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MT APC > Leasing/letting > Flashcards

Leasing/letting Flashcards

1
Q

What is the key RICS Professional Statement on leasing/letting practices?

A

RICS Code for leasing business premises, 2020

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2
Q

When does RICS Code for leasing business premises, 2020 become effective?

A

1st September 2020

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3
Q

What is the aim of RICS Code for leasing business premises, 2020?

A
  • Improve the quality and fairness of negotiations on lease terms
  • Promote the issue of comprehensive heads of terms to make the legal drafting process more efficient
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4
Q

What are the FOUR sections of the RICS Code for leasing business premises, 2020?

A

Part 1: Introduction
Part 2: Mandatory requirements (Negotiations and heads of terms)
Part 3: Lease negotiation best practice
Part 4: Appendices
(Appendix A - Template heads of terms and checklist; Appendix B - Guide for landlords and tenants)

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5
Q

What are the mandatory requirements in the RICS Code for leasing business premises, 2020?

A

• Must approach lease negotiations in a constructive and collaborative manner
• An unrepresented party must be advised about this code and must be recommended to obtain professional advice
I.e. for the below - although your
• Providing detailed written heads of terms BEFORE the draft lease is circulated, covering a variety of matters including, length of term, whether the lease is to be contracted out, break rights, options to renew, requirements for guarantors and/or rent deposits, basis of rent review, liability to pay service charge/insurance, alienation rights, repairing obligations and rights to make alterations (helpfully the Code includes a template (Appendix A) which reflect the Code - this sets out an explanation (for the tenant) to understand what the terms they are agreeing to mean.
• Negotiations should produce letting terms that achieve a fair balance between the parties commercial interests

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6
Q

What is contained within Appendix A of RICS Code for leasing business premises, 2020?

A

Template head of terms and a checklist, which can be used should the landlord wish to use their own form of heads of terms document

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7
Q

What is contained within Appendix B of RICS Code for leasing business premises, 2020?

A
  • Guide for landlords and tenants

* Supplemental to the professional statement and does not hold mandatory status

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8
Q

What is a lease?

A

A binding contract in law that sets out the terms and conditions of the tenancy between parties and defined their rights and obligations

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9
Q

What do rental guarantees typically cover?

A

Usually make the guarantor liable for the rent and the tenant’s other obligations, including service charge payments and repairs

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10
Q

Do tenants have to pay VAT on rental payments?

A

Depends if the property is ‘opted for VAT’ by the landlord

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11
Q

What does it mean to ‘assign’ a lease?

A

Transfer the lease to another party who takes over occupation and responsibility for the lease obligations

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12
Q

What does it mean to ‘sublet’ a property?

A

Existing tenant continues to hold the lease and pay rent to the landlord but sublets the space to another party, from whom the tenant will in turn collect rent

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13
Q

What is an AGA?

A
  • Authorised guarantee agreement
  • Requires the tenant who assigns a lease to guarantee the performance of the lease obligations by the party to whom the lease is assigned
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14
Q

What provisions can there be in the lease to mean that a tenant does not require an AGA to assign a property?

A
  • If the new tenant is financially strong enough

* If the new tenant pays an appropriate rent deposit and/or provides suitable guarantor

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15
Q

What is a ‘schedule of condition’?

A
  • Record of the condition of the property
  • Written description of the property or a set of photographs or both
  • Referred to in the lease and attached to it or kept with it
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16
Q

What should be the only condition on a tenant being able to exercise a break option, according to the RICS Code for leasing business premises, 2020?

A

Should only be conditional on the rent having been paid

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17
Q

What details with regards to the rent deposit should be included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Amount (including whether it will include VAT)
  • Time it will be held
  • Whether it will be security for only the rent or all the tenant’s obligations under the lease
  • Circumstances under which the deposit will be returned to the tenant with any accrued interest
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18
Q

What details with regards to the rent review should included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Proposed frequency of rent review
  • Method of rent review
  • Definitions of market rent should not result in a “headline rent” being adopted
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19
Q

What details with regard to the service charge and insurance payments should the landlord provide an indication of, according to the RICS Code for leasing business premises, 2020?

A

Should provide an estimate of service charges and other insurance payments

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20
Q

What is said with regards to assignment in RICS Code for leasing business premises, 2020?

A

Leases should allow tenant to assign the whole of the premises with the landlord’s consent, which is not to be unreasonably withheld or delayed

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21
Q

If a tenant’s repairing obligation are to be limited to the initial condition of the premises, what is required according to the RICS Code for leasing business premises, 2020?

A

Schedule of condition

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22
Q

Depending on the prevailing market conditions and strength of the tenant covenant, what can the landlord request for additional security if there is a tenant with a weak covenant strength?

A
  • Rent deposit

* Guarantor/personal guarantee

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23
Q

How do you correctly create a rent deposit?
Who is it liable to?
What terms do you have to agree?

A
  • Personal to the tenant and attached to the lease as a separate deed
  • Legally documented in a rent deposit deed
  • Money held in a separate bank account
  • Interest retained by the tenant
  • Agreed terms for the release of the monies
  • Details of the release mechanism to be stated in the deed
  • Can include top up mechanisms for rent review uplift
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24
Q

What information would you typically request from a tenant when looking to assess their suitability (6)?

A
  • Bank, accountant and two trade references
  • Previous/existing landlord’s reference
  • 3 years audited accounts
  • Business plan
  • Credit rating
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25
Q

What test can you use to assess the financial suitability of a tenant, and what else should you consider in conjunction with this?

A

Profits test: net profit for the proposed tenant’s business must be 3 times the rent for 3 consecutive years

(or the net asset value of the business must be more than 5 times the rent)

But consider the level of demand for the property and current market conditions.

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26
Q

What are the main lease terms that impact on the value of a property?

A
  • Lease length / term certain
  • Break clauses
  • Alienation
  • Repairing obligations
  • User clauses
  • Rent review pattern and mechanism
  • Security of tenure provisions (whether lease is inside or outside the Landlord and Tenant Act 1954)
  • Restrictive lease clauses
  • Planning use
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27
Q

What are the key things to consider when it comes to break clauses in a lease?

A
  • Whether it is mutual or in favour of one party
  • Whether time is of the essence
  • What the required notice period is
  • Whether there is a penalty to be paid if the lease is terminated
  • Whether the right to break the lease is dependent on preconditions being met (e.g. full payment of rent/returning premises in good order)
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28
Q

What are the typical conditions that are required to be met for a tenant to have the option to break their lease?

A
  • Compliance with their covenants
  • Payment of all rent and other sums due
  • Vacant possession
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29
Q

When is an occupier going to be more willing to consider a pre-let?

A
  • If there is a market shortage

* They need specific facilities

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30
Q

What is the main advantage of a tenant pre-letting?

A

They can have a bespoke building designed to suit their needs

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31
Q

What is the main disadvantage of a tenant pre-letting?

A

There is a level of risk in the event of the developer or contractor not performing

32
Q

When a tenant pre-lets a building, what documents would typically be attached to an Agreement to Lease?

A
  • The Lease in a pre-agreed form, which shall be executed once the developer has fulfilled its obligations - usually Practical Completion of the work
  • Licence for Alterations - to allow the tenant to undertake fitting out works
  • Specification and plans of the proposed scheme
  • Developer’s guarantee/bond if dealing with a weak covenant
  • Warranties - any tenant taking an FRI lease will want collateral warranties form the professional team, main contractor and any sub contractors
33
Q

If a landlord is seeking to limit a tenant making changes to the property, what will they typically require?

A

Licence to Alter

34
Q

What did the changes in 2020 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations require letting agents to do?

A
  • Letting agents have to register with HMRC within 12 months of May 2020 if they let individual properties for more than the equivalent of €10,000 per month
  • Where they undertake lettings of properties for more than €10,000 per month, they will have to undertake CDD check on landlords and tenants on any new letting or subletting
  • EDD will have to be undertake when any red flags occur
35
Q

Why might a freeholder not be supportive of a tenant subletting the property?

A
  • If they let it below market rent, it could set a new rental tone for the area. Leaseholder is simply trying to reduce their liability and so may accept below market rent
  • Sub-tenant may not perform the covenants of the lease e.g. repairing obligations
36
Q

What different types of alienation provisions can there be in the lease?

A

Assignment: transfer the lease
Sublet: under-let the premises
Sharing occupation: share occupation of the premises with a third party e.g. concession stand within a retail store
Charging: charging the lease to a lender i.e. used as security for a debtor

37
Q

When calculating what a property should be let for, would you do this on a headline basis or net effective basis?

A

Typically would calculate it on a headline basis but having regard to the tenant incentive granted

38
Q

On what grounds can a landlord reasonably refuse permission for a tenant to sublet or assign their interest?

A
  • Landlord must be satisfied that the assignee is able to pay the rent and comply with the lease covenants in the case of an assignment
  • Where a landlord owns numerous units, they are entitled to consider the type of business of the proposed tenant and whether it complies with their tenant mix policy
  • A landlord can refuse consent if the tenant will adversely affect the landlords existing rights and interest in the property
39
Q

After you have instructed solicitors, is there anything you would do to ensure that the leasing completes?

A
  • Ensure that conditions are met e.g. planning permission
  • Offer firms other services e.g. a building surveyor to conduct a schedule of condition
  • Answer any queries which the solicitor may have e.g. CPSEs
40
Q

What is an engrossment?

A

An engrossment is the final printed version of a lease that is then executed by the parties

41
Q

What typically occurs with the engrossment of the lease?

A

There will an engrossment of the lease and an engrossment of the counterpart lease. The tenant ends up with the lease executed by the landlord and the landlord ends up with the counterpart executed by the tenant

42
Q

What 3 property uses currently benefit from Covid-19 business rates relief,
what 3 property uses will not,
for what period and % (currently),
when must tenant have been in occupation from,
do you have to apply,
what about vacant properties,
and generally how might this benefit landlords?

A

Retail, Leisure, Hospitality get 100% rates relief for 2020-2021 tax year (1 April 2020).

Retail units used for ‘public services’ do not have relief such as:

  • financial services (banks, building societies etc.)
  • medical services (vets, dentists, doctors)
  • professional services (solicitors, accountants etc.)

Relief should apply automatically from qualifying businesses’ April 2020 business rates demands.

Tenant must have occupied since 1st day of relief (i.e. no relief granted if you let something since it started)

Vacant properties do not benefit, as it is about supporting occupiers, not landlords.

Should help business tenants in these sectors to continue to pay rent and others sums due under their leases (principally service charge and insurance rent) to landlords.

43
Q

What 2 options may be available for landlords of vacant properties that do not benefit from the current rates relief measures?

A

Empty Rate applications where occupation has ceased in order to adhere to social distancing requirements.

Whether occupation of many sites is now prohibited by law. Should we be able to prove that occupation is prohibited by law, full rates relief would apply.

Although I think neither have been proven to work yet as a general principle (probably because it could screw up the retail investment market i.e. may make inadequate space viable in the short term)

44
Q

What grants (3 tiers) are currently available for retailers following the 3rd lockdown announcement, and how do you apply? (CHECK THIS IS RIGHT)

A

£4,000 for businesses with a rateable value of £15,000 or under

£6,000 for businesses with a rateable value between £15,000 and £51,000

£9,000 for businesses with a rateable value of over £51,000

All businesses need to apply for a grant through their local authorities. The government is giving the new funds to councils to distribute to businesses.

45
Q

When did the Town and Country Planning (Use Classes) Regulations 2020 come into force, and what was the main driver?

A

1 September 2020

The main driver of change has been a need to enable the repurposing of buildings on high street and town centres.

46
Q

What 3 use classes were introduced under the Town and Country Planning (Use Classes) Regulations 2020?

A

E (most significant), F1 and F2

47
Q

What is the new Class E use class under the Town and Country Planning (Use Classes) Regulations 2020, what properties are part of it/what properties are now Sui Generis, and what are the PDR implications?

A

“Commercial, Business and Service” - Class E

Effectively

A1-3 (retail, professional services, restaurants),
B1 (offices/light industry)
B2 (which do not harm amenity), but NOT B8 (distribution)

Certain D1 (non-resi institutions e.g. crèches, day nurseries and day centres) and publicly available health facilities (clinics and health centres)
Excludes other community buildings i.e. churches, libraries, museums etc.

Certain D2 (assembly and leisure) publicly available health/fitness facilities (indoor sport, recreation or fitness)

Planning permission is not required for changes of use within the same use class. You could now have a shop on an industrial estate for example.

Excluded uses are now Sui Generis (generally cannot be changed to any other use without planning permission):

Excludes A4 (drinking establishments) or A5 (hot food takeaways),
Excludes others i.e. pure leisure (cinemas, dance and concert halls, bingo halls etc.)
48
Q

What PDR rules apply under the Town and Country Planning (Use Classes) Regulations 2020 if you submitted an application prior to 1 Sept. 2020?

A

Applications that cite the current use classes must continue to be decided by the local planning authority using the former uses classes after 1 September 2020, so there will be no change there.

49
Q

What is the grace period under the Town and Country Planning (Use Classes) Regulations 2020 if you want to obtain PDR under the previous system?

A

1 September 2020 - 31 July 2021

e.g. office to residential PDR

50
Q

What 2 additional PDRs related to residential properties have been introduced under the Town and Country Planning (Use Classes) Regulations 2020, and what buildings will not benefit from the extension/creation rights?

A

Demolition and rebuilding of “vacant and redundant” office and light industrial buildings into dwellings.

Upward extension (two storeys) of existing postwar-built homes, and extended to the creation of new homes above terraces, offices and shops.
Mixed-use buildings will not benefit from these new rights.

The process of prior approval will have the effect of mitigating some of the most harmful impacts of those developments, but could have other serious consequences (as development is now automatically permitted in many scenarios).

51
Q

What may LAs seek to do to police planning use in the wake of the Town and Country Planning (Use Classes) Regulations 2020, and what potential benefit may these changes confer to LAs?

A

Alternative routes to manage changes of use (including imposing more restrictive planning conditions, or the use of Article 4 directions).

Changes may result in increased take-up of otherwise disused units, which in turn may have a beneficial impact in terms of business rates.

52
Q

What are listed buildings considered to be by the DCLG/Historic England?

A

To be of national architectural or historic interest or under threat.

53
Q

What are the 3 grades of listing?

A 
Grade 1 (exception interest)
Grade 2* (particular importance)
Grade 2 (90%+ of all listings - buildings of special interest)
54
Q

What must you get to alter a listed building, and with what potential consequence?

A

Listed building consent may be required for any changes/new development.
It is an offence to carry out works to a listed building without prior listed building consent.

55
Q

What can you do if you do not think a building should be listed?

A

A building can be de-listed by the Secretary of State if it no longer meets the statutory criteria.

56
Q

What are conservation areas, and what rules apply to demolition/new developments/trees?

A

Areas of special architectural or historic interest
Planning consent required for demolition
New development should be in keeping with area
Trees are protected

57
Q

What business rates relief do you get for sub £12,000 and £12,000 - £15,000 RV properties, and what is the eligibility criteria?

A

Up to £12,000 - 100% relief
£12,000 - £15,000 - tapered 100% - 0%

Rate payer must have 1 property under £15,000 RV, or one main property.

58
Q

How many months rates relief do you get for offices/shops and warehouses/industrial, and how long must it be re-occupied for to qualify for the relief?

A

Offices/shops - 3 months
Warehouses/industrial - 6 months

Must be re-occupied for 6+ weeks.

59
Q

What empty properties have 100% relates relief (3 main ones)?

A

Listed buildings
Charities
RV under £2,900

60
Q

Who sets RVs, what is the current Antecedent Valuation Date/when was new listing made, and why might the RV differ from the Market Rent?

A

Set by Valuation Office Agency (VOA), part of HMRC.

Current AVD is April 2015 for the new list April 2017

The rental value assumes a hypothetical tenancy (‘as things stand’), 7 assumptions.

Could be different to MR due to:

AVD (obviously)

  1. FRI terms
  2. In good repair
  3. Current use and 7. No alterations may be made (i.e. some properties may be ripe for altering/change of use, which could be reflected in higher rent)
61
Q

What are the current UBR and small business rate multiplier for 2020/2021, and what RV qualifies property for small multiplier?

A

Standard UBR - 51.2p
Small BR - 49.9p
Small BR applies to under £51,000 RV

62
Q

What is the ‘best’ option available if you were acting for an occupier looking to dispose of their leasehold interest?
What payment may be paid/received dependent on the circumstances?
When may a landlord be willing to accept this option?

A

Surrender -

Mutual agreement between L and T to effectively rip up lease.
Could be a premium paid/received dependent on who the surrender is more favourable for.
Generally L will only accept surrender with very good reason i.e. another tenant waiting that will pay higher rent and/or with a better covenant/longer lease.

63
Q

What are the 2 other options (other than surrender) available if you were acting for an occupier looking to dispose of their leasehold interest? Which is better for tenant (think future responsibilities), and what are the typical conditions?

A

Better - Assignment - essentially selling the lease to a 3rd party (assignee).
Will require Ls consent, not to be unreasonably withheld or delayed.

Worse -Sub-letting - tenant remains ‘on the hook’, responsible for paying rent to L.
Sub-lease granted subject to landlords consent (not to be unreasonably withheld) IF lease permits it (usually of whole only, not part).
Could be limited to passing rent or not (Market Rent).

64
Q

What information must be clearly set out in an agency instruction agreement, and what must happen before marketing commences?

A
  • Agency basis (sole/joint agency)
  • Agency rights (sole selling or sole agency)
  • Proposed fee
  • Marketing costs and disbursements
  • Confirmation of no conflicts
  • Money laundering Reg requirements
  • Timescale for the payment of fees and disbursements
  • Details of CHP

Must be signed and returned to the agent before marketing commences.

65
Q

How has the frequency of ratings valuations changed, and therefore when is the next AVD?

A

Announced in 2018 will change from 5 yearly to 3 yearly, therefore next valuation in 2021 (check if this has changed due to current circumstances)

66
Q

What does the LPA typically require for PDR, and for what reasons (4)?

A

Written prior approval.

LPA check impact of proposed changes on highways, flooding, contamination risks and impact of noise.

67
Q

Explain the difference between a guarantor and a surety

A

A guarantor provides a guarantee for certain lease obligations, a surety provides security for a financial liability.

68
Q

4 main ways of marketing a property?

A

o Targeted mailshots to client list
o Press and internet advertising
o To Let board
o Estate Agent’s window – property of the week.

69
Q

Outline the 16 step letting agency process (from instruction receipt, through to marketing advice/marketing, completion)

A
  1. Receive instructions from the client
  2. CIT: Check competence and independence.
  3. Issue agency instruction agreement to the client
  4. Receive agreement signed by the client – s.18 Estate Agents Act 1979
  5. Complete and record money laundering checks (Money Laundering Regulations 2017)
  6. Gather information – inspection details, leases, legal title documents, planning information, OS plans, floor plans, warranties etc.
  7. Undertake due diligence – read the lease (s), environmental, planning, legal, contamination, tenant covenant status and other statutory enquiries to ensure that there are no material which may be detrimental to the sale of the property.
  8. Inspect and measure the property taking detailed notes, photographs
  9. Research market and assemble, verify and analyse comparable evidence
  10. Undertake market rental analysis (not Red Book)
  11. Prepare marketing report to vendor with full recommendations
  12. Obtain written approval of the contents of the marketing particulars (CPR 2008 & Misrep Act 1967 et al)
  13. Undertake the marketing campaign as agreed
  14. Negotiate the letting, draft heads of terms and instruct solicitors
  15. Assist with any queries during legal formalities
  16. Issue invoice upon completion of the transaction and retain file
70
Q

When does a plan have to be provided to the Land Registry upon the grant of a new lease?

A

A lease granted of over 7 years must be registered with the Land Reg within 2 mths lease commencement.

71
Q

Are there any permitted development rights for properties within my sector?

A

A4 Drinking Establishments  A1, A2, A3, B1 (temp)
C1 Hotels  State-funded School, Nursery
C2 Residential Institutions  State Funded School, Nursery
C2A Secured Residential  State Funded School, Nursery
D1 Non-Residential Institutions (nursery, clinics)  A1, A2, A3, B1
D2 Assembly & Leisure (cinemas, bingo)  State funded School, Nursery, A1, A2, A3, B1

72
Q

How would you differentiate offers at the same level?

A

Any conditions attached, cash considerations, standard and reputation of bidders, proposed timecscale, any restrictions on the vendor.

73
Q

If you are dealing with a property having planning consent – how long does this usually last for?

A

The initial period is 3 years but consent to extend for a further 2 years can be granted.

74
Q

What new use class was introduced for restaurants affected by COVID?

A
  • Although lease does not permit, new Class DA was introduced 24 March 2020 for 1 year, PDR for A3/A4 to be a takeaway.
75
Q

What does a C4 use class cover/by what definition?

A

HMOs of 5 or more tenants who form two or more households (who are unrelated individuals) who share basic amenities in a dwelling such as a kitchen or bathroom.

76
Q

Broadly what responsibilities does the new C4 use class confer on landlords?

A

Obligation to carry out a range of safety measures.
Mandatory licensing required to all multi-occupied properties (where 5 or more people).
Some LAs have additional licensing schemes.

MT APC (37 decks)

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