Leasing & Letting

Question 1

What is the hierarchy of evidence for
establishing Market Rent?

Answer 1

Open market lettings
Lease renewals
Rent reviews
Third party determinations
Sale and leasebacks
Inter-company transactions

Question 2

What is the main RICS Professional Statement and what did this replace

Answer 2

RICS Professional Statement: Code for Leasing Business Premises 2020.
Replaced the 2007 code

Question 3

What is the objective of the RICS PS Code for leasing business premises 2020

Answer 3

Objective of the code is to improve the quality and fairness of negotiations on lease terms

Promote the use of new set of comprehensive HoTs to make legal drafting more efficient.

Question 4

What is the structure of the code?

Answer 4

Introduction
Mandatory requirements
Lease negotiation best practice
Appendices.

Question 5

What are the mandatory requirements of the Code.

Answer 5

1 - Negotiations must be approached in a constructive and collaborative manner.

2 - Party that is unrepresented by RICS member or other property professional must be advised about the existence of the code.

3 - The agreement as to the terms of the lease on a VP letting must be recorded in written Heads of Terms that is subject to contract

4 - Lettings should aim to produce terms that achieve a fair balance between parties having regard for respective commercial interests.

Question 6

What areas does Part 3 provide advice on?

Answer 6

Rent deposits, rent reviews, service charges, repairs and alienation clauses.

Question 7

What lease terms affect value

Answer 7

Length.
Break clauses
Alienation
Repairing Obligations
User clauses
Rent Review
Security of tenure provisions.

Question 8

What is a lease?

Answer 8

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

Question 9

What is the difference between assignment and subletting

Answer 9

Alienation = transfer the lease to another party who takes over occupation and responsibility for the lease obligations.

Sublease = new lease agreement.

Question 10

When does the Estate Agents Act 1979 apply?

Answer 10

Disposal or acquisition of an interest in land.
Freehold property
Leasehold property with a capital value
Land as well as buildings`

Question 11

What are the 7 key points

Answer 11

Clarity as to he terms of the agency (Section 18)

Honest 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.

Question 12

Which clauses are preferable for the LL in a lease

Answer 12

Term certain
Rent Review
Rent
Break Clause
Service Charge

Question 13

Which clauses are preferable for the tenant in a lease

Answer 13

Break clause,
Repair clause
Rent
Alienation
LTA / security of tenure

Question 14

L2 Industrial Unit. What rent did you achieve for the short - term letting. Where their any advantageous clauses?

Answer 14

Achieved £25 psf which was a reasonable rent for the lease offering.

One year lease with rolling breaks contracted outside section 24-28 of the LTA.

Question 15

L2 industrial unit. How did you determine market rent

Answer 15

Reviewed nearby comparables such as PGD and determined a market rent of £30 psf. Given the nature of the lease this was discounted to avoid tenants vacating.

Question 16

L2 Industrial Unit - What was included in the draft heads of terms

Answer 16

Subject to contract
LL & Tenant details
Solicitor details
Unit details (2,500 sqft)

Question 17

L2 Industrial Unit - what are engrossments?

Answer 17

An engrossment is the final printed version of a particular document following agreement of terms that is then going to be signed by the parties.

Question 18

L2 - What is a rent deposit deed and why is it separate from the lease

Answer 18

A seperate document to specifify how and where the deposit is held in a seperate bank account.

Provides clauses for which the LL can retain the deposit if the tenant defaults or breaches the lease.

Question 19

L2 - PR TofE - what was included in the agents pitch / presentation

Answer 19

• Market / sub-market description
• Market comparable
• Target occupier mix
• Other similar schemes they have acted on.
• Initiatives

Question 20

L2 TofE - What was included in the agents TofE

Answer 20

• Confirmation of Client
• Acknowledgement of appointment (sole or joint)
• Services. Which include Market analysis, campaigns, inspections, reporting, negotiating.
• Letting fee (7.5% for joint agent) 8.5% if above ERV.
• Marketing expenses.
• VAT
• Data Security
• Conflicts of Interest.

Question 21

L3 PR - How did you go about surrendering the existing lease

Answer 21

Through Blooms KYC intiitve I was aware the tenant wanted to vacate the unit. He had missed his break date prior to Blooms acquisition

We communicated that pursuant to terms being agreed with a neighbouring tenant that an express surrender could be agreed.

Also arrears were paid.

Inspection of the unit prior to vacating

Solicitors where instructed to draft a deed of surrender.

Question 22

L3 PR - what ERV had been underwritten?

Answer 22

Headline rent of £37.5psf = c.£103k pa.

Question 23

L3 PR - How did you calculate the Net Effective rent

Answer 23

Net effective rent is calculated by multiplying gross rent by the length of the lease (term certain) - the discounted months you’re given by the property owner.

Then, you divide the amount by the length of the lease. Finally, you subtract the calculated amount from the gross rent to get your net effective rent.

Question 24

L3 Fulham - What is liquidation

Answer 24

Liquidation is the process of closing a business and distributing its assets to claimants.

Insolvency created as the tenants can no longer meet financial obligations such as rental payment.

Question 25

How did you know the lease was granted during Covid

Is their any guidance on this?

Answer 25

I read the lease and was aware that the lease commencement date was during the pandemic.

Code of Practice for commercial property relationships during the COVID-19 pandemic 6 April 2021 updated November 21