Leasing/Letting Flashcards
Discuss some of the core principles set out in Real Estate Agency and Brokerage?
Conduct business in a honest, fair and transparent manner
Ensure service is carried out with due skill, care and diligence
Ensure terms of engagement are fair and clear
Make sure no conflict of interest and if there are, manage appropriately
Do not discriminate unfairly in dealings
Make sure all communication with client are timely and transparent
Ensure that all marketing material is honest, truthful and decent
Make sure that client money is held separately in a designated account
Make sure you have adequate and appropriate professional indemnity insurance
Make sure that all parties you deal with are informed of the scope of your obligations
Give a realistic assessment of the likely selling, buying or rental price, associated cost of occupancy or of the likely financial outcome of any issues, using best professional judgment.
What topics are covered by this Real Estate Agency and Brokerage professional statement?
Ethics
Securing instructions
Acting for the seller: marketing the property and agreeing the sale or lease
Acting for the buyer
Ending the instruction
Safety and security
Agency management
Is the code for leasing business premises a professional statement?
In September 2023 the document was reissued as a professional standard, however there have been no material changes to the document
What is the objective of the Code for leasing premises?
To ensure a fair negotiation of lease terms, as well as to provide a useful heads of terms outline to ensure efficiency with legal drafting of the lease
What are the mandatory requirements of the code for leasing?
Negotiations must be approached collaboratively and constructively
A party that is not being advised by an RICS member must be made aware of the code and must be recommended seeking professional advice
Terms of a new lease must be recorded in heads of terms subject to contract
What is a lease assignment?
A transfer of an existing lease from a current tenant to a new tenant with the landlords consent
What would a landlord usually require for the tenant to assign the lease?
It is common for a landlord to require the tenant to either give an Authorised Guarantee Agreement or ensure the incoming tenant provides their own suitable guarantor to protect the landlords position. Usually it would be in the same use and the tenant would need to have the same or better covenant strenght
What are the key lease terms that impact on capital values?
Alienation - the right to assign or sublet
Break clauses - when and which party can terminate
Repairing obligations - is tenant or landlord responsible
Rent review mechanism - is it upward only? How often? Indexed and if so cap and collar?
Security of tenure - is it granted inside the L&T Act 1954?
Is there any legislation you are aware of that relates to agency work?
Estate Agency Act 1979
Consumer Protection Regulations 2008
Misrepresentations Act 1967
What does the CPR say about marketing material?
It is a criminal offence to provide marketing information that is misleading
When marketing a property, is there anything you do with marketing material to ensure you comply with Misrepresentations Act 1967?
Yes. We have a disclaimer on all marketing particulars that state all information presented serves as a guide to the property and should not be relied upon as statements of fact. We recommend purchasers should instruct professional advisers and rely on their own searches, enquiries and inspections.
Talk us through the process prior to marketing the vacant nightclub?
Received client instructions to market the property on a new lease basis. Ensured we were competent and given our consultancy work knew the property. Conducted conflict of interest checks, money laundering checks, reinspected and took photos. We discussed the heads of terms, produced marketing material that the client approved. We then launched
What disposal method did you use and briefly describe it?
Private treaty - we put the property on the open market and invite offers from prospective purchasers, allowing us to control the process.
What fee basis did you agree for the vacant nightclub instruction? Describe it?
Sole selling rights- we will be paid a fee if unconditional contracts exchange within the agreed selling period even if the buyer was found by someone else, and will also be paid after the agreed period if we introduced the buyer
What are the rules with marketing signage?
Planning issue (Town and Country (Control of Advertisement) Regulations 2007.
Owner has to approve display of a sign
Cannot hinder road traffic
If under 2sqm no planning required
Cannot protrude more than 1m from the face of the building or be higher than 4.6m
Must be removed within 14 days of the sale
For the vacant nightclub instruction, how did you select the appropriate tenant?
There were expressions of interest from 20 parties, and carried out 25 viewings (including repeat viewings). Parties were then asked to submit a proposal, of which we received 10. I then analysed the proposals and offers and summarised them on the basis of Heads of Terms offered, Financial Commitment in the form of capital expenditure fit out, and covenant strength.
How did you measure the covenant strength?
I commissioned a Dun & Bradstreet report, reviewed the last three years of audited accounts for each company where possible. Made sure that net profit covered the proposed rent 3x for the last three years.
What is a dun & bradstreet report?
A business credit report showing a company’s financial strength and credit worthiness. D&B gives you an assessment of risk, from Low to High and a maximum credit recommendation
How could you provide further security for your client?
As for a security deposit
Guarantor
What fee did you charge for the vacant nightclub instruction?
We charged 12.5% of the agreed rent or a minimum of £9,000
- What would you do if you found out that some of the information supplied by your client at the commencement of a marketing campaign was incorrect, just before agreeing terms with a lessee?
I would inform any potential tenant of the error. The party will then have the right to withdraw their bid.
I would make sure the potential tenant was aware of the amends, amend the particulars if other parties were looking at it. Make a note on file. And make sure that any interested parties were aware of the changes.
When you were working on the assignment of a lease, did you recommend a premium? How did you calculate the value of the premium?
No, there was no going concern business or fixtures and fittings and the priority of my client was to get a tenant as soon as possible to start receiving rent
What are dilapidations?
Works which are required to be carried out by the tenant in order to reinstate the property back to the state which it was in at the start of the lease, as provided by the schedule of condition
What is a schedule of condition?
Usually taken prior to a tenant taking the space. A list of photos, description of defects and condition are highlighted
What is an easement?
A permanent right to be enjoyed by one land owner over another land owners land, eg, right of way.
For the vacant nightclub, what HoTs did you agree? What else did the HoTs contain?
Rent agreed at £192,500 per annum net of VAT
35 year term
FRI
Within the Act
Upward only to market rent every five years
Rent free period for two years and nine months
Rent paid quarterly in advance
The HoTs included the solicitors details, property address and negotiators responsible
What was the use?
Pub/restaurant including function rooms and hotel-style bedrooms
What use class would this fall under?
It was previously a nightclub (sui generis) and the new use will be pub/restaurant with function and letting rooms under sui generis. This is confirmed on the local authority planning application portal
What is the legislation on Estate Agency that you are required to follow?
Estate Agents Act 1979
What are the key sections in the Estate Agents Act 1979?
Section 18: Clarity as to the terms of agency, specify all fees and costs in advance
Section 21: Disclosure of personal interests - a connected person is someone who could benefit financially from the transcation
What are the penalties for not complying with Estate Agents Act 1979?
The right to be an estate agent can be taken away even if not granted (negative licensing)
Act allows for a prohibition order or warning to be made against the agent. prohibition order stops agent practicing, warning says don’t undertake that action again
Can be against an individual or a practice and costs can be awarded
What is the difference between the Misrepresentation Act 1967 and the Consumer Protection Regulations 2008?
Misrep Act 1967 applies to misstatements/misrepresentations made during the pre-contractual enquiries by the agent to the proposed purchaser and is a civil offence, meaning you could be sued for damages. You can limit the action brought against you by using disclaimer.
CPR 2008 applies during the entire agency process, and is a criminal offence, meainign you could get an unlimited fine and/or imprisonment for up to two years
When selecting a tenant, what information do you request from them to ensure they are a strong choice?
Bank, accountant and two trade references
3 years of trading accounts
Previous/existing landlord reference
How long do you have to commission an EPC from commencement of marketing a property?
Seven days
How long do you have to procure it?
28 days
Whose responsible for procuring the EPC?
The agent
What are the penalties for not displaying EPC information?
Max penalty is equal to 12.5% of the Rateable Value with a collar of £500 and cap of £5,000
