to contract.

  1. Identity and extent of the premises (Land registry-compliant plan provision)
  2. Length of term and whether it is outside or inside the Landlord and Tenant Act 1954
  3. Options for renewal or break rights
  4. Requirements for a guarantor and/or rent deposit
  5. Amount of rent, frequency of payment and whether exclusive of business rates
  6. Whether the landlord intends to charge VAT on the rent
  7. Any rent-free period or other incentive
  8. Any rent reviews including frequency and basis of review
  9. Liability to pay service charge and/or insurance premiums
  10. Right to assign, sublet, charge or share the premises
  11. Repairing obligation
  12. Initial permitted use and whether any changes of use will be allowed
  13. Rights to make alterations and any particular reinstatement obligations
  14. Any initial alterations or fit-out (if known)
  15. Any condition of the letting, such as subject to surveys, boards approvals or planning permission
  16. Any special rights such as parking
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7
Q

What is contained within Appendix A of RICS Code for leasing business premises, 2020?

A

Template head of terms and a checklist, which can be used should the landlord wish to use their own form of heads of terms document

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8
Q

What is contained within Appendix B of RICS Code for leasing business premises, 2020?

A

Guide for landlords and tenants

  • Supplemental to the professional statement and does not hold mandatory status
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9
Q

What is a lease?

A

A binding contract in law that sets out the terms and conditions of the tenancy between parties and defined their rights and obligations

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10
Q

What does it mean to ‘assign’ a lease?

A

Transfer the lease to another party who takes over occupation and responsibility for the lease obligations

Leases should allow tenants to assign the whole of the premise with landlord consent , which is not to be unreasonably refused

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11
Q

what grounds can a landlord refuse assignment of a lease?

A

arrears of rent, service charge, insurance

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12
Q

what should leases provide regarding assignment?

A

AGA

any existing guarantor is to guarantee that the assigning tenant complies with the AGA, and/or the assignee is to procure a new guarantor and/or rent deposit.

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13
Q

What does it mean to ‘sublet’ a property?

A

Existing tenant continues to hold the lease and pay rent to the landlord but sublets the space to another party, from whom the tenant will in turn collect rent.

without security of tenture

Leases should allow for sublet with landlord consent, not to be unreasonably refused.

subleases excluded from statuatory renewal rights

sublease of part to be agreed on different terms if appropriate.

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14
Q

What is an AGA?

A
  • Authorised guarantee agreement
  • Requires the tenant who assigns a lease to guarantee the performance of the lease obligations by the party to whom the lease is assigned
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15
Q

What provisions can there be in the lease to mean that a tenant does not require an AGA to assign a property?

A
  • If the new tenant is financially strong enough
  • If the new tenant pays an appropriate rent deposit and/or provides suitable guarantor
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16
Q

What is a ‘schedule of condition’?

A
  • Record of the condition of the property
  • Written description of the property or a set of photographs or both
  • Referred to in the lease and attached to it or kept with it
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17
Q

What should be the only condition on a tenant being able to exercise a break option, according to the RICS Code for leasing business premises, 2020?

A

Should only be conditional on the rent having been paid

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18
Q

What details with regards to the rent deposit should be included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Amount (including whether it will include VAT)
  • Time it will be held
  • Whether it will be security for only the rent or all the tenant’s obligations under the lease
  • Circumstances under which the deposit will be returned to the tenant with any accrued interest
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19
Q

What details with regards to the rent review should included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Proposed frequency of rent review
  • Method of rent review
  • Definitions of market rent should not result in a “headline rent” being adopted
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20
Q

What details with regard to the service charge and insurance payments should the landlord provide an indication of, according to the RICS Code for leasing business premises, 2020?

A

Should provide an estimate of service charges and other insurance payments

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21
Q

What is said with regards to assignment in RICS Code for leasing business premises, 2020?

A

Leases should allow tenant to assign the whole of the premises with the landlord’s consent, which is not to be unreasonably withheld or delayed

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22
Q

If a tenant’s repairing obligation are to be limited to the initial condition of the premises, what is required according to the RICS Code for leasing business premises, 2020?

A

Schedule of condition

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23
Q

Depending on the prevailing market conditions and strength of the tenant covenant, what can the landlord request for additional security if there is a tenant with a weak covenant strength?

A

Rent deposit
* Guarantor/personal guarantee

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24
Q

What should the landlord do when holding a rent deposit?

A
  • Personal to the tenant and attached to the lease as a separate deed
  • Legally documented in a rent deposit deed
  • Money held in a separate bank account
  • Interest retained by the tenant
  • Agreed terms for the release of the monies
  • Details of the release mechanism to be stated in the deed
  • Can include top up mechanisms for rent review uplift
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25
Q

What information would you typically request from a tenant when looking to assess their suitability?

A

Previous/existing landlord’s reference

3 years audited accounts

Credit rating (Credit Safe)

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26
Q

What test can you use to assess the financial suitability of a tenant?

A

Profits test: net profit for the proposed tenant’s business must be 3 times the rent for 3 consecutive years

(or the net asset value of the business must be more than 5 times the rent)

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27
Q

What are the main lease terms that impact on the value of a property?

A
  • Lease length / term certain
  • Break clauses
  • Alienation
  • Repairing obligations
  • User clauses
  • Rent review pattern and mechanism
  • Security of tenure provisions (whether lease is inside or outside the Landlord and Tenant Act 1954)
  • Restrictive lease clauses
  • Planning use
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28
Q

What are the key things to consider when it comes to break clauses in a lease?

A
  • Whether it is mutual or in favour of one party
  • Whether time is of the essence
  • What the required notice period is
  • Whether there is a penalty to be paid if the lease is terminated
  • Whether the right to break the lease is dependent on preconditions being met
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29
Q

What are the typical conditions that are required to be met for a tenant to have the option to break their lease?

A
  • Compliance with their covenants
  • Payment of all rent and other sums due
  • Vacant possession
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30
Q

When is an occupier going to be more willing to consider a pre-let?

A

If there is a market shortage
* They need specific facilities

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31
Q

What is the main advantage of a tenant pre-letting?

A

They can have a bespoke building designed to suit their needs

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32
Q

What is the main disadvantage of a tenant pre-letting?

A

There is a level of risk in the event of the developer or contractor not performing

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33
Q

When a tenant pre-lets a building, what documents would typically be attached to an Agreement to Lease?

A
  • The Lease in a pre-agreed form, which shall be executed once the developer has fulfilled its obligations - usually 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 form the professional team, main contractor and any sub contractors
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34
Q

If a landlord is seeking to limit a tenant making changes to the property, what will they typically require?

A

Licence to Alter

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35
Q

What did the changes in 2020 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations require letting agents to do?

A
  • Letting agents have to register with HMRC within 12 months of May 2020 if they let individual properties for more than the equivalent of €10,000 per month
  • Where they undertake lettings of properties for more than €10,000 per month, they will have to undertake CDD check on landlords and tenants on any new letting or subletting
  • EDD will have to be undertake when any red flags occur
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36
Q

Why might a freeholder not be supportive of a tenant subletting the property?

A
  • If they let it below market rent, it could set a new rental tone for the area. Leaseholder is simply trying to reduce their liability and so may accept below market rent
  • Sub-tenant may not perform the covenants of the lease e.g. repairing obligations
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37
Q

What different types of alienation provisions can there be in the lease?

A
  • Assignment: transfer the lease
  • Sublet: under-let the premises
  • Sharing occupation: share occupation of the premises
    with a third party e.g. concession stand within a retail store
  • Charging: charging the lease to a lender i.e. used as security for a debtor
38
Q

When calculating what a property should be let for, would you do this on a headline basis or net effective basis?

A

Typically would calculate it on a headline basis but having regard to the tenant incentive granted

39
Q

On what grounds can a landlord reasonably refuse permission for a tenant to sublet or assign their interest?

A
  • Landlord must be satisfied that the assignee is able to pay the rent and comply with the lease covenants in the case of an assignment
  • Where a landlord owns numerous units, they are entitled to consider the type of business of the proposed tenant and whether it complies with their tenant mix policy
  • A landlord can refuse consent if the tenant will adversely affect the landlords existing rights and interest in the property
40
Q

After you have instructed solicitors, is there anything you would do to ensure that the leasing completes?

A
  • Ensure that conditions are met e.g. planning permission
  • Offer firms other services e.g. a building surveyor to conduct a schedule of condition
  • Answer any queries which the solicitor may have e.g. CPSEs
41
Q

What is an engrossment?

A

An engrossment is the final printed version of a lease that is then executed by the parties

42
Q

What typically occurs with the engrossment of the lease?

A

There will an engrossment of the lease and an engrossment of the counterpart lease. The tenant ends up with the lease executed by the landlord and the landlord ends up with the counterpart executed by the tenant

43
Q

what is a notional fit out period

A

assumed or stanard amount of time allocated to the completion of fit out. Helps smooth negotiations by giving tenants time they need to prepare the space without charging rent during that time.

44
Q

What is RICS UK Commercial Estate Agency Professional Statement 2016

A

Professional statement therefore mandatory
Useful guidance on ethical approach

Chapters covering

Standards and ethics
Securing instruction
Disposals (covers marketing)
Implementing disposal
Acquisitions
Ending the instruction

45
Q

What is the Estate Agents Act 1979?

A

Governs the work of an estate agent (someone dealing with the disposal or acquisition of interests in land or property).

The main sections are section 18 (terms of engagement) and section 21 (declaration of personal interests).

Also includes:

Acting honestly and accuracy
legal obligation to tell client about offers (section 3).
Keep clients money seperate
Absence of discrimination
Agreement and liability of costs

46
Q

What would you typically find in a lease?

A

Landlord
Tenant
Property name and address
Rent
Rent payment frequency
Term
Start date
Expiry date
Review pattern
Whether inside or outside the 1954 act
Any tenant or landlord breaks
Alienation clause
Repair obligations

47
Q

What is an FRI lease?

A

Full repairing and insuring (landlord has no insuring or repairing liability and this is down to the tenant).

48
Q

What is an IRI lease?

A

Internal Repairing and Insuring - Tenant is only liable for insurance, maintenance, decoration and repairs for the internal areas of the property

49
Q

What are the pros and cons of an FRI lease?

A

Property is restored to a good state at the end of the lease / less obligations to landlord.

If not FRI can potentially negatively affect investment value or landlords ability to borrow against the property

50
Q

What are the pros and cons of IRI lease?

A

Less obligations to the tenant - however rent can be higher as a result.

51
Q

What is an easement?

A

Permanent right and receives a capital payment e.g. where a third party, individual or utility company has a right to use the owners property for a particular purpose such as passing by foot or vehicles over the property.

52
Q

What is a wayleave?

A

Temporary right and receives an annual payment - such as electricity company to install and retain their equipment

53
Q

What is the difference between subject to contract and without prejudice?

A

Subject to contract means exactly that and nothing is binding until the point that the contacts have been issued and signed.

Without prejudice - during a period of negotiations, the opposing party cannot rely on any document or discussions labelled with this during litigation (cannot be shown to arbitrator or independent expert).

Privilege against disclosure.

54
Q

What is the difference between a lease and a license?

A

A lease is a contractual agreement where a tenant pays a rent for a fixed term and has exclusive occupation.

A license is where the landlord grants permission to use the property for a specific purpose and can be terminated at any time. They acquire no interest in the property.

55
Q

What is alienation?

A

Right granted in the lease for a tenant to assign, sublet or share occupation of their property.

56
Q

What are the requirements of a lease?

A

Exclusive occupation
Specified term
Rent
If more than 3 years term must be in writing and stated as a dead

57
Q

What is the landlord and tenant act 1954?

A

Governs rights and obligations of landlords and tenants of premises occupied for business purposes.

58
Q

What must be in place to gain protection from the 1954 act

A

Agreement is a tenancy
Used for business
Occupation of at least part of the business by the tenant
Occupancy of more than 6 months
Must not be an exempted or excluded tenancy
must be a competent landlord

59
Q

What is stated under section 24 of the 1954 act?

A

A business tenancy to which the act applies will not come to an end until either the landlord or tenant serves notice to terminate.

60
Q

What is a section 25 notice?

A

Landlords notice to terminate the lease

(Served no more than 12 and not less than 6 months before the date of termination to be specified)

61
Q

What is a section 26 notice?

A

Tenants notice requesting new tenancy

62
Q

What is a section 27 notice?

A

Notice to be served by the tenant at any time if they want to leave with 3 month notice after lease expiry.

63
Q

Under section 30 what are the grounds for refusal to a new lease?

A

A - breach of repairing covenant
B - Persistent delay in paying rent
C - Other substantial breach
D - Provide suitable alternative accommodation
E - Uneconomic sub division (compensation payable)
F - Demolition or construction (compensation payable)
G - Owner occupation (compensation payable)

64
Q

What is AGA?

A

Authorised Guarantee Agreements - obligation of outgoing tenant to guarantee the performance of a new tenant / assignee.

65
Q

What is the Misrepresentation Act 1967?

A

This act relates to misrepresentations or false statements made by the party during the pre contractual enquiries which can ensure them to purchase. It is in place to ensure ensure you provide factual and truthful information.

You can either be
Fraudulent
Negligent
Innocent

66
Q

What are the likely repercussions / penalties if you made a fraudulent statement?

A

This is a civil offence and can involve a warning order / prohibition order and / or fine.

67
Q

Q - you say you understand the process involved with leasing and letting properties can you talk me through this?

A

Receive instruction
Check competence / independence
Terms of engagement
Signed terms
Complete AML
Gather info
Inspect and measure
Comparable
Rental value
Prepare marketing details
Market
HOTs
Instruct
Complete
Invoice

68
Q

What Is an assignment?

A

Transfer of an existing lease by a current tenant to a new tenant with consent from landlord.

69
Q

What is are the benefits of assigning a lease?

A

Allows existing tenant to vacate a premises before agreed expiry date

70
Q

What is a sub-let?

A

Existing tenant let’s whole or part of the property to a sub tenant.

71
Q

When might you sub-let rather than assign?

A

If you wanted to take back full occupation of the premises in the future but perhaps needed some assistance with paying rent at the particular time

72
Q

What is an open market letting?

A

Where you market the property openly and agree a deal between a willing lessor and willing lessee

73
Q

What are long leaseholds?

A

This would refer to a longer term lease agreement such as 125 year or 999 year for example.

74
Q

What is the RICS Real Estate Agency and Brokerage Statement 3rd edition 2016?

A

Professional statement that applies to all RICS members involved with the sale, letting, leasing and management of real estate.

75
Q

What topics are covered in the Real Estate Agency Brokerage Statement 3rd edition 2016?

A

Ethics
Securing instructions
Acting for the seller: marketing
Acting for the seller: agreeing sale or lease
Acting for the buyer
Ending the instruction
Safety and security
Agency management

76
Q

What is the code for leasing business premises 1st edition 2020

A

Professional statement outlining the mandatory requirements for members when negotiating leases and outlines model HOTs

Intro
Mandatory requirements - must record in HOTS with min requirements
Lease negotiation best practice
Appendices

77
Q

What do you mean by fully fitted?

A

The property was fully operational and in a condition that was ready to open the doors and start trading with all fixtures and fittings.

78
Q

What is shell and and core condition?

A

Basic structure of the building (shell) is in place but without finishes or fixtures and fittings. So it is left to the operator to fit out how they want.

79
Q

What is category A fit out?

A

Fully functional but empty space with basic installations and mechanical and electrical services.

80
Q

What is Category B fit out?

A

Space is fully fitted and tailored to the tenants fit out requirements.

81
Q

Are there any restrictions on what a tenant can do in regard to subletting or assigning their leasehold interest?

A

Will depend upon the terms within the lease

82
Q

You say you ordered a To Let board, what is the ruling around this?

A

Require planning permission on listed buildings or in conservation areas etc.

Must be prior approved by client.

Cannot protrude out more than 1m or be bigger than 2 sqm or 2.3 sqm for v board.

83
Q

What lease terms can affect value?

A

Rent review pattern
Covenant strength
Rent
Any incentives? (Rent free etc)
Repairing / decorating obligations is it FRI or IRI
Alienation clauses
Rent review provision

84
Q

You say you produced a Mail shot when letting the property what did you consider when doing this?

A

I had regard to the Data Protection Act 2018 and UKGDPR and the rights of the individual I also contacted operators who had requirements for this type of site.

85
Q

You say you organised an EPC to be assessed, what are the rules and these?

A

Any commercial property above 50sqm that is newly built sold or let for a period of 6 months or less than 99 years must have an EPC.

Lettings - E or better

86
Q

How long must an EPC be commissioned within?

A

7 days

87
Q

What are the penalties if EPC not displayed on marketing material?

A

Penalties around marketing are 12.5% of RV with a minimum fine of £500 and max of £5,000.

88
Q

What is market rent?

A

Estimated amount for which interest in real property is expected to be let on the valuation date.

On appropriate lease terms
Between a willing lessor and willing lessee
After proper marketing
In an arms length transaction
Where all parties have acted knowledgeably, prudently and without compulsion

89
Q

You mention a landlords legal obligations to provide statutory documents to any new tenant what do you mean by this?

A

Well an EPC of an E or better must be provided but the the landlord will also have an obligation to ensure gas safety compliance and they will need establish who is responsible for the likes of fire safety, electrical safety, and health and safety compliance for example.

90
Q

How did you present offers to your client?

A

I provided these in an excel spreadsheet but excluded any personal data so I did not break any GDPR ruling.

91
Q

You say you negotiated the headline lease terms and issued HOTS can you tell me what was included?

A

Date
Full property address
Tenant
Landlord
Agent
Both solicitors
Rent
Rent payment frequency
Term
Rent review pattern
Rent review provision
Any incentives
Repairing / decorating / insuring obligations
Type of lease FRI
Alienation clauses
Timescales

92
Q
A

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