Leasing & Letting Flashcards
1
Q
What RICS guidance do you follow when Leasing & Letting?
A
The RICS Professional Statement: Code for Leasing Business Premises (2020)
RICS Professional Statement: Commercial Real Estate Agency & Brokerage (2016)
2
Q
What is the purpose of the Code for Leasing Business Premises (2020)?
A
To improve the quality and fairness of negotiations on lease terms.
To provide a comprehensive set of Heads of Terms to make the legal drafting process more efficient.
3
Q
What is the structure of the Code for Leasing Business Premises (2020)?
A
Part 1 - Introduction (Sets out it’s objective)
Part 2 - Mandatory Requirements (Negotiations & Heads of Terms)
Part 3 - Lease Negotiation Best Practice
Part 4 - Appendices
(Appendix A - Template Heads of Terms + checklist)
(Appendix B - Guide for Landlords & Tenants) - supplementary to the code and is not mandatory.
4
Q
What does the Code for Leasing Business Premises (2020) say with regards to the negotiations of Heads of Terms?
A
- Negotiations must be in a CONSTRUCTIVE and COLLABORATIVE manner
- An unrepresented party MUST be advised about the existence of the code and must be recommended to obtain professional advice.
- The agreed terms of a lease MUST be recorded in written Heads of Terms, stating ‘Subject to Contract’, and summarise a number of key points in the HoTs.
- Any lease renewals or extensions MUST follow minimum Heads of Terms requirements, unless stated to follow previous lease terms.
- Negotiations should demonstrate a FAIR BALANCE between the parties on commercial terms.
5
Q
Can you summarise what is included in Heads of Terms? Just give a handful of points?
A
The extent of the premises (size, sq ft)
Length of the term
Whether it is Inside or Outside the Landlord & Tenant Act (1954)
Any break options
Any requirement for rent deposit / guarantor.
Amount of rent and frequency of payment
Any rent free period / other incentives
Service charge payable and/or building insurance
Whether VAT is payable
Rent review provisions
Alienation provisison (sublet/assign)
Repairing obligations
Permitted Use
6
Q
What does Part 3 of the Code for Leasing Business Premises (2020) state about lease negotiation best practice?
A
This provides best practice advice on specific lease terms to include:
- Rent deposits.
- Rent reviews.
- Service charges
- Repair clauses.
- Alienation clauses.
7
Q
What is contained in Appendix A & B of the Code for Leasing Business Premises (2020)?
A
Appendix A = Template Heads of Terms & Checklist.
Appendix B = A guide for landlord and tenants (this is supplementary to the code and is not mandatory).
8
Q
What legislation do you have regard for when Leasing & Letting?
A
Estate Agents Act (1979)
Consumer Protection Regulation (2008)
Misrepresentation Act (1967)
Town & Country Planning Regulations (2007)
9
Q
When does the Estate Agents Act (1979) apply?
A
Disposal or Acquisition purposes
Freehold property
Leasehold property
Land as well as buildings
10
Q
What are the key principles within the Estate Agents Act (1979)?
What are the 6 principles in the Estate Agents Act (1979)?
(COMMON QUESTION - TaylorMade book).
A
- Agents must act with Honesty & Accuracy
- Section 18 - Clarity on Terms of Engagement (ToE) and basis of agency clearly outlined.
- NO DISCRIMINATION (all have equal opportunity)
- Section 21 - Disclose any Personal Interests (‘Connected Person’ who could benefit from the transaction).
- EAA says that you MUST report ALL offers recieved to the client (promptly & in writing).
- EAA says you MUST keep Client’s Money Separate (separate named bank account with the word ‘client’).
11
Q
What does Section 18 of the Estate Agents Act (1979) say?
A
Section 18 = Clear Terms of Engagement and clarity on basis of agency.
- All costs/fees must be specified in advance, in writing, in ToE.
- Sole, Joint or Multiple agency basis (clearly outlined).
12
Q
What does Section 21 of the Estate Agents Act (1979) say?
A
Section 21 = Disclose any personal interests.
- Disclose any ‘Connected Person’ who could benefit from the transaction.
13
Q
What are the penalties for non-compliance with the Estate Agents Act (1979)?
A
Policed by the National Trading Standards
- Warning Order (if it’s agents first offence)
- Prohibition Order (will prevent the agent from practising).
Failure to comply = criminal offence.
14
Q
What are the different bases of agency?
A
- Sole Agency (Only one agent gets the fee).
- Joint Agency (Two or more agents sharing the fee on a pre-arranged basis).
- Multiple Agency (More than 2 agents but only the successful agent gets the fee
15
Q
What are sole letting rights?
A
(Same as sole selling rights just for letting)
Fee due if let during the agency agreement - even if the agent does not introduce the tenant.
Private introductions = included in the agents fee.
16
Q
What does the RICS Professional Statement: Commercial Real Estate Agency & Brokerage (2016) say? A few takeaways?
A
Mandatory Professional Statement
Outlines principles of fairness and transparency that underpin all aspects of commercial agency.
Various topics such as:
- Ethics (CoI checks, duty of care)
- Securing Instructions (ToE)
- Disposals (marketing the property)
- Implementing the disposal
- Acquisitions
- Ending instruction
- Safety and security
- Agency management
It also sets out 12 core principles such as acting honestly, due diligence, clear ToE, NO discrimination.
17
Q
What would you advise in terms of AML?
A
All letting agents MUST register with HMRC if they let property for more than €10,000/month or more
At least CDD checks on the landlord AND the tenant.
18
Q
When would an occupier consider a pre-letting?
A
When the building is a high quality, newly refurbished scheme
When there is a shortage of supply in the market
When the occupier requires specific facilities to satisfy their needs (that are in short supply).
19
Q
What would be the advantages and disadvantages of a pre-letting for an occupier?
A
+VE = The occupier has a new building designed to suit there needs.
-VE = Entering into a lengthy and complex process, risk of the developer / contractor not performing.
20
Q
What is an Agreement for Lease (AfL)?
(What would you need to do if agreeing terms on a pre-letting)?
A
An Agreement for Lease = a contract between two parties to enter into a lease in the future.
It may grant the tenant a licence to enter into the premises … BUT it is not a tenancy (lease) in itself and does not allow a tenant many legal rights over the property.
21
Q
When would an Agreement for Lease (AfL) be required?
A
When pre-letting a building / entering into a lease in the future.
22
Q
When a tenant pre-lets a building, what documents are required?
(What documents must be attached to an Agreement for Lease)?
A
Licence for Alterations (to allow tenant to undertake fitting out works).
Lease in pre-agreed form
The specification and plans (of the full completed scheme).
Developer’s Guarantee - bond if weak covenant
Collateral Warranties (supporting document to the primary contract with a third-party)
23
Q
What is a Licence for Alterations?
A
This details the works to be undertaken by the tenant.
It must be completed prior to the works commencing.
24
Q
What legislation do you have regard for when marketing a property?
A
Consumer Protection Regulations (2008)
Misrepresentation Act (1967)
Town & Country Planning Regulations (2007)
25
What are Consumer Protection Regulations (2008)
(COMMON QUESTION - TaylorMade book)
Relates to the WHOLE agency process
CPRs extend agents duty of care to all 'consumers' (e.g. existing/potential clients, viewers, tenants) - duty of care beyond your paying clients.
- Requires the Agent to give accruate info
- Agent must DECLARE EVERYTHING known about a property (good + bad). No more Caveat Emptor ("Buyer Beware"). OMISSIONS = breach.
E.g. not declaring proposed development next door, flood risk, flight path.
26
How do the Consumer Protection Regulations (2008) apply to you as an agent?
How do you apply this in practice?
Relates to the WHOLE agency process
Requires the Agent to give accruate info
Agent must DECLARE EVERYTHING known about a property (good + bad). No more Caveat Emptor ("Buyer Beware"). OMISSIONS = breach.
Signpost consumers to wider information - flood risk, flight path, listed building.
Keep an audit trail of information
27
How do CPRs (2008) differ from the Misrepresentation Act (1967)? Name some of the key differences?
Consumer Protection Regulations (2008) relate to the WHOLE agency process. Agent MUST declare everything known about a property (good + bad). Duty of Care to the "Consumer" beyond paying client. Criminal offence.
Misrepresentation Act (1967) relates to misinformation or false statements made during PRE CONTRACT ENQUIRIES that has the offence of inducing a transaction, e.g. false statements on marketing particulars. Civil offence actionable by tort (not criminal).
28
What are the Permitted Development Rights for 'To Let' boards?
Town & Country Planning Regulations (2007)
Planning Consent is required for non-residential boards over 2 sq m (flat), or 2.3 sq m (if V board)
Only one letting board is allowed per building
No more than 1m projection from face of the building
NO illumination
Must be removed within 14 days after completion of a letting/sale.
29
Are you familiar with a Marketing Plan and what type of things would you include?
List on the various databases we subscribe to (Agents Society, LoopNet, Cluttons website)
Targeted mailing list to clients
Installing a 'To Let' board
Double page spread in press e.g. Estates Gazette
Agents Launch (open morning).
30
Tell me about requirements surrounding letting property and EPCs?
(COMMON QUESTION in TaylorMade book)
(Hot topic v likely to come up)
As of April 2023 - ALL commercial property must legally have an EPC rating of 'E' or above to be let - including for existing leases.
I am aware of proposed increases for the MEES to reach band 'C' by 2027 and 'B' by 2030.
31
What are the requirements for EPCs when marketing a property?
EPCs MUST be instructed PRIOR to marketing.
The EPC rating (energy rating) MUST be included in the marketing particulars (graph not necessary).
It is the agents responsibility to ensure EPC is in the marketing material.
32
What buildings are exempt from having an EPC?
Listed Buildings
Religious Buildings + Places of Worship
Temporary Buildings
Building with no heating
Buildings due to be demolished / redeveloped within 2 years
Stand alone buildings with a total floor area of less than 50 sq m (circa 500 sq ft).
33
How long is an EPC valid for?
EPC is valid for 10 YEARS (unless the building has been altered)
34
What would you typically see on the front page of an EPC certificate?
Address of property and floor area
Technical information on the property's energy provision.
An energy performance rating from A+ to G.
Benchmarking information
35
What are penalties for non-compliance with EPC Ratings?
Fine equal to 12.5% of the Rateable Value of the building.
Minimum of £500 fine
Maximum of £5,000 fine
36
How would you assess a Tenants Covenant Strength?
(COMMON QUESTION in TaylorMade book)
THE PROFITS TEST (3X3)
Credit Rating check (Dun & Bradstreet report)
References (e.g. from previous Landlord/bank/accountant)
37
What is the Profits Test and how would you do it?
(COMMON QUESTION in TaylorMade book)
Market standard test to assess covenant strength.
Request the past 3 years' audited accounts for the entity taking the lease.
The businesses net profit must be 3x the rent for 3 consecutive years (3x3). - If this is the case, then it is not deemed necessary to request a rental deposit.
Or the Net Asset Value of the business must be 5x the rent.
38
What additional form of surety might a Landlord request in addition to a rental deposit?
Guarantor / Personal Guarantee
39
Why is tenant covenant strength important?
Why is tenant selection important?
To ensure the tenant will be able to meet the covenants of the lease (avoid risk of defaulting before end of lease).
Also to protect the investment value of the property.
(Could just say the stronger the covenant of the tenant, the greater value this will add to the clients property).
40
What form of guarantee is needed when you are ASSIGNING a lease?
Authorised Guarantee Agreement (AGA)
Requires the tenant who assigns (transfers) a lease to guarantee the performance of the lease obligations of the party whom the lease is assigned.
41
What is an AGA?
Authorised Guarantee Agreement
Requires the tenant who ASSIGNS a lease to guarantee the performance of the lease obligations of the party whom the lease is assigned to.
42
What provisions can there be in the lease to mean that a tenant does not require an AGA to assign a property?
If the incoming tenant pays an appropriate rental deposit and / or provides a suitable guarantor themselves.
43
If a deposit is held, what are the rules? What are the requirements of holding a rent deposit?
A rent deposit is personal to the tenant (cannot be passed on).
It must be legally documented in a "RENT DEPOSIT DEED" ... and held in a separate named bank account.
The deed MUST detail the release mechanism for the deposit.
Any interest gained goes to the tenant.
44
What details with regards to the rent deposit should be included in the lease?
Amount of deposit (and whether it includes VAT)
Time it will be held for!
Circumstances under which the deposit will be returned to the tenant with any accrued interest.
45
What are the main lease terms that impact on the VALUE of a property?
Lease length (term certain)
Break clauses (affects Net Effective Rent analysis)
Alienation provisions (barriers to sublet/assign)
Rent Review clause (frequency and whether upwards-only/index linked/fixed)
Security of Tenure Provisions (Inside or Outside the Landlord & Tenant Act 1954) = BIG ONE
Repairing Responsibilities
46
What are the key things to consider when it comes to break clauses in a lease?
What should you consider when implementing a break clause?
What is the required notice for excercising the break period (usually 6 months)
Whether the break option is Mutual or Landlord / Tenant only
Whether there is a penality to be paid if the break is exercised
Whether there are any pre-conditions to be met (payment of all rent and service charge / making good and returning the premises with full Vacant Possession).
47
What are break options typically conditional on?
Payment of all rent & service charge payments
Making good & ensuring full vacant possession
48
What is the typical break date notice period?
Usually 6 months (before the break date)
49
What is the difference between Vacant Possession and Free of Occupation?
Vacant Possession (VP) = When a property is left free of people, chattels and legal interests.
Free of Occupation = Just means the tenant no longer occupies the premises (but still have legal interest).
50
Are you aware of any case law on break clauses?
Riverside Park vs NHS Property Services (2016)
Break option CONDITIONAL on vacant possession had no been operated successfully because the tenant (NHS) left partitioning and chattels in the premises.
51
When a tenant pre-lets a building, what documents would typically be attached to an Agreement for Lease?
Licence for Alterations (to allow tenant to undertake fitting out works).
Lease in pre-agreed form
The specification and plans (of the full completed scheme).
Developer's Guarantee - bond if weak covenant
Collateral Warranties (supporting document to the primary contract with a third-party)
52
What are typical incentives that may be agreed in negotiations?
Shorter (more flexible) lease terms
Rent-free period (Average 2.4 months per term certain)
Fitting out costs contribution from Landlord
Reverse premium (payment TO tenant) from Landlord
53
What are average rent free period's at the moment on a 5-year lease and 10-year lease?
(2.4 months per term certain)
5 year lease = typically 12 months rent free.
10 year lease = typically 24 months rent free.
54
What is a Reverse Premium?
Reverse Premium is given by the Landlord in order to incentivise a tenant to occupy the premises.
55
What are Alienation Provisions?
Alienation = right for a tenant to assign, sublet or share occupation.
56
What is a sublease?
A sublease is a direct relationship between an existing tenant and a new one.
NO Landlord & Tenant relationship created ... the sub-tenant has a direct relationship and pays rent to the original tenant.
57
What is an assignment?
Assignment = Incoming tenant "STEPS INTO THE SHOES" of existing tenant and creates a relationship with the LANDLORD.
The payment of rent is directly to the landlord and the lease has been 'transferred'.
58
What will an outgoing tenant often need to provide with an assignment?
An Authorised Guarantee Agreement (AGA)
To guarantee the performance of the lease obligations of the party whom the lease is assigned to.
59
What is the difference between a sublease and an assignment?
Sublease = Direct relationship between existing tenant & new one. NO L&T relationship created and rent is paid to the original tenant.
Assignment = Incoming tenant "STEPS INTO THE SHOES" of existing tenant and creates L&T relationship. Payment of rent direct to LL and lease has been 'transferred'
60
What is said with regards to assignment in RICS Code for leasing business premises, 2020?
Landlord's consent is not to be unreasonably withheld or delayed
61
What different types of alienation provisions can there be in a lease?
Sublease (to a new tenant)
Assignment (transfer the lease)
Share Occupation (share occupation with a third party e.g. charity sharing, so long as no L&T relationship formed).
62
Why might you choose a sublease instead of an assignment?
What are the reasons to sublet a lease and not assign?
If it is a requirement within the lease to sublet and not assign.
If the tenant may want to reoccupy in the future
For part of the demise and not the whole (you cannot assign part of a demise)
The new party is of a lesser covenant strength.
63
What UK legislation covers assignment of leases?
Landlord & Tenant (Covenants) Act 1995
64
What does the Landlord & Tenant (Covenants) Act 1995 set out?
Introduced Authorised Guarantee Agreements (AGA)
Introduced the AGA - a form of guarantee given by the (outgoing) tenant to the landlord that if the assignee does not perform the tenant obligations under the lease (such as paying the rent, repairing the property), then the outgoing tenant will.
In other words, the outgoing tenant becomes a guarantor for the assignee.
65
What is a licence?
Simply a permission to enter/occupy a property (personal arrangement)
NO legal interest and can be terminated by either party.
66
What is the difference between a Lease and a Licence?
(COMMON QUESTION)
As set out in the famous case of STREET VS MOUNTFORD (1985):
A lease provides 3 key things = Exclusive Occupation, Payment of rent, Duration for a specified term certain.
A lease cannot be terminated until the next lease event. A licence can be terminated at any time.
A lease can be assigned, whereas a licence cannot.
(Funny way of remembering it - can remember it by 'on the street' .... STREET vs Mountford)
67
What did Street v Moutford (1985) establish?
A lease provides 3 key things (Exclusive Occupation, payment or rent, duration of a specified term).
“it does not matter what the document calls itself on the cover sheet (e.g. license) if, in all other respects, the document looks like a lease then it probably is.”
68
What is a Tenancy at Will?
It is a form of licence - unspecified length of time & no legal rights.
69
What is a 'Schedule of Condition'?
(Remember - you do a Schedule of Condition when acting for the tenant to protect them)
Used by an acquiring agent to reduce a tenant's repairing obligation (for items in disrepair).
The condition of the property must be carefully recorded - written description / set of photographs (or both).
Agreed by negotiation between the LL and tenant prior to the lease commencement
Referred to in the lease and often attached to it.
Reinstatement at the end of the lease will be limited by the terms of the Schedule of Condition.
70
What do you understand about Money Laundering and leasing / letting - a quick summary?
All letting agents MUST register with HMRC if they let individual properties for more than the equivalent of €10,000/month or more.
At least Customer Due Diligence (CDD) checks MUST be carried out on both LANDLORDS and TENANTS.
Enhanced Due Diligence (EDD) checks MUST be undertaken if RED FLAGS occur (e.g. high-risk country) or you are dealing with PEPs.
71
What levels of AML would you do for a - Private Individual / Private Company / Public Limited Company?
Private Individual (most risky) = Verify ID via reliable source (Passport / Driving licence) and copy of bank statement showing proof of address.
Private Company = Company name, company number (check company house), registered address, names of shareholders/directors with 25% or more of holding.
Public Limited Company (most secure) = Check listing on the London Stock Exchange.
72
After you have instructed solicitors, is there anything you would do to ensure that the letting completes?
Answer any queries which the solicitor may have e.g. Commercial Property Standard Enquiries (CPSEs). - These are standard enquiries usually raised by the acquiring party's solicitor.
Offer to refer other services at my firm e.g. Project Management / Building Surveying to conduct a Schedule of Condition.
73
How does the Equality Act (2010) relate to Leasing & Letting?
An inclusive environment must be designed and managed to suit all needs.
Could talk about:
The 9 Protected Characteristics
Disabled Access - ensure the property is Equality Act (2010) compliant.
Accessible WCs.
Also could think about arrival experience - making it feel equal for everyone.
Reasonable Adjustments:
When faced with an obstcle to access, the Equality Act (2010) requires the service provider to make a reasonable adjustment to provide access.
74
What is the significance of the Landlord & Tenant Act (1954)?
Sections 24 - 28 of the Landlord & Tenant Act (1954) relate to the SECURITY OF TENURE and whether a lease is INSIDE or OUTSIDE of the Act.
75
If a lease is silent on security of tenure - is it Inside or Outside of the Act?
If a lease is silent it is INSIDE of the act.
To be OUTSIDE - It must explicitly state in the lease it is outside of the L&T Act.
76
Under the Landlord & Tenant Act (1954), what is stated under Section 23?
Section 23 = must be a business tenancy to be inside of the act.
Section 23 states that to gain protection under the Act - there must be a BUSINESS TENANCY that:
1. Holds a tenancy
2. Uses the premises for a business
3. There must be occupation of at least part of the premises.
4. There must be occupancy of more than 6 months.
5. It must not be a licence / tenancy at will
6. There must be a competent Landlord in place.
(Takeaway is that to be protected in the L&T Act (1954), there MUST be a business operating from the premises with a tenancy).
77
Under the Landlord & Tenant Act (1954), what is stated under Section 24?
"Holding Over"
When no notice is served, this is called 'holding over' until either the LL or T serves notice.
(A tenancy will continue until either LL or T serves notice if inside the Act).
(If Outside of the Act, it will naturally come to an end).
78
Under the Landlord & Tenant Act (1954), what is stated under Section 25?
What is a Section 25 notice?
Landlord notice to either END or GRANT a new lease.
Requirements:
Must be no more than 12 months, no less than 6 months BEFORE expiry.
Must relate to the whole demise of the tenancy
Must state a termination date (if hostile)
If Landlord wishes to terminate the tenancy, this is called a HOSTILE NOTICE (25). Must state grounds for opposition.
If Landlord wishes to grant a new tenancy, this is called a FRIENDLY NOTICE (25). Must state proposals for a new tenancy.
(Remember Section 25 is a LANDLORD notice)
79
Under the Landlord & Tenant Act (1954), what is stated under Section 26?
What is a Section 26 notice?
Section 26 = TENANT notice when they wish to renew.
Must be no more than 12 months, no less than 6 months BEFORE expiry.
Must state proposal for new lease terms (e.g. new proposed rent).
If LL wishes to oppose, they have 2 months to serve a counter notice specifiying grounds for opposition.
(Remember Section 26 is a TENANT notice requesting new tenancy).
80
Under the Landlord & Tenant Act (1954), what is stated under Section 27?
What is a Section 27 notice?
Section 27 = When the tenant wishes to end the tenancy.
Must give at least 3 months notice. Once served, irreversible.
81
Under the Landlord & Tenant Act (1954), what is stated under Section 30?
What is a Section 30 notice?
Landlord opposing to grant a new lease. Could be for the following reasons:
Breach of repairing obligations
Persistent delay in paying rent
Landlord wants to let the property as a whole
Landlord intends to demolish or redevelop
Owner wishes to occupy
82
What are the implications for contracting OUTSIDE of the Landlord & Tenant Act (1954)?
For TENANT:
No rights for renewal + no right to remain at the end of the lease.
Must vacate the property at the end of the lease (unless LL chooses to offer a new lease)
No right to compensation from the Landlord on leaving the property at expiry
No right to ask the court to fix the rent or the terms of the lease if the LL chooses to offer another lease.
For Landlord:
The lease may not be as attractive to prospective new tenants
83
Explain the process of Contracting OUTSIDE of the Landlord & Tenant Act (1954)
(Important one - got asked in Mock)
SECTION 38 - HEALTH WARNING
Section 38A of the Act sets out the procedure that must be followed for the Landlord to contract Outside of the Act.
1. The Landlord MUST serve a HEALTH WARNING notice on the prospective tenant, explaining that the lease will not be protected. This is known as a health warning (advises tenant to seek professional advice).
2. The proposed tenant must then make a DECLARATION in response, confirming they have recieved the notice and understand the consequences of contracting out. The type of declaration depends on the timing:
1) SIMPLE DECLARATION = Given when the parties have recieved the warning notice at least 14 days or more prior to committing to the lease.
2) STATUTORY DECLARATION = Given when the parties have recieved the warning notice less than 14 days prior to committing to the lease. Statutory declaration must be obtained + requires an independent solicitor for oath.
84
How would you document this between lawyers?
How would you document Contracting Out of the L&T Act (1954) between lawyers?
The lease would include an ENDORSEMENT referring to the Landlord's health notice and the Tenant's declaration and the parties' agreement that the relevant provisions of the 1945 Act are to be excluded from the lease.
85
How would a Landlord bring a protected lease to an end?
Serve a "hostile" Section 25 notice:
Must be no more than 12 months, no less than 6 months BEFORE expiry.
Must relate to the whole demise of the tenancy
Must state a termination date
86
Can a landlord serve a section 25 notice if OUTSIDE of the act?
No - It has to be inside for S.24-28 to apply.
