Leasing & Letting Flashcards
What is included in the Terms of Engagement for a leasing instruction?
- scope of engagement
- fees and expenses
- agency basis
- agency rights
- confirmation of no conflicts of interest/management of conflict of interest
- timescale for payment of fees and expenses
- money laundering regulation requirements
- details of complaints handling procedure
Are Terms of Engagement legally binding?
Yes
What types of real estate comes under the Estate Agents Act 1979?
- Disposal or acquisition of an interest in land
- Freehold property
- Leasehold property with a capital value
- Land as well as buildings
What are the 7 key principles of the Estate Agents Act 1979?
- Clarity as to the terms of the agency (section 18)
- Honesty 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
What are the penalties with regards to the Estate Agency Act 1979?
Policed by the Trading Standards Office of the relevant local authority
Negative licensing – the right to be estate agent removed and not granted
Prohibition – stops an agent practising
Warning order – written warning not to undertake action again
Can be against individual or practice and costs can also be awarded
What does the Misrepresentations Act 1967 relate to? What offence is it? Name the case law etc etc
Misrepresentation or false statement of fact made during pre-contractual enquiries which induces a party to purchase.
CIVIL OFFENCE – actionable in tort (not criminal) – can be sued for damages/contract rescinded
Case Law: Hedley Byrne & Co vs Heller & Partners (1964) - relates to liability to negligent statements and refers to rest of reasonableness under Unfair Contracts Act 1977
1. Forseeability – the damage is reasonably foreseeable
2. Proximity – the relationship can be characterised in law as sufficiently proximate
3. Fairness – regarded as fair, just and reasonable for such duty of care to arise
What is ‘Caveat Emptor’?
BUYER BEWARE - Starting point when discussing who has responsibility for disclosure of information
Overriding common law principle means that buyer should satisfy itself on all matters relating to property
What act did the Consumer Protection from Unfair Trading Regulations and Business Protection from Misleading Marketing Regulations 2008 (CPRs BPRs) replace and when?
The Property Misdescriptions Act 1991 – repealed in October 2012 and replaced with CPRs BPRs
Provide an overview of Consumer Protection Regulationss
Relate to potential buyers and vendors and extend duty of care not only to clients, but potential clients, viewers, buyers and actual buyers (all ‘consumers’)
CPRs – prohibit unfair business to consumer commercial practices – apply to all lettings, sales, online agency
Unfair practices – false/misleading information, hiding/failing to provide information, undue pressure on consumers, failing to show professional diligence
Provide an overviews of BPRs
Prohibit businesses from advertising products/services in a way that misleads other businesses
Policed by Trading Standards Office of the relevant local authority
What are the associated penalties to do with CPRs and BPRs
Penalties: maximum penalty for breach is unlimited fine, prohibition order and/or 2 years in prison. Compensation may also have to be paid to claimant up to £25,000
What’s the professional statement for Leasing & Letting
Code for Leasing Business Premises 2020
What are the objectives of the Code for Leasing Business Premises 2020
To improve the quality and fairness of negotiations on lease terms and promote the use of a new set of comprehensive heads of terms to make legal drafting of leases more efficient
What’s the structure of the Code of Leasing Business Premises 2020
- Introduction
- Mandatory Requirements
- Lease negotiation best practice
- Appendices
What’s stated in Part 2 of Code of Leasing Business Premises 2020 (Mandatory Reqs)
- Negotiations over lease must be approached in a constructive and collaborative manner
- If a party of is not represented by an RICS member / other property professional, it must be advised they obtain professional advice
- The agreement to the terms of the lease (on vacant possession) of a letting must be written in the heads of terms
What’s included in Heads of Terms as stated in Code of Leasing Business Premises 2020
HoTs must be written.
Key points:
1. Must be subject to contract
2. Identity of the property
3. Length of the term
4. Inside of outside the Landlord and Tenant act 1954
5. Options for renewal / break rights
6. Guarantor / deposit information
7. When rent is due
8. Whether exclusive of business rates
9. Whether inclusive or exclusive of VAT
10. Rent free period
11. Service charge liability
12. Ability to assign / sublet / charge or share the premises
13. Repairing obligations
14. Use of building
15. Rights to make alterations
16. Any initial alterations or fit out
17. Any conditions to the lease (surveyrs, board approvals or planning permission).
What 5 things are stated in Part 3 of Code of Leasing Business Premises 2020 (Lease negotiation)
Specific advice on lease terms. Including:
1. Rent deposits
2. Rent reviews
3. Service charges
4. Repairs
5. Alienation clauses
What’s stated in Part 4 of Code of Leasing Business Premises 2020 (Appendixes)
- Model Heads of Terms
- Details template is included in Appendix A1 and useful checklist in Appendix A2
- A guide for landlords and tenants
What should be considered when selecting a Tenant
- Important relationship between the quality of the Tenant’s covenant & the investment value of a property
- Request for additional security (rent deposit / guarantor)
- Rent deposits (personal to tenant, must be legally documented in rent deposit deed & money held in separate bank account, interest paid to tenant, agreed terms for the release of money, can include a top up mechanism for rent review uplifts.
- Usual requests for bank accounts and 2 trade references, previous / existing landlords references, 3 years audited accounts, business plan
- profits tests (commonly used is the net profit for the proposed tenants business must be 3 times the rent for 3 consecutive years. OR the value of the business must be more than 5 times the rent
When holding a rental deposit. If the monies accumulate interest, who receives the interest?
The Tenant
What major lease terms affect value
- Lease length / term certain
- Break clauses
- Alienation
- Repairing obligations
- User clauses
- Rent reviews
- Security of tenure
- Impact of a restrictive lease clause
- Check planning use
- Inside of outside the act
If there is no mention of the lease being contracted outside the S24-28 of the Act is it protected?
Yes, the lease is protected.
When do pre-lets typically occur
If there is market shortage or they need specific facilities
What are the advantages of pre-lets
Delivery of bespoke building designed to suit their needs
What are the disadvantages of pre-lets
Entering a lengthy and complex process and a level of risk in the event of the developer or contractor not performing
What documents should be attached to an Agreement to Lease
- The Lease, in a pre-agreed form. This shall be executed once the developer has fulfilled its obligations. Typically at practical completion of the work
- Licence for alterations - allows tenant to undertake fit out works
- Specification and plans
- Developers guarantee / bond (if Tenant has a weak covenant).
- Warranties - any tenant taking an FRI lease will want collateral warranties from the professional team, main contractor and any sub-contractors.
What is legislation regarding lease renewals outside the Act?
S.38A of 1954 Act sets out procedure must be followed contracting outside Act
Why would a letting be contracted outside the Act?
- Requirement of head lease to grant any subletting outside Act
- Landlord will want to reoccupy property at the right time
- Landlord wishes to redevelop property at lease end
- Rent may be lower
- Landlord wants future flexibility
What are some ways you can terminate a lease?
- Forfeiture
- Surrender and negotiation
- Merger
- Disclaimer (due to insolvency)
- Break clauses
- Lease expiry and service of notices under LTA Act 1954
What three legislation’s are used for leasing and letting?
RICS UK Commercial Estate Agency Professional Statement 2016
Estate Agents Act 1979
RICS Professional Standards Code for Leasing Business Premises 2020 , reissued in September 2023
What does the Estate Agency Statement provide?
Sets out 12 mandatory standards for RICS members to observe (do not need to learn but e.g., acting honestly, due skill, providing good terms of business, avoid conflicts of interest, good communication etc)
What advice does the RICS Estate Agency Statement provide?
- Acting ethically – duty of care, gifts, dealing with conflicts of interest
- Securing instructions – legal requirements, AML checks, H&S
- Marketing the property – legal requirements, market appraisal and preparing particulars
- Implementing the disposal – methods of sale and legal requirements
- Acquisition of property – conflicts of interest, client communication and progressing purchases
What are the 7 key principle in Estate Agents Act?
To promote 7 key points:
1. Clarity as to terms of agency (section 18)
2. Honesty and accuracy
3. Agreement and liability for costs
4. Openness regarding personal interests (section 21)
5. Absence of discrimination
6. Legal obligation to tell the client about offers received
7. Keep clients’ money separate
N.B – L&L not required to follow EA 1979 but best practice to do so
What documents are needed for a pre let?
- Licence for alterations
- Lease pre-agreed form
- Specification and plans for scheme
- Developer’s guarantee – bond if weak covenant
- Collateral warranties – design input, 10 yrs insurance
What are the basis of agency?
- Sole letting rights – fee due if let during agency agreement. Private intros included
- Sole agency – exc. Right to introduce tenant in agency period but not inc. private intros
- Joint agency
- Multiple agency – s.18 estate agents act, and misrepresentation act 1967 (entering into contracts) govern agreement with client
What does the Consumer Protection Regulations 2008 say?
- Must not mislead ‘average consumer’ = no caveat emptor
- Concepts such as ‘transactional decision’ and ‘material information’ are considered
- If members are found not to have compiled, they may face civil/criminal action
- Particulars must be accurate
What should be included in a marketing plan?
- Targeted mailshots to client list
- Call client list
- Press and internet advertising
- To let board
- Estate agents window – property week etc
- Open day
How do you conduct tenant covenant checks?
- D&B credit reference agency
- 3 years audited accounts – profit and loss, balance sheet = profit or cash assets = 3 x rent? (known as profits test)
- References from bank, accountant, and trade
What guarantees are needed?
- Authorised guarantee agreement/AGA on subletting
- Deposit = client’s money
- Guarantor – name and address
- Rent paid up front if weak covenant
What is difference between a lease and licence?
- Lease = exclusive possession, rent
- Licence = permission to occupy (or trespass)
When did the RICS Code for Leasing Business Premises become effective?
1st September 2020
What is the aim of RICS code for leasing business premises?
- Improve quality and fairness of negotiations based on lease terms
- Promote issue of comprehensive heads of terms to make the legal drafting process more efficient
What items must be addressed in HoTs according to code for leasing?
- Identity and extent of premises
- Length of term and whether inside/outside Act
- Options for renewal or break rights
- Requirements for a guarantor and/or rent deposit
- Amount of rent, frequency of payment and whether exclusive of business rates
- Any rent-free period or other incentive
- And rent reviews including frequency and basis of review
- Liability to pay service charge and/or insurance premiums
- Right to assign, sublet, charge, or share premises
- Repairing obligation
- Initial permitted use and whether any changes of use allowed
- Rights to make alterations and any reinstatement obligations
- Any initial alterations or fit out
- Any condition of letting e.g., subject to surveys, board’s approval, or planning permission
What are 4 sections of RICS code for leasing business premises?
- Introduction
- Mandatory requirements (negotiations and heads of terms)
- Lease negotiation best practice
- Appendices
(Appendix A – template HoTs and checklist, Appendix B – Guide for landlords and tenants)
What does code for leasing say with regards to negotiations of heads of terms?
- Must be approached in a constructive and collaborative manner
- Unrepresented party must be advised about this code and must be recommended to obtain professional advice
- Agreed terms of a lease must be recorded in written HoTs and summarise position on a number of aspects
- Negotiations should produce letting terms that achieve a fair balance between the parties’ commercial interests
What is a lease?
Binding contract in law setting out terms and conditions of tenancy between parties and defining their rights and obligations
What is a licence?
- A right to enter a property
- A personal arrangement between the licensor and licensee
- A licensee acquires no interest in the property
- It is a personal right which can be terminated by either party
What are the four requirements of a lease?
- Exclusive occupation
- Payment of rent
- Duration for a specified term
- Is more than for 3 years, terms must be in writing, signed and registered as a deed
What are the differences between a lease and a licence?
- A lease provides the occupier with an estate, a licence is a permission to make it lawful for them to use the land
- A lease can be assigned, a licence cant
- A lease can’t be terminated until it expires, a licence can be revoked at any time
What do rental guarantees typically cover?
Usually make guarantor liable for rent and tenant’s other obligations including service charge and repair
Do tenants have to pay VAT on rent?
Depends on if property is ‘opted for VAT’ by landlord
What does it mean to assign a lease?
Transfer lease to another party who takes over occupation and lease obligations
What are the 4 assumptions for Rent reviews?
Time is not normally of the essence
1. Available in the open market by willing tenant and landlord for a term of years
2. Fit and available for occupation
3. All covenants observed
4. May be used for existing use
What does sublet mean?
Existing tenant continues to hold lease and pay rent but sublets space from whom tenant will in turn collect rent
What do you usually disregard when conducting a rent review?
- Goodwill
- Tenants’ improvements
What are Dilapidations?
These negotiations take place at the lease expiry to bring the property back to its condition at the start of the lease assuming there is a repairing liability
* Check to see whether there is a schedule of condition
* Check if there are any licences for alterations granted
Tenant is usually required to return the building to its original state
Section 146 notice must be served on the tenant
If the landlord intends to demolish or substantially refurbish then the payment could be nil
What are the three forms of schedule of condition?
- Interim - before last 3 years
- Terminal - within last 3 years
- Final - served at or after lease expiry when Landlord wants to claim for damages
What are repairs?
Repair is not an improvement
Tenants may be responsible for inherent defects
An effective FRI is when the landlord is responsible for repairs and recharges via the service charge
Under the 1954 Act what are the 7 grounds for which a landlord can require a tenant to vacate in a protected lease?
- Breach of repairing obligations
- Persistent delay in paying rent
- Other substantial breach of lease covenants
- Landlord can provide alternative accommodation
- Uneconomical sub division
- Redevelopment
- Owner occupation
What are the most important parts of the L&T Act 1954?
Section Requirement
S25 LL notice to end or seek a new lease
S26 Tenant to seek a new lease
S27 Tenant to end a lease
S28 Renewal of tenancy by agreement
S29 Order by court for a new tenancy
S30 Landlord grounds for opposition
What is an AGA?
Authorised guarantee agreement – requires tenant who assigns a lease to guarantee performance of lease obligations by party whom lease is assigned to
What provisions can there be in lease to mean tenant does not require AGA to assign a property?
If new tenant is financially strong enough or pays an appropriate rent deposit and/or provides suitable guarantor
What is a schedule of condition?
Record of condition of property, description of property and photos, referred to in lease and attached to it or kept with it
What are different types of agencies and selling rights that can be agreed?
- Selling rights: fee will be owed regardless of whether agent introduced the buyer
- Agency rights: fee only owed if agent introduced buyer
- Sole: exclusive rights appointed to one agent
- Joint: two agents appointed to act together, and fee split on pre-agreed basis
- Multiple: more than one agent appointed by only agent who finds buyer is paid a fee
What must you do according to Section 18 of Estate Agents Act 1979?
Specify all costs/fees in advance in writing, itemise all payments
What must you do according to Section 21 of Estate Agents Act?
Disclose any personal interests – a ‘connected person’ is someone who benefits financially from transaction such as a relation or business associate. Declared on ToEs
Who polices Estate Agents Act?
National Trading Standards Estate & Letting Agency Team (NTSLEAT)
What are penalties for non-compliance with Estate Agents Act 1979?
- Negative licensing – the right to be an estate agent can be taken away and not granted
- Prohibition order to prevent the agent practicing
- Warning order gives an agent a written warning not to undertake the action again
What does Estate Agents (Undesirable Practices) (No 2) Order 1991 dictate?
Estate agents must inform their clients at same time as they are informed about their terms of business, as to any services to be offered to prospective purchasers unless offered free of charge
What do Estate Agents (Provision of Information) Regulations 1991 dictate?
Related to info that should be supplied to client in writing:
* Service to be provided
* Renumeration
What is the ‘cooling off’ period?
Period of up to 14 days allowed for clients who change their minds and do not want to instruct the agent in accordance with Consumer Rights Act 2015
What will the newly proposed Registration of Overseas Entities Bill require? What is aim of the Bill?
- Will require overseas companies to provide details of their ultimate owners, which will be placed on a public register
- Prevent money laundering and make the UK a world leader on corporate transparency
What are Unexplained Wealth Orders (UWOs)?
Can be applied to owner of any property asset over £50,000 where the Government has reasonable grounds for suspecting criminal funds have been used
Who do the Consumer Protection from Unfair Trading Regulations (CPRs) 2008 relate to?
Business to Consumer activities
Who do the Business Protection from Unfair Trading Regulations (BPRs) 2008 relate to?
Business to Business activities
Who is owed a duty of care under the CPRs/BPRs?
Potential buyers and vendors, potential clients, viewers, and actual buyers
Who polices Consumer Rights Act and what are the fines?
Local Authority and penalty if a fine up to £5,000 for each breach
What agency practices do the CPRs/BPRs relate to?
Lettings, sales, online agency
What must agents do to ensure compliance with the CPRs/BPRs?
- Declare everything known about a property – good and bad
- Not exert undue pressure on potential buyers
- Undertake full due diligence for all new instructions
- Pass any information discovered during the agency process onto all interested parties
Who polices the CPRs/BPRs?
Trading Standards Office
What is penalty for breaching the CPRs/BPRs?
Unlimited fine and/or a prohibition order. Compensation paid to complainant of up to £25,000
What does the new Consumer Rights Act include?
Since 2015 letting agents must clearly display a summary of their charges both in their office and on their website for letting and management of property
What does Consumer Rights Act 2015 relate to?
Amends existing consumer protection law and gives consumers new rights and remedies
What are the penalties for breaching the Misrepresentation Act?
Can be sued for damages and/or the contract rescinded
What does the Misrepresentation Act 1967 relate to?
A misrepresentation or false statement of fact made by a party during pre-contractual enquiries which has effect of inducing party to purchase
What legislation is related to marketing signage?
Town & Country Planning (Control of Advertisement) Regulations 2007
What does town and country planning regulations say regarding marketing boards?
- Planning consent needed for non resi boards over 2sqm – only 1 per building
- Must not project more than 1m from face of building
- Need consent for illuminated boards, remote boards, boards on listed building and in conservation areas
- Must be removed 14 days after completion of transaction
- Must have owner’s approval
Who is the marketing legislation policed by?
Local planning authority who can remove boards and issue fines and order costs
Explain a factor you have come across which impacts upon letting value/lease terms? Maybe specifically for office space?
Condition of property can impact e.g., a property with limited amenities may be less desirable than a property with many e.g., furnished/unfurnished
What lease terms could affect value?
- Lease length/term certain
- Break clauses
- Alienation
- Repairing obligations
- User clauses
- Rent review pattern and basis of valuation
- Security of tenure provisions
- Impact of a restrictive lease clause upon value
- Check planning use by visiting local authority planning office
- Inside or outside the Act
What are some incentives that may be agreed in negotiations?
- Rent free periods, premiums, capital contributions, short term leases, fit out property deals, reduced rent period
What are different use classes?
- Class B – B2 General industrial, B8 storage or distribution
- Class C – C1 Hotels, C2 Residential institutions, C4 HMO
- Class E (Commercial, Business & Service) – a) display or retail sale of goods, b) sale of food and drink, c) financial and prof services
- Class F (Local Community & Learning)
What is a tenancy at will?
- Form of licence and written agreement for an unspecified time in which the landlord may evict the tenant at any time
- Not a legal interest in land with no renewal right
- Used for allowing a tenant early entry for fit out works
What is a Wayleave?
- This is a temporary right and receives an annual payment - i.e. for an electrical company to install apparatus
- It is personal to the company and cannot be automatically transferred to a new owner
What is an Easement?
- This is a permanent right and receives a capital payment
- It can be registered on Land Registry
- It allows a right enjoyed by one party over the land of another
- Can also be obtained by having continuous and uninterrupted use for more than 20 years
S38 Landlord and tenant act 1954
Section 38 of the Landlord and Tenant Act 1954 allows parties to a commercial lease to agree to exclude the tenant’s right to renewal at the end of the lease term, which is usually granted under the Act. This exclusion is commonly referred to as “contracting out.”
