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APC - Commercial Real Estate > Leasing & Letting > Flashcards

Leasing & Letting Flashcards

1
Q

You undertook a letting of a residential flat, what advice did you give regarding the prospective tenant’s risk?

A

I advised my client that due to the prospective tenants employment status, there was a potential risk that the tenant may encounter problems in meeting their rental obligations.

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2
Q

How did you recommend this risk should be minimised?

A

I recommended requesting 6 months rent upfront or the inclusion of a guarantor in the tenancy agreement

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3
Q

When leasing a commercial property, what advice do you give your client if you have received multiple offers?

A
  • each offer’s respective strengths and weaknesses.
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4
Q

What other factors do you advise your client should be taken into consideration?

A
  • the buyers source and availability of the funds for buying or renting the property and other information that may affect his or her ability to buy or lease the property
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5
Q

What checks do you advise your clients should be undertaken on prospective tenants?

A
  • Run a Dun & Bradsheet credit referencing agency check
  • 3 years audited accounts
  • bank, accountant and trade references
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6
Q

How do you advise your client can minimise risks to themselves where an incoming tenant has a weak covenant strength?

A
  • Request a guarantor or personal guarantee
  • request a deposit or a higher deposit
  • rent paid up front
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7
Q

What advice do you give your client on the impact MEES has on leasing a property?

A
  • The property cannot be let unless it has an EPC rating of ‘E’ or above
  • It is unlawful to let commercial buildings of F/G until all “qualifying improvements have been made
  • applies to all buildings on leases between 6 months and 99 years
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8
Q

What did you include in the marketing particulars when marketing the property on xxx Street

A
  • The size of the property
  • the rent
  • description of the property and the local area
  • the terms
  • contact details
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9
Q

What legislation is relevant to your leasing and letting practice?

A
  • The Estate Agents Act 1979
  • Misrepresentations Act 1967
  • Consumer Protection Regulations 2008
  • Money laundering regulations 2017
  • Proceeds of crime Act 2002
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10
Q

What are the six principles of the Estate Agents Act 1979?

A
  1. Honesty and accuracy
  2. Clarity on TOE
  3. Open and Transparent
  4. No discrimination
  5. Pass on all offers in writing
  6. keep clients money separate
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11
Q

What is section 18 of the EA 1979?

A

Agree ToB:

they must include Fees, agency basis and definition, services, marketing

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12
Q

What is section 21 of the EA 1979?

A

Disclosure of interest - specifies what ‘interests’ must be declared by the agent. Where such an interest exists

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13
Q

What are the 3 basis of Agency

A
  1. Sole agency – 1 agent
  2. Joint Agency - fee shared on an agreed basis
  3. Multiple Agency - only successful agent gets the fee.
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14
Q

Who enforces the Estate Agency Act 1979?

A

The office of Fair Trading

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15
Q

Tell me about your understanding of the Estate Agents Act 1979.

A

The Estate Agents Act 1979 regulates your work of an estate agent. Its purpose is to make sure that an estate agent acts in the best interests of its clients and that both buyers and sellers are treated honestly, fairly and promptly.

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16
Q

How does Section 18 relate to your letting practice?

A

Section 18 stipulates what should be included in TOB to include fee, agency basis and definition, services and marketing

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17
Q

Tell me about your understanding of legislation relevant to your leasing and letting practice?

A

I am aware of the consumer protection from unfair regulations 2008.

The purpose is to protect consumers from unfair, misleading or aggressive selling or letting practices

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18
Q

What is a ready, willing and able purchaser?

A

Fee due if purchaser introduced who is prepared and able to exchange unconditional contracts for purchase, even if client subsequently decides not to proceed.

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19
Q

What are the requirements of the Estate Agents Act 1979 and the Proceeds of crime Act 2002

A
  • identity check both lessee and lessor - two types of ID, i.e passport etc.
  • audit trail
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20
Q

What documents need to be appended to an agreement for lease?

A
  • a lease in a pre-agreed form
  • licence for alterations
  • specification and plans
  • developers guarantee/bond (if dealing with a tenant of weak covenant strength
  • Collateral warranties - design input, 10 years insurance
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21
Q

What is an agreement for lease

A
  • A contract between two (or more) parties to enter into a lease.
  • The agreement will place a contractual obligation on the respective parties to enter into the lease, either on a fixed date in the future or following the satisfaction of conditions set out in the agreement.
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22
Q

When would an agreement for lease be used?

A
  • In a scenario where it is not possible for the lease to be entered into immediately, e.g if the property or building is still being built.
  • If certain conditions need to be satisfied before the lease is completed, such as either the landlord or the tenant having agreed to carry out works to the premises before the lease is completed
  • upon obtaining planning permission for the tenant’s proposed use of the premises; or
  • upon completion of the surrender of an existing lease before the tenant enters into the new lease.
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23
Q

What is a collateral warranty?

A

Warranties from the professional team, main contractor, and any subcontractors with design input.

It allows the tenant to have a direct contract with the professional team.

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24
Q

What is an average consumer/material information?

A
  • An average consumer is is someone who is reasonably well informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors.
  • material information is the information which the average consumer needs, according to the context, to take an informed transactional decision;
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25
Q

Tell me about key points of the Consumer Protection / Business Protection Regulations.

A

Marketing:

  • must not mislead average consumer = no caveat emptor
  • concepts such as ‘transactional decision’ and ‘material information’ are taken into account
  • if members are found not to have complied, they may face civil/criminal action
  • particulars much be accurate
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26
Q

Tell me about the planning considerations you are aware of if you want to install a marketing board.

A
  • fall under permitted development rights
  • 2sqm or 2.3 sqm if v board
  • can project 1m from building
  • planning permission needed in conservation area/listed building
  • no illumination
  • has to be removed within 14 days
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27
Q

What is the profits test?

A
  • Net profits for the proposed tenants business must be 3 times the rent for 3 consecutive years; or
  • the net asset value of the business must be more 5 times the rent
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28
Q

What factors can impact upon letting value/lease terms?

A
  • Lease length/term certain
  • break clauses
  • Alienation
  • Repairing obligations
  • User clauses
  • Rent review pattern & basis of valuation
  • security of tenure provisions
  • Impact of a restrictive lease clause upon value
  • inside or outside the Act
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29
Q

How do you grant a lease outside the Act?

A
  1. Landlord serves warning notice
  2. Tenant signs simple or statutory declaration (simple can only be signed if warning noticed received 14 days before the grant of the lease).
  3. Lease must contain endorsement referring to the warning notice tenant’s declaration and the parties’ agreement that the relevant provisions of the 1954 Act are to be excluded from the lease.
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30
Q

Name 4 incentives that may be agreed in negotiations

A
  • short lease
  • rent free period
  • reverse premium (payment to Tenant)
  • Fitting out costs contribution from Landlord

Sometimes agreed in side letters to protect the headline rent and hide the deal.

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31
Q

Explain what you understand by the planning use classes.

A

Planning use classes stipulates what a let property can be used for.

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32
Q

Explain what you understand by the planning use classes.

A

Planning use classes stipulates what a let property can be used for.

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33
Q

When were the planning use classes last updated?

A
  1. Key change is the introduction of a new flexible E class.

The use within the same class can change without planning permission. This is intended to facilitate repurposing the high street.

34
Q

What does suis generis mean?

A

in a class of its own (no changes allowed without planning permission).

35
Q

Tell me about your marketing plan

A
  • agents circulated mailshots to their client list
  • letting agents window and website
  • I arranged for the details to be advertised on our company website
  • To let board was erected outside the property
36
Q

Can you give me a recent case on break clauses?

A

NYK Logistics UK vs Ibrend Estates 2011

Tenants must give vacant possession when exercising a break clause.

37
Q

What legislation covers the disposal/acquisition of an interest in land (freehold or leasehold property with capital value)?

A

The Estate Agents Act 1979

38
Q

What does section 18 say about terms of agency?

A
  1. Must be clear
  2. Must be agreed in writing, including any additional market costs or disbursements
  3. Must be itemised (not global)
39
Q

What does section 21 of the Estate Agents Act say?

A
  • Personal interests must be declared in particulars and Heads of Terms (or don’t act if it’s inappropriate)
  • Must be open about personal interests
40
Q

What should you do in negotiations according to the Estate Agents Act 1979?

A
  • Act in the best interest of your client
  • Treat buyers/sellers honestly, fairly and promptly, i.e. give no misleading information and don’t discriminate
  • inform client of offers in writing
41
Q

Do you need to inform your client if you offer a service to a prospective tenant?

A

Yes

42
Q

Under the Estate Agents Act 1979, do you need to belong to an approved redress scheme?

A

Yes

43
Q

Where would you find wording on agency rights to include in your Terms of Engagement?

A

Estate Agents (Provision of Information) Regulations 1991

44
Q

What are sole selling rights?

A

Fee due if unconditional contracts exchanged during period of sole selling rights, even if purchaser found by another agent or client. After expiry of sole selling rights, fee due if contracts exchanged with purchaser introduced during period or with whom agent had negotiations.

45
Q

What are sole agency rights?

A

Fee due if unconditional contracts exchanged with purchaser introduced by agent or another agent or with whom agent had negotiations during period of sole agency. No fee due if purchaser found by client.

46
Q

What was the main change brought in by the Consumer Protection from Unfair Trading Regulations (CPRs) & Business Protection from Misleading Marketing Regulations 2008 (BPRs)?

A

Wider scope so cannot rely on caveat emptor principle

47
Q

Under the Consumer Protection from Unfair Trading Regulations (CPRs) & Business Protection from Misleading Marketing Regulations 2008 (BPRs), when may a commercial practice be deemed unfair?

A
  1. Giving false/misleading information
  2. Omitting material information (required to make informed decision)
  3. aggressive practices, e.g. harassment, coercion, exerting undue pressure
  4. Not acting with standard of care and skill in accordance with honest market practice and in good faith
  5. engaging in banned practices
48
Q

What is a misrepresentation?

A

Misrepresentation of fact during negotiations which is relied upon and induces other party to enter contract

49
Q

What can a misrepresentation be?

A
  • innocent
  • negligent
  • fraudulent
50
Q

Is there any defence under the Misrepresentation Act 1967?

A

If there are reasonable grounds to believe facts represented were true

51
Q

What does the Unfair Contract Terms Act 1977 say?

A
  • Terms of engagement must be fair & reasonable

- Exclusion clause to limit liability must be fair and reasonable (consumer only)

52
Q

What professional statements relate to leasing and letting are you aware of?

A
  • RICS Global Real Estate Agency & Brokerage professional statement, 2016
  • RICS UK Commercial Estate Agency, professional statement, 2016
  • Code for leasing business premises, 2020
53
Q

What does the Real Estate Agency & Brokerage (REAB) PS relate to?

A

Sales, letting, leasing and management of real estate

54
Q

Under the REAB PS, can you disclose offers to other tenants?

A

Yes - if you have consent of your client and the tenant (and inform all parties)

55
Q

If you give advice on an anticipated market price or rent, does this constitute a formal valuation?

A

No`

56
Q

How long do you have to confirms offers in writing to your client?

A

1 day (2 in exceptional circumstances)

57
Q

What due diligence should you carry out on a letting or leasing instruction?

A
  • Identify tenant demand and requirements
  • Proposed rent and lease terms
  • Check client is legal owner using Land Registry
  • Consents (e.g. landlord, mortgage, guarantor)
  • Any headlease terms impacting upon value/marketability
  • EPC
  • Asbestos risk register
  • Access statement (Equality Act 2010 compliance)
  • Floor plans - check demise
  • Inspect
  • Measure
  • CDD under the 5th Anti Money Laundering Directive
58
Q

Why would you check the head lease?

A

To find out if:

  • assignment or subletting is permitted?
  • there are any side agreements/concessions?
  • there are any restrictions on use?
  • there any other lease terms impacting on value?
  • the lease is inside/outside the Act?
  • there is a Service Charge?
59
Q

What is alienation?

A

Ability to dispose of a lease or allow a third party to occupy

60
Q

What is an assignment?

A

Assignee steps into the shoes of the assignor (i.e. pays rent direct to the head landlord and assumes liabilities)

61
Q

What is a sub letting?

A

Sub-tenant agrees sublease from head tenant and pays them rent. Head tenant remains in the picture and pays rent to the head landlord.

62
Q

What does the Landlord & Tenant (Covenants) Act 1995 say?

A
  • Applies from 1 January 1996
  • For new leases, assignor (outgoing tenant) is automatically released from liabilities upon assignment.
  • ## For old leases, original tenant is liable until expiry (also includes subsequent tenants and guarantors who gave direct covenant in Licence to Assign)
63
Q

What is an AGA?

A

Authorised Guarantee Agreement - voluntary arrangement between landlord and most recent former tenant to guarantee lease obligations of immediate assignee, which falls away upon future assignment

64
Q

What does Section 19 1a of the Landlord & Tenant (Covenants) Act 1995 say?

A

Landlord can specify pre-conditions for assignment which don’t have to pass the reasonableness test (but they do have to be capable of objective assessment or independent review)

65
Q

Why might a tenant prefer to sublet rather than assign?

A

May want to reoccupy at a later date

66
Q

What happens if there is no alienation clause in a lease?

A

The tenant is free to do what they want in relation to alienation

67
Q

Why might a landlord prohibit subletting?

A

To retain control of who occupies the property

68
Q

Which of these are typical conditions a landlord may include in a sublease clause?

A
  • Subleases must be outside of the 1954 Act
  • No subletting at a below market rent
  • The subtenant must comply with the head lease clauses
  • The subtenant must provide a guarantor or rent deposit
  • The sublease should contain rent reviews in line with the headlease
69
Q

What is a pre-emption clause?

A

Landlord’s right to take back the premises in the event that the tenant wishes to assign or sublet their lease

70
Q

What is a pre letting?

A

agreement between landlord/developer and tenant for occupation at a future date, e.g. Agreement for Lease plus pre-agreed form of Lease, Licence for Alterations etc.

71
Q

When considering tenant selection, what would you ask for?

A
  • Bank, accountant and two trade references
  • Previous or existing landlord reference
  • 3 years audited accounts/business plan/credit rating
72
Q

Why is tenant covenant strength important?

A
  • It impacts investment value

- You need the tenant to pay rent on time

73
Q

What is the profits test?

A

Net profit = 3x rent for 3 years OR net asset value = 5x rent

74
Q

What other leasing codes exist?

A
  • BPF Modern Commercial lease

- RICS / British Retail Consortium Small Business Lease

75
Q

If you were agreeing a new lease after a tenant vacated, what would you need to consider?

A
  • Dilapidations liability - outgoing tenant could do works or pay a cash settlement
  • reinstatement provisions
  • Compensation for tenant’s improvements
76
Q

What is a Section 18 valuation?

A

Landlord & Tenant Act 1927 - limits landlord’s dilapidations claim to the lower of the cost to carry out the works (plus consequential loss) or the diminution in value caused by the disrepair. Dilapidations are £0 if redevelopment is proposed.

77
Q

Who may prefer not to occupy a property where VAT is charged on rent (or may seek to negotiate a lower overall rent)?

A

Companies who are not VAT registered or have limited recoverability, e.g. charities, banks, building societies

78
Q

Is SDLT payable upon leases?

A

Yes - on lease premiums and the net present value of a new lease

79
Q

How do you calculate rates payable?

A

Rateable value x UBR (uniform business rate multiplier)

80
Q

When a building is empty, how long does an owner not have to pay rates for?

A

3 months (6 months for industrial properties)

81
Q

What buildings are completely exempt from rates?

A
  • Agricultural land & buildings
  • Public religious worship buildings or church halls
  • Buildings used for training or welfare of disabled people
82
Q

What is the new business rates appeal system called?

A

Check challenge appeal

APC - Commercial Real Estate (20 decks)

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