Leasing/Letting Flashcards
What is the Code for Leasing Business Premises 2020?
A RICS Professional Statement that aims to improve the quality and fairness of negotiations on lease terms and promote the use of a new set of comprehensive heads of terms
What is the structure of the Code for Leasing Business Premises?
- Introduction
- Mandatory requirements
- Lease negotiation best practice
- Appendices
What are the mandatory requirements mentioned in part 2?
1.1 Negotiations must be approached in a constructive manner
1.2 Unrepresented parties must be advised by the other party that this code exists and they should recommend they obtain professional advice
1.3 The agreement must be recorded in written heads of terms that are stated as subject to contract
1.4 Lease renewal heads of terms must comply with the above
1.5 Negotiations should aim to produce letting terms that achieve a fair balance between parties
What does Part 3 of the code talk about?
Specific advice on lease terms to include rent deposits, rent reviews, service charges, repairs and alienation clauses
What is included in the appendices of the code?
Detailed template heads of terms
Including:
Extent of premises
Length of term
Whether inside or outside the act
Requirements for rent deposit
Rent and frequency of payment
Whether VAT is included
Rent free periods
Permitted use
Rights to assign/sub let
Repairing obligations
Rights to make alterations
What is the profits test?
If net profit for the proposed tenants business is 3 times the rent for 3 consecutive years
Or
If net asset value of the business is more than 5x the rent
What should be requested if the proposed tenant has a poor covenant strength?
Additional security such as a rent deposit or guarantee
What information is requested from a potential tenant?
Bank/accountant reference
Previous/existing landlord reference
3 years audited accounts/credit rating
What is a rental deposit?
Personal to the tenant
Must be legally documented in a rent deposit deed
Needs to include agreed terms for release of money
What should you ask yourself when looking at a break clause?
What is the required notice period?
Mutual or in favour of one party?
Is there a penalty rent?
Has the tenant met the conditions (e.g. full payment of rent/returning premises in good order)
What is the difference between a lease and a license?
Lease grants a legal interest in land whereas license is just personal right to occupy
Lease can be assigned but license can’t
Lease can’t be terminated before expiry but license has flexibility to be terminated any time
What does Street v Mountford (1985) state a lease is?
Gives exclusive possession for over six months
Payment of a rent
Duration of a specified time
What is section 24 of the LTA Act?
Relates to security of tenure
Business tenancy does not expire due to time and only when one party serves notice
What is section 25 of the LTA Act?
Landlord serves notice on tenant (6-12 month before end of tenancy) to either extend or end lease
What is section 26 of the LTA Act?
When the tenant serves notice requesting a new tenancy
What is section 27 of the LTA Act?
When a tenant serves notice to end the lease
Has to give 3 month notice if after initial expiry date
What is section 30 of the LTA Act?
Grounds for refusal of new lease
A) breach of repair
B) persistent delay in paying rent
C) other substantial breach
D) provide suitable alternative accommodation
E) uneconomic subdivision
F) demolition or reconstruction
G) owner occupation
Why would a lease be granted outside the act?
Landlord wants flexibility
Landlord wants to occupy in future
As it is a subletting
What does landlord have to do if it will be outside the act?
Serve notice to the tenant warning that the proposed lease will not be protected and that the tenant will get no compensation if they have to leave
Tenant signs declaration which is attached to lease
How big can a commercial board be?
2 sqm (flat)
2.3 sqm (v board)
How big can a residential board be?
0.5 sqm flat
0.6 sqm v board
When do boards need to be removed after a transaction completes?
14 days
What are some other laws relating to boards?
Only one allowed per building
Need consent to put on listed building
Restrictions in some areas (E.g. black and white in Mayfair)
Can’t be illuminated
How far away from wall can board be?
Can’t project more than 1m from face of building or above 4.6m from ground
Why would an occupier pre-let a property?
If there is a market shortage or if they need specific facilities - can get a building designed to their needs
However, lengthy process with risk that developer doesn’t deliver
What needs to be attached to an agreement to lease?
The lease in a pre agreed form
License for alterations
Specification and plans
Warranties from professional team/contractors
What is the difference between assigning and subletting?
Assignment - existing tenants rights and interests are transferred to a new party (original tenant no longer liable if new tenant breaches lease)
Sub-lease - separate contract between original tenant and sub tenant (original tenant shares rights and responsibilities still)
What are some ethical standards to know when doing a deal?
Conduct business honestly and transparently
Do not discriminate unfairly
Ensure marketing material is truthful
Provide clients with terms of engagement
Avoid conflicts of interests
Who is the principal?
The client (person you’re acting for)
What is sole agency?
Fees are payable when contracts for sale of property is exchanged (after principal agent introduces)
Joint sole agency - agents split the fee
Multiple sole agency - only person who introduces gets fee
What are sole selling rights?
When you get the fee even if someone else makes the introduction
Why do you put a disclaimer at the bottom of your particulars?
To protect yourself from 2 civil issues (misrepresentation/misstatement)
Even if others (agents/solicitors) don’t see your mistake, your name is on particulars so you are at fault
What are misleading omissions according to the Consumer Protection from Unfair Trading Regulations 2008?
Important material (E.g. that there is a service charge)
Hiding material information
Providing ambiguous/untimely information
What is fly boarding?
Putting boards on someone else’s property
What regulations do the Advertising Standards Authority impose?
Can’t be misleading on advertising (e.g. claiming to be the leading agent)
Includes advertising on boards, website, magazines etc
When do letting agents need to check for money laundering?
If property is let for more than one month at more than £8,500 pcm
Check both the tenant and landlord
What is the process of a letting?
Let subject to contract (heads of terms)
Investigate title (right to let)
Contract for let drafted
Transfer deed
Exchange
Complete
What are the most important parts of the Estate Agents Act 1979?
It is not legal for lettings (except assignments) but is best practice guidance
Specify all costs in advance in terms of business
Itemise all payments (marketing, expenses etc)
State nature of agency and selling rights to be agreed
Legal obligation to tell client about all offers received
Personal interests in a property should be declared
What are the punishments for failing the misrepresentation act?
Damages
Ripping up contract
