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CIVIL OFFENCE – actionable in tort (not criminal) – can be sued for damages/contract rescinded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