Leasing & Letting - KT Qs

Question 1

What is the law in this area? (leasing & letting)

Answer 1

Estate Agents Act (1979) - the main one!

Consumer Protection Regulations (2008)

Misrepresentation Act (1967)

Town & Country Planning Regulations (2007)

Question 2

What MUST you do prior to a letting?

Answer 2

Check competence (SUK)

Conflict of Interest check

Terms of Engagement signed & returned

AML check on the Landlord before accepting the instruction

Question 3

What tenant checks did you carry out?

Answer 3

Covenant Strength:

• Past 3 years’ audited accounts for the entity taking the lease
• Profits Test (3X3)
• External credit check (Dun & Bradstreet)
• Landlord reference

Also MUST SAY AML check on the tenant:

• Minimum CDD check

Question 4

Taking your Whitechapel acquisition for example - what were the eventual lease terms you agreed?

Answer 4

New 5-year lease, tenant only break at the 3rd year (5 with a 3)

5,000 sq ft

£58.50 per sq ft agreed rent

8 months rent free total

Question 5

Tell me about a marketing plan you have carried out? How did you go about preparing particulars?

Answer 5

Advised a client of a disposal in Westminster - 69,000 sq ft.

I advised adopting a high cost marketing plan to generate maximum exposure, including:

List on the various databases we subscribe to (Agents Society, LoopNet, Cluttons website)

HTML email campaign

Double-page brochure (from a design agency)

Targeted occupier mailing list

Installing a ‘To Let’ board

Recommending an Agents breakfast launch.

For the particulars, I provided the design company with the relevant information including:

• EPC rating
• Floor areas
• Misrepresentation Act (1967) disclaimer
• Internal & External photographs
• Lease Terms
• Agent contact details

Question 6

What are the permitted development rights for to let boards?

Answer 6

Town & Country Planning Regulations (2007)

Planning consent is required for non-residential boards over 2 sq m (flat), or 2.3 sq m (if v board).

One one letting board allowed per building

No more than 1m projection from face of building

No illumination

Must be removed 14 days after completion of letting.

Question 7

What protection is there for customers if your particulars are inaccurate?

Answer 7

Consumer Protection Regulations (2008). Agent has a duty of care to ‘consumer’. Agent must declare everything good + bad about a property. No more caveat emptor (‘Buyer beware’). Criminal offence.

Question 8

What was the specification of your Westminster disposal?

What is the BCO Guide to Specification (2023)?

Answer 8

As set out in the BCO Guide (2023) - Grade A spec includes:

Full access raised floor with floor boxes

Approximate ceiling height of 2.6m - 2.8m

Ceiling void of 350mm and a raised floor void of 150mm

Maximised opportunities for daylighting

Air conditioning and double glazed windows

Passenger lift

1 cycle space per 10 staff, and 1 shower per 100 staff

1:8 m2 to 1:10m2 occupational density.

The BCO (2023) have released an update to its Specification Guide:

• Adoption of 1:10 m2 occupational density (following the pandemic)
• Minimum sustainablity target of BREEAM ‘Excellent’ and 5 star NABERS target for new schemes.

Question 9

What was the EPC rating of your case study

Answer 9

D

Question 10

What would you advise the Landlord in terms of upgrading the building - in respect of proposed changes further tightening EPC regulations?

Answer 10

I am aware of proposed regulations to be band ‘C’ in 2027 and ‘B’ by 2030.

I would advise:

Upgrading the air conditioning to VAV/4-Pipe fan coil/VRF.

Upgrade the lighting to energy efficient LEDs. Also install PIR motion sensor lights that turn off automatically.

Double glazing / triple glazing.

Recommend an EPC assessment to identify areas of upgrade.

Question 11

What are the most significant terms in the lease that affect value?

What factors affect VALUE in terms of the Property and Lease Terms?

Answer 11

Lease length (term certain)

Break clauses (effect Net Effective Rent analysis)

Alienation provisions (barriers to sublet/assign)

Security of Tenure - If it’s Inside or Outside the L&T Act (1954) = BIG ONE

Rent Review clause (frequency and whether upwards-only/index linked/fixed).

Repairing responsibilities (FRI or IRI).

Question 12

What is the difference between an Assignment and a Subletting?

Answer 12

Subletting = Direct relationship between an existing tenant and a new one. NO landlord & tenant relationship created and rent is paid to the original tenant.

Assignment = Incoming tenant “STEPS INTO THE SHOES” of existing tenant and creates Landlord & Tenant relationship. Payment of rent direct to LL and lease has been ‘transferred’.

Question 13

What do you understand about the Consumer Protection Regulations (2008)?

Answer 13

Relates to the WHOLE agency process

CPRs extend the duty to care to all ‘consumers’ (e.g. existing/potential clients, viewers, tenants) - duty of care beyond your paying clients.

Requires the agent to give accurate info and DECLARE EVERYTHING know about a property (good + bad). No more Caveat Emptor (“Buyer Beware”). OMISSIONS = Breach.

E.g. not signposting wider information e.g. proposed development next door, flood risk, flight path, listed building.

Criminal offence.

Question 14

What do these regulations mean to you in practice?

What do the Consumer Protection Regulations (2008) mean to you and how do you implement these in practice?

Answer 14

I ensure property particulars are accurate and include EVERYTHING KNOWN about a property (good + bad) with no omissions.

I understand I have a duty of care to ‘consumers’ which extend beyond the paying client (e.g. potential clients, viewers, tenants).

I would signpost wider information e.g. proposed development next door, flood risk, flight path.

Question 15

What is the Landlord and Tenant (Covenants) Act 1995 about?

Answer 15

Introduced Authorised Guarantee Agreements (AGA).

Introduced the AGA = a form of guarantee on as ASSIGNMENT given by the outgoing tenant to the Landlord. So that if the assignee does not perform the tenant obligations under the lease (such as paying the rent, repairing the property) then the outoging tenant will.

In other words, the outgoing tenant becomes a guarator for the assignee.

Question 16

What is happening in the office market at the moment, and what changing requirements are you noticing?

Answer 16

Flight to quality - occupiers are wanting the very best space when returning to the office.

Two tier office market where ‘top quality’ is performing well and the rest is fairly flat.

High demand in the market for fully fitted space (reduce upfront capex for fit out) - Landlords rolling out ‘CAT A+’

Occupiers downsizing - requirements for flexibility in lease terms (tenant-favourable conditions).

Question 17

What Money Laundering and identity checks do you undertake when letting a property?

Answer 17

All letting agents MUST register with HMRC when letting property yielding an income of €10,000/month or more.

Must carry out on both LANDLORD and TENANT.

The type of AML check will depend on who I am checking:

Private Individual (most risky) = Verify ID via a reliable source (Passport / Driving licence) and copy of bank statement showing proof of address.

Private Company = Company name, company number, registered address, names of shreholders/ directors with 25% or more of holding.

Public Limited Company (most secure) = Check listing on the London Stock Exchange.

Question 18

Explain the process of how you went about disposing of the office in Hammersmith?

Answer 18

I assessed my competence (SUK), carried out a Conflict of Interest check and ensured Terms of Engagement were signed and returned.

I met with the client to establish their objectives.

I inspected and measured the property.

I provided a marketing recommendations report and advised on quoting terms.

I liased with the marketing team to produce particulars (in line with the Misrepresentation Act, 1967)

I held viewings and kept an interest schedule, regularly updating the client.

Following a short period of marketing, I am agreed terms with an interested party and drafted HoTs with client approval.

Question 19

What incentives had you agreed with your Slough acquisition?

Answer 19

5 year lease with a 2nd year tenant only break option.

Rent at £37.50 per sq ft.

7,000 sq ft.

8 months rent free

Question 20

Explain how you would go about finding a suitable property for a client as with the Whitechapel example?

Explain how you would go about finding a suitable property for a client as with the Slough example?

Answer 20

Firstly, meet with the client to establish the brief and the key drivers behind their move.

I would produce a scoring matrix on the most important objectives to fulfil.

I would use online databases (Agents Society, LoopNet, webiste) and speak with agents to establish availability in the market.

I would produce a detailed ‘Availability Schedule’ which I would then review with the client.

I would then agree with the client which properties they wish to view, coordinate access and accompany them on the viewings.

Question 21

You say you’ve carried out a Schedule of Condition.

Explain to me how you would approach this?

Why did you carry out the Schedule of Condition?

Answer 21

I carried out a Schedule of Condition to protect the tenant and limit their repairing obligation in respect of agreed items of disrepair for the duration of the lease.

(Reinstatement provisions at the end of the lease will be limited by the terms of the Schedule of Condition).

I attended site to take a detailed set of photographs, paying particular attention to areas of damage or disrepair (surface markings, damage/disrepair).

I then prepared a report annotating each photo and ensured they were appropriately labelled.

Schedule to be annexed to the lease to evidence condition of the building & be used as a basis for settling tenant dilapidations at the end of the lease.

Question 22

With your Hammersmith disposal - why did you outline refurbishment recommendations and what were these?

Answer 22

This was a self-contained office building of ground and first floor.

As a minimum I recommended replacing the carpet on both floors.

Soften the reception area - less branding, soft seating, green feature wall.

Question 23

What is the Estate Agents Act (1979)?

Answer 23

Key legislation for acquisiton/disposal of freehold/leasehold property and land as well as buidlings.

6 key principles:

1. Agents must act with HONESTY and ACCURACY
2. Section 18 - Clarity on Terms of Engagement (ToE) and basis of agency clearly outlined.
3. NO DISCRIMINATION (all have equal opportunity)
4. Section 21 - Disclose any ‘Personal Interests’ (‘Connected Person’ who could benefit from the transaction).
5. EAA says you MUST report ALL offers recieved to the client (promptly & in writing).
6. EAA says that you MUST keep Client’s Money Separate (separate named bank account with the word ‘client’).

Question 24

What is your typical fee basis when leasing / letting?

Answer 24

Typical fee basis = 10% of the first year’s rent, (ignoring the rent-free period & any other incentives).

I have also used 8% with a further 2% discretionary bonus based on - client satisfaction, time spend, deal outcome.

Question 25

What do you typically include in Terms of Engagement?

Answer 25

Terms of Engagement include:

Proposed Fee Agreement

Clear Scope of Work / Basis of Appointment

Reference to my firm’s Complaints Handling Procedure

Any expenses to be paid

Contact Details

Question 26

What is the RICS Code for Leasing Business Premises (2020)?

Answer 26

Mandatory Professional Statement.

It’s objective:

1. To improve the quality & fairness of negotiations on lease terms.
2. To provide a comprehensive set of Heads of Terms to make the legal drafting process more efficient.

Question 27

In terms of the Whitechapel office acquisition, you mentioned “Subject to Contract” - can you explain what you mean by that?

Answer 27

Subject to Contract means exactly that - it means the terms are not legally binding and the parties are still negotiating.

“Without Prejudice” means the parties are able to freely negotiate without fear of their word being used against them in court.

Question 28

What were the eventual terms of that Whitechapel Office Acquisition? Rent, Rent-Free?

Answer 28

New 5-year lease, tenant only break at the 3rd year (5 with a 3)

5,000 sq ft

£58.50 per sq ft agreed rent

8 months rent free total

Question 29

Looking at your Slough example - what are the differences between a lease and a licence?

(COMMON QUESTION)

Answer 29

As set out in the famous case of STREET VS MOUNTFORD (1985)

A lease provides 3 key things:

Exclusive Occupation
Payment of Rent
Duration for a specific term certain

A lease cannot be terminated until the next lease event. A licence can be terminated at any time.

A lease can be assigned, whereas a licence cannot.

(Street vs Mountford - “if it looks like a lease then it probably is”).

Question 30

Talk me through your office acquisition in Whitechapel?

How did you go about finding the office in Whitechapel?

Answer 30

I was instructed to acquire a new office for a charity ahead of an upcoming lease expiry.

Firstly I met with the client to establish their objectives and key drivers for the move.

The client’s objective was to find space that represented good value, whilst also having attractive building amenities to entice staff back to the office.

I searched for properties via various databases (Agents Society) and phoned agents to verify information.

I then produced a detailed availability schedule for their review.

I then agreed with the client which properties they wish to view, coordinate access and accompany them on the viewings.

Question 31

Why did you request proposals on 3 options?

Answer 31

Tactically - to allow comparison on a like-for-like basis.

Question 32

What was the marketing plan for your Hammersmith disposal - you say you reported on this?

Answer 32

List on the various databases we subscribe to (Agents Society, LoopNet, Cluttons website)

HTML email campaign

Double-page brochure (from a design agency)

Targeted occupier mailing list (analysed lease expiries in the area).

Installing a ‘To Let’ board

Recommending an Agents breakfast launch.

For the particulars, I provided the design company with the relevant information including:

• EPC rating
• Floor areas
• Misrepresentation Act (1967) disclaimer
• Internal & External photographs
• Lease Terms
• Agent contact details

Question 33

Talk to me about your office acquisition in Slough?

Answer 33

I provided advice to a Corporate Occupier relocating to a new office in Slough.

I met with the client to establish their objectives and key drivers for the move (size, budget, lease length, spec, location preference and timing).

The client required lease flexibility ater 24-months, as they would have the potential to co-locate with their parent company in Paddington.

I advised considering both traditional office and serviced office space - and made them aware of the key differences between a lease and a licence.

I advised that Landlord’s are now delivering floors to a fully fitted condition (CAT A+) which would provide an attractive saving on upfront CapEx compared to fitting out.

I searched for ready fitted, leasehold properties that sutied their requirement and presented these in an availability schedule.

After several viewings, the client shortlisted 3 options and I requested proposals (RfP) on each. I then negotiated an acceptable agreement for the preferred option.

Question 34

You say you negotiated an attractive rent free period for your client in Slough. What was this and were there any other incentives did you agree?

Answer 34

5 year lease with a 2nd year tenant only break option.

7,000 sq ft (fully fitted floor, LL CAT A+).

Rent at £37.50 per sq ft.

8 months rent free

Question 35

You say you advised the client of the market rents for comparable properties in Slough - what were these?

Answer 35

Late £30s per sq ft (the going rent for newly refurbished comparable properties in Slough).

These were fully fitted.

Question 36

Slough Example:

You say you presented a cashflow analysis to demonstrate the occupational costs of each option. What did you include in this?

Answer 36

Floor area

Rent (Rent-free periods accounted for)

Business Rates

Service Charge

VAT payable (on rent and service charge)

Question 37

Slough Example:

Did you discount this cash flow back to today or not? Why did you do that?

Answer 37

I did apply a discount rate (aka IRR to reflect the levels of risk).

I selected an appropriate discount rate of 4% to produce a Net Present Value (NPV).

The NPV = the sum of the DCF.

I discounted the cash flow to produce an NPV to determine if the lease will be worthwhile in the long run.

(If the NPV is positive, the investment has exceeded the target IRR / discount rate).

Question 38

Looking at your Slough example - what are the differences between a lease and a licence?

(COMMON QUESTION)

Answer 38

As set out in the famous case of STREET VS MOUNTFORD (1985)

A lease provides 3 key things:

Exclusive Occupation
Payment of Rent
Duration for a specific term certain

A lease cannot be terminated until the next lease event. A licence can be terminated at any time.

A lease can be assigned, whereas a licence cannot.

(Street vs Mountford - “if it looks like a lease then it probably is”).

Question 39

What was the marketing plan for your Westminster disposal?

How did you advise particulars be created?

Answer 39

Advised a client of a disposal in Westminster - 69,000 sq ft.

I advised adopting a high cost marketing plan to generate maximum exposure, including:

List on the various databases we subscribe to (Agents Society, LoopNet, Cluttons website)

HTML email campaign

Double-page brochure (from a design agency)

Targeted occupier mailing list

Installing a ‘To Let’ board

Recommending an Agents breakfast launch.

For the particulars, I provided the design company with the relevant information including:

• EPC rating
• Floor areas
• Misrepresentation Act (1967) disclaimer
• Internal & External photographs
• Lease Terms
• Agent contact details

Question 40

You say your advice has resulted in strong interest and the agreeement of six sublettings on terms that have outperformed targets. What do you mean by this?

Answer 40

The floors were priced on a floor-by-floor basis (£70s at the top, £50s at the bottom) to reflect back to the clients passing rent of £62.00 per sq ft.

The lettings have ‘outperformed’ the forecast targets … higher rents, lower void forecast.

Question 41

Looking at your Wesminter example - what did the lease say with regards to Alienation?

Answer 41

MUST be subject to Landlord consent which is not to be unreasonably withheld or delayed.

Question 42

What conditions did you HAVE to comply with when subletting the property in Westminster?

(Common question)

Answer 42

Not to sublet the whole or permitted part without:

1. Obtaining the PRIOR WRITTEN CONSENT of the Landlord which is not to be unreasonably withheld or delayed.
2. The sublease MUST be granted at a rent NOT LESS than the OPEN MARKET RENT.
3. If the term is granted for longer than 5 years, the sublease MUST include a rent review every 5 years.
4. The sublease MUST be on the same terms as the head lease (save as to amount of rent) and in a form previously approved by the Landlord.
5. Must be OUTSIDE of Sections 24-28 of the Landlord & Tenant Act (1954) - the sublease cannot be protected.
6. The subtenant cannot further underlet or assign again.

Question 43

With your Westminster example - why were you subletting and not assigning?

Answer 43

Because the marketing plan was to sublet on a floor-by-floor bais (you cannot assign part of a demise).

Question 44

If I picked up a lease having completed a letting, how would the rent-free period be documented in the lease?

Answer 44

I would look at the lease start date vs the rent commencement date.

(Term commencement date vs lease commencement date) and compare the difference.

Question 45

What is the process for granting a lease OUTSIDE of the Landlord & Tenant Act (1954)?

Answer 45

(SECTION 38A)

Section 38A of the Act sets out the procedure which must be followed for the Landlord to contract outside of the Act.

1. The Landlord MUST serve a HEALTH WARNING notice on the prospective tenant, explaining that the lease will not be protected. This is known as a health warning (advises the tenant to seek professional advice).
2. The proposed tenant must then make a DECLARATION in response, confirming they have recieved the notice and understand the consequences of contracting out. The type of declaration depends on the timing:

1) SIMPLE DECLARATION = Given when the parties have recieved the waning notice at least 14 days or more prior to committing to the lease.

2) STATUTORY DECLARATION = Given when the parties have recieved the warning notice less than 14 days prior to committing ot the lease. Statutory declaration must be obtained + requires an independent solicitor for oath.

Question 46

How would you document Contracting Out of the L&T Act (1954) between lawyers?

Answer 46

The lease would include an ENDORSEMENT referring to the Landlord’s health notice and the Tenant’s declaration and the parties’ agreement that the relevant provisions of the 1954 act are to be excluded from the lease.

Question 47

How would you identify if a lease is Inside or Outside of the Landlord & Tenant Act (1954)?

Answer 47

Flick through the lease to see if you can see any manuscript entries.

If OUTSIDE there will be an ENDORSEMENT referring to the Landlord’s health warning and the Tenant’s DECLARATION that the lease if outside of sections 24-28 of the L&T Act.