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APC 2023 > Leasing & Letting - Level 1 > Flashcards

Leasing & Letting - Level 1 Flashcards

1
Q

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

A

Estate Agents Act 1979
Misrepresentation Act 1967
Consumer Protection Regulations 2008

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2
Q

Tell me about your understanding of the Estate Agents Act 1979

A

Promotes 7 key principles (specified below)

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3
Q

What are the 7 key principles of the Estate Agents Act 1979?

A
  1. Clarity as to the terms of the agency
  2. Honesty and accuracy
  3. Agreement and liability for costs
  4. Openness regarding personal interests
  5. Absence of discrimination
  6. Legal obligation to tell the client about offers received
  7. Keep clients’ money separate
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4
Q

How does Section 18 relate to your letting practice?

A

The Act requires agents to provide clarity as to the terms of the agency

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5
Q

What are the various agency bases?

A

Sole agency - only one agent

Joint agency - two or more joint agents sharing a fee on a pre-agreed basis

Multiple agency - any number of agents but only the successful agent gets a fee

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6
Q

Where are these defined?

A

RICS UK Commercial Real Estate Agency Professional Statement, 2016

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7
Q

What is a ready, willing and able purchaser?

A

A potential buyer who is prepared and able to purchase a property at the current market value, and who has expressed an interest in purchasing the property

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8
Q

How does Section 21 relate to your letting practice?

A

Requires openness regarding personal interests

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9
Q

Tell me about key points of the Consumer Protection Regulations 2008

A

Applies during the entire agency sales and lettings process

Criminal offence - not treating customers fairly and/or providing misleading information

Penalty is an unlimited fine, prohibition order and prison up to 2 years

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10
Q

What is an average consumer?

A

Hypothetical person who is reasonably well informed, observant and circumspect when making purchasing decisions

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11
Q

What are considered to be unfair practices?

A

Misrepresentation
Conflict of interest
Discrimination
Undue pressure
Breach of confidentiality

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12
Q

How does the Misrepresentation Act 1967 relate to your agency practices?

A

Act relates to a misrepresentation or a false statement of fact made by a party during pre-contractual enquiries, which has the effect of inducing the party to purchase

The vendor/agent can be sued for damages and/or the contract rescinded

Agent has a duty of care to check that the advice, information or opinion is reliable

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13
Q

What does Unfair Contract Terms Act 1977 say?

A

Law that seeks to regulate contracts by limiting the extent to which companies can exclude or limit liability for breaches of contract, negligence and other default situations

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14
Q

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

A

Yes, this is because you have a duty to act in the best interest of your client, and failing to disclose this information could be seen as a conflict of interest

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15
Q

Tell me about your understanding of the Code for Leasing Business Premises, 2020

A

Mandatory professional statement effective from 1st September 2020

Objectives of the new Code are stated 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

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16
Q

When and how was it last updated?

A

Replaced the 2007 Code and effective from 1st September 2020

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17
Q

Tell me three key issues raised in the RICS Real Estate Agency and Brokerage Standards / RICS Commercial Real Estate Agency (Purple Book)

A

Conflicts of interest - emphasis on avoiding and guidance on how to manage

Transparency - providing of clear and accurate information to clients about services being provided including fees

Professionalism - standards for professional conduct that agents are to adhere to (integrity, honesty & confidentiality)

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18
Q

Explain what alienation is

A

The transfer of interest in a property from one party to another e.g. subletting or assignment

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19
Q

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

A

The tenant has no right to assign or sublet the property. The LL may choose to consent or refuse the request.

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20
Q

What is subletting?

A

Where a tenant leases out all or part of the leased property to another tenant (subtenant), for a period of time during the original lease.

When subletting, the new sub-tenant has a direct relationship with the tenant and pays them rent, who then pays rent to the landlord.

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21
Q

What is assignment?

A

Transfer of the tenant’s interest in the leased property to another party. The tenant transfers their rights and obligations under the lease to a new tenant, who becomes responsible as per the terms of the lease.

When assigning, the new tenant has a direct relationship (privity of contract) with the landlord

22
Q

Explain your understanding of the Landlord and Tenant (Covenants) Act 1995 and how it affects your leasing work

A

Regulates the liability of tenants and former tenants for breaches of lease covenants, as well as the liability of guarantors of tenants’ obligations under leases.

Under the Act, a tenant who assigns/sublets is released from the obligation to pay rent and perform other covenants in the lease, unless there is a specific provision that states otherwise. This means that the original tenant will still be liable for the rent and other obligations if the assignee or subtenant fails to meet these obligations.

It is important to consider the Act when drafting leases / negotiating lease terms, as it affects the liability of tenants and former tenants for breaches of lease covenants.

23
Q

What does S19 1a of the Act say?

A

A tenant is released from the obligation to pay rent and perform other lease covenants when a landlord has forfeited the lease by peaceable re-entry.

This provision is intended to provide tenants with greater protection from automatic forfeiture and to prevent landlords from taking advantage of tenants in situations where a breach of covenant may be remedied.

24
Q

What is an AGA and when might one be given?

A

Where a tenant assigns their lease to a new tenant, an AGA is implemented whereby the outgoing tenant guarantees the performance of the obligations of the new tenant under the lease.

If the new tenant defaults on the lease obligations, the landlord can claim against the outgoing tenant under the AGA.

25
Q

Can a tenant assign a lease to it’s guarantor?

A

In general, a tenant cannot assign a lease to its guarantor.

This is because the guarantor’s liability is usually limited to guaranteeing the tenant’s performance of its obligations under the lease, not to become the tenant themselves.

However, in some cases it may be possible for the guarantor to take on the lease if they have a separate agreement with the landlord.

26
Q

What is a pre-letting?

A

An agreement between a tenant and landlord to lease a property before it has been constructed or completed and often based on plans and specifications of the property

27
Q

What is an Agreement for Lease?

A

Legally binding contract between LL & T that sets out terms and conditions under which the LL agrees to grant a lease of a property to the T at some point in the future.

Typically used where a T wants to lease a property that is under construction and gives T certainty that they will be able to occupy the premises upon completion

28
Q

What is a collateral warranty?

A

Legal document that creates a contractual relationship between a third party and a party to contract.

In construction, it is often used to provide a duty of care to a third party, such as a purchaser or tenant, by the original contractor or subcontractor, in case there is any defect or problem in the construction work

29
Q

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

A

Town and Country Planning (Control of Advertisement) (England) Regulations 2007

Planning consent is required for non-residential boards over 2 sq m (flat) and 2.3 sq m (V board) - only one board per building

Must not project more than 1m from the face of the building

Also need planning consent for:
Illuminated boards
Remote boards
Boards erected on listed buildings and in conservation areas

30
Q

Tell me about requirements surrounding letting property and EPCs

A

1st April 2018 - no NEW lettings permitted with EPC below E
1st April 2023 - ALL tenancies must have an EPC E or above
1st April 2027 - PROPOSED no lettings permitted below EPC C rating
1st April 2030 - PROPOSED all tenancies must have EPC B or above

31
Q

What buildings are exempt from having an EPC?

A

Listed buildings
Places of worship
Where the LL can demonstrate that payback period for increasing EPC rating is over 7 years

32
Q

Can you charge a tenant for a copy of an EPC?

A

No - they can also be found free of charge on the EPC Register

33
Q

Where does the EPC have to be shown?

A

Within the property particulars and made available to prospective tenants/buyers upon request

34
Q

How long do you have to produce the EPC after a property is put on the market?

A

Must be commissioned within 7 days of the commencement of marketing (28-day limit for procurement)

35
Q

Tell me about how MEES affects your leasing practice

A

Tenant awareness of sustainability and own corporate targets for reducing emissions

Makes it harder to let properties with lower EPC ratings

36
Q

What are the key compliance dates?

A

1st April 2018 - no NEW lettings permitted with EPC below E
1st April 2023 - ALL tenancies must have an EPC E or above
1st April 2027 - PROPOSED no lettings permitted below EPC C rating
1st April 2030 - PROPOSED all tenancies must have EPC B or above

37
Q

How can MEES risk be reduced?

A

Improve energy efficiency - e.g. upgrade insulation, heating/cooling systems and LED lighting

Conduct an energy assessment - recommendations for energy-saving measures

Plan ahead / seek professional advice

Financing options such as EPC-linked loans

38
Q

What would you do if you were asked to let an F or G rated property?

A

Make the client aware of the legislation surrounding MEES and that it is unlawful to let a property with an EPC below and E rating unless an exemption has been met.

I would recommend that the client seeks professional advice to improve the EPC rating of the building to a level that is lawful for letting as this would be out of my scope of competence.

Following the completion of the works I would proceed with the instruction.

39
Q

How can you improve an EPC rating?

A

Upgrading insulation, heating and cooling systems, LED lighting etc

40
Q

How could onerous lease clauses / macro / micro economic conditions impact upon tenant confidence and demand?

A

Onerous lease clauses can create a situation where Ts may have to negotiate with LLs on specific lease terms and result in Ts looking for other more favourable options

Microeconomic conditions such as market demand, supply and competition can impact on tenant confidence. When there is oversupply or lack of demand, LLs may be forced to offer better lease terms to attract tenants

Economic conditions such as interest rates, inflation and economic growth can impact tenant demand. High inflation and interest rates can increase the cost of borrowing, making it harder for Ts to secure funding to take on leases. Economic downturns can also lead to businesses downsizing or closing, reducing demand for commercial property

Business confidence - onerous lease clauses and uncertain economic conditions can reduce business confidence making Ts more cautious about investing in new premises

41
Q

How does VAT affect lettings?

A

Specialist advice is always recommended

Some occupiers cannot register for VAT, such as financial institutions, charities and medical practitioners

A LL can choose to elect a property to charge VAT, to recover VAT on costs expended. When this happens rent (and any SC) is charged subject to VAT. This has implications for occupiers who cannot be VAT registered

42
Q

Talk me through your understanding of contracting out a lease, why it might be done and how you do so

A

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

There are a number of reasons why this may be done:
1. A requirement of the head lease to grant any subletting outside the Act
2. The LL will want to re-occupy the property in due course
3. The LL wishes to redevelop the property in due course
4. The rent may be lower
5. The LL wants future flexibility

43
Q

What health checks apply to contracting out?

A

The landlord is required to serve a notice on the prospective tenant, warning that the proposed lease will not be protected. This is known as a health warning.

The proposed tenant must then make a declaration in response, confirming that they have received the notice and accepts its terms (this must be completed before the lease is signed)

There are two types of declaration:
1. Simple declaration - given when parties have at least 14 days or more prior to committing to the lease

  1. Statutory declaration - given when parties have less than 14 days prior to committing to the lease. This must be made before an independent solicitor
44
Q

Explain what you understand by the planning use classes

A

Defined by UK government and uses to categorise and regulate the use of different types of property. The use classes system is a way of determining the most appropriate use for a particular property, and is used by local authorities to guide planning decisions.

The use classes exist to provide a consistent framework for the planning system to manage and control the use of land and buildings.

45
Q

When were these last amended and what changes were made?

A

1st September 2020

Introduced three new use classes - Class E (commercial, business and service), Class F1 (learning and non-residential institutions) and Class F2 (local community including use as a shop of less than 280 sqm selling essential goods)

A1, A2, A3, D2, D1 part and B1 are now part of Use Class E
A4 and A5 are now sui generis

46
Q

How do you assess tenant covenant strength and what security might you request as a result?

A

By evaluating the tenant’s financial capacity to meet their obligations under the lease. This includes reviewing financial statements, analysing credit rating and checking payment history with previous LLs

Additional security:
Rent deposit
AGA
Letter of credit - issued by bank, acting as a guarantee that the tenant will pay rent
Personal guarantees - from directors or shareholders to pay any rent arrears or other debts

47
Q

What money laundering checks do you undertake during agency work?

A

Customer Due Diligence to identify and verify the identity of clients

  1. Identity checks
  2. Source of funds checks
  3. PEP checks
  4. Enhanced DD checks if required (potentially higher risk)
48
Q

What is the profits test and how would you apply it?

A

Test used for advising the requirement for a rent deposit to be in place.

The test is whether the net profit exceeds three times the annual rent for three consecutive years.

Advise the client to discuss with their accounting/finance team to confirm

49
Q

In a new leasing deal how might you include a pandemic rent suspension clause?

A

It should be negotiated and agreed upon by both LL and T before the lease is signed. The specific details of the clause may vary depending on the circumstances:

  • A definition of what constitutes a pandemic or other event that triggers the clause
  • A timeframe for the suspension of rent payments
  • A provision for the tenant to pay the suspended rent at a later date (lump sum or instalments)
  • Any other relevant conditions such as effect on other lease obligations during the rent suspension period
50
Q

What issues might you face when agreeing this type of lease term?

A

Difficulty in negotiations:

LL and T might have differing views on the extent to which rent should be suspended and how long for

Definition of pandemic as well as trigger points

Impact on future leasing as it may set a precedent for future leasing deals

The LL may refuse to negotiate on the clause and as a result a deal cannot be agreed to let the premises

APC 2023 (37 decks)

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