Leasing & Letting/Purchase & Sale

Question 1

Tell me about legislation relevant to leasing & letting

Answer 1

Estate Agency Act (1979): this governs the work carried out by estate agents. Complying with the act helps to ensure that buyers and sellers are treated honestly and fairly. The act applies during the sale or purchase of freehold and leasehold properties. It covers the duties estate agents owe to their clients and 3rd parties

Question 2

Tell me about a legislation relevant to leasing & letting

Answer 2

Misrepresentations Act (1967): this is intended to provide a greater amount of security to parties entering into a contractual agreement. It ensures they’re not tied into a contract or that they don’t suffer any loss as a result of misrepresentation. The act applies for mis-statements, false/fraudulent statements during the pre contract stage

Question 3

What are the six principles of the Estate Agency Act

Answer 3

C H O N C I
Client money: kept in a separate account
Honesty and accuracy
Openness
No discrimination
Conflict of interest
Information: provided to the client before acting for them

Question 4

What does section 18 of the Estate Agency Act relate to?

Answer 4

Estate agents need to provide clients with written information before entering into a contract

Non-compliance results in:
Contract can become unenforceable agents claim for fees can be dismissed
Reduced fees to reflect the level of prejudice

Question 5

What does section 21 of the Estate Agents Act relate to?

Answer 5

Declaration of personal interests. Whether personal or connected parties. This must be declared as soon as possible and in writing

Question 6

What is a Ready Willing and Able purchaser

Answer 6

A clause in Estate Agents Act 1979.

A buyer is considered as such when they are in a position to exchange unconditional contracts for the purchase of a property. A client can be charged if they pull out of the deal when an agent has a Ready Willing and Able purchaser

Question 7

What is Code of Leasing Business Premises (2020)?

Answer 7

It is an RICS professional standard
The objective is to improve the quality and fairness of negotiations in lease terms and to promote the use of the new comprehensive heard of terms to make legal drafting of a lease more efficient

Question 8

What parts of the code are mandatory?

Answer 8

Part 1: negotiations of the lease, professional representation and agreements of the lease terms

Part 3: lease negotiations best practice advice

Part 4: Detailed HoTs template in Appendix A

Question 9

Tell me about a commercial Real Estate Agency

Answer 9

This is an RICS professional statement
It sets out the core principles that agents must observe to ensure they are working to the highest ethical and professional standards. It provides advice in key areas: (AS M I A)
Acting ethically
Securing instruction
Marketing the property
Implementing disposal
Acquisition of property

Question 10

What is alienation?

Answer 10

The right granted in a lease for a tenant to assign, sublet or share occupation of their property

Question 11

What happens if there is no alienation clause?

Answer 11

The parties are free to to do with the lease as the please. This is rare though. Generally, the alienation provision confirms whether a tenant can assign and or sublet the lease

Question 12

What is the Landlord and Tenant Act (1995) and how does it affect you?

Answer 12

It relates to assignment of leases. It became effective in January 1996. The act abolishes privity of contract for new leases and gives landlords more scope for settling conditions regarding the approval of an assignee. It introduced Authorised Guarantee Agreements

Question 13

What is an Authorised Guarantee Agreement and what does the Code of Leasing Business Premsis say about it?

Answer 13

They are agreements in which the outgoing tenant will act as a guarantor for the sub-tenant they have assigned their lease to.
Code of Leasing Business Premises states that although AGAs are expected by landlords, tenants shouldn’t enter into one of the assigned tenants pays a deposit or are financially strong enough to

Question 14

What is section 19 of the Landlord and Tenant Act?

Answer 14

Landlord and Tenant (Covenant) Act 1995 inserted into s. 19 of the L&T 1927 act a subsection 1A. It allows the parties in a new tenancy to set out (in a lease or other documents) the circumstances in which consent for a lease assignment can be accepted or rejected

Question 15

What is an agreement for lease?

Answer 15

This is 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 the lease either on a fixed date or following the satisfaction of conditions set out in the agreement

Question 16

What is contracting out of a lease?

Answer 16

This is where the landlord gives statutory notice- standard form of warning about the L&T 1954 Act being lost. It is normally written in the lease stating the lease is exempt for L&T 1954 so they lose the right to automatically renew their lease at the end of the term

Question 17

What are the 4 methods of sale?

Answer 17

Private Treaty
Formal Tender
Informal Tender
Auction

Question 18

What is Private Treaty?

Answer 18

This is the negotiation of a sale between a buyer and a seller following advertisement via an agent. It has set asking terms
Adv.: advertised price can be negotiated. It is inexpensive and the private seller holds all the control
Disadv.: it has longer timescales

Question 19

What is Formal Tender?

Answer 19

This methods is normally used for sale of land or public contracts.
Formal bids are received from potential purchasers. There is no opportunity for them to change or withdraw the bids once submitted. Bids get reviewed in the presence of an independent witness. The sellers agent can make recommendations on which bid to accept and it doesn’t necessarily have to be the highest one

Question 20

What is an Informal Tender?

Answer 20

This is used when there is a strong demand for a property and negotiations need to be brought to a close following marketing by private treaty. The sellers agent sets best and final bid dates with each potential buyer having the opportunity to place more than one bid. The seller can see all the bids made for greater transparency.
The costs tend to be higher than with private treaty. It is not legally binding. The buyer may be charged a fee

Question 21

What is Auction?

Answer 21

This is used when a property has been repossessed or is in such poor condition that it is unmortgageable and requires a quick sale. Terms of sale are agreed between the seller and auctioneer prior to the auction. A binding contract forms when the hammer hits. The winner must have the deposit to hand on the day and be in a position to close prior to a set date.
Due to the competitiveness of the bidding, the seller may get a higher price than asking

Question 22

What are the different types of land interests?

Answer 22

Freehold
Leasehold
Beneficial
Easement
Covenants

Question 23

What is SDLT?

Answer 23

Stamp Duty Land Tax
This is a tax payable by a buyer in respect of the transfer of land and buildings. For non-residential/nixed use properties:
If the property value is
£0-£150k SDLT is £0
£150,001-£250k. SDLT is 2%
£250k+ SDLT is 5%

Question 24

What is the difference between freehold and leasehold?

Answer 24

Freehold is when the owner has complete ownership of the property and the land that it is on with no expiry date. The property can be passed down generations or sold at the owners discretion

Leasehold is when the owner has temporary rights to occupy the property for a set amount of time. Usually under a long term lease from the freeholder. When the lease ends, ownership reverts back to the freeholder

Question 25

What is CPSEs?

Answer 25

Commercial Property Standard Enquiries.

These aim to speed up a commercial property transaction by providing a prospective buyer/tenant with the essential information about the property. They are a standard pre-contract set of enquiries passed as a document from buyer to seller (think questionnaire brochure)

Question 26

What economic factors impact tenant demand?

Answer 26

Interest rates
Employment
Inflation
Market trends

Question 27

How does VAT affect letting?

Answer 27

A landlord can choose to elect a property to charge VAT or to recover VAT on costs expended. When this happens rent (and service charges, rates etc, if applicable) will be charged subject to VAT

Question 28

What are the EPC requirements for letting properties?

Answer 28

All rented properties are required to have an EPC certificate of arbor higher unless exempt. The government aims to raise minimum EPC standards to C by 2027

Exemptions: listed buildings, heatless buildings, temporary buildings, bushings due to be demolished/redeveloped and mixed use buildings

Question 29

What are the EPC requirements for letting properties?

Answer 29

All rented properties are required to have an EPC certificate of E or higher unless exempt. The government aims to raise minimum EPC standards to C by 2025

Exemptions: listed buildings, heatless buildings, temporary buildings, builings due to be demolished/redeveloped and mixed use buildings

Question 30

How long after a property is on the market do you have to show an EPC?

Answer 30

You can’t put a property in the market without having commission an EPC

Question 31

Where does the EPC have to be shown?

Answer 31

EPCs must be ordered/commissioned before you market a property. In Scotland it must be shown somewhere inside the property such as in the boiler cupboard

Question 32

How does MEES affect leasing practices?

Answer 32

Minimum Energy Efficiency Standards make it unlawful to let a property with an EPC rating below E
By 2027 commercial properties need to achieve a C rating
By 2030 this should be raised to a B. (Currently only 12% of properties have a rating of B)

Question 33

Can you let a property rated F or G. How do you improve a rating?

Answer 33

No

Ways to increase a rating can include:
Switching to LED lights
Insulate hot water cylinders
Install heating controls
Switch from single glazed to double glazed windows
Install/upgrade loft insulation
Install wall and floor insulation

Question 34

What type of due diligence should estate agents take?

Answer 34

Customer due diligence: identify the client using a reliable independent source e.g. passport. Identify the beneficial owners (companies house)

Enhanced due diligence: required for any transaction or business relationship involving an established person in a high risk third world country. EDD’s require additional evidence and monitoring

Question 35

What are the different methods of agency?

Answer 35

Sole agency
Joint agency
Multiple agency
Sole Selling Rights

Question 36

What is the difference between sole agency and sole selling rights?

Answer 36

Sole agency:
*Single agent has right to market the property
*no sale no fee
*lower commission fee to agent
*less market coverage so joint agency is better

Sole Selling Rights:
*If the client makes the introduction, the agent still gets the fee
*includes “Ready, willing and able purchaser” clause (Estate Agents Regulations 1991)
*Client can be charged a fee if there is a ready willing and able purchaser and they pull out of the sale

Question 37

What is the Property Misdescriptions Act 1991?

Answer 37

Makes it an offence to make false or misleading statements about specified aspects of a property (or land) for sale by an Estate agent. Any information provided must be accurate and not misleading

Punishment under the act includes: fines up to £5,000 in magistrates court or an unlimited fine in crown court.

Question 38

What is CPRs and BPRs?

Answer 38

Consumer Protection from Unfair Trading Regulations and Business Protection from Misleading Marketing Regulations (2008)

Replaced Property Misdescriptions Act (1991)- Repealled in 2013.

They are legislation to stop businesses from engaging in unfair commercial practices to make a consumer make a different decision regarding a transaction such as:
*Giving false/misleading information
*Hiding/failing to provide material information
*Acting aggressively
*Not acting professionally

Question 39

How do you test a tenants covenant strength?

Answer 39

*Profits test = Business profits is 3 x more than the rent
*Credit ratings
*Landlords reference
*3 years of audited accounts
*Business plans
*If they use a guarantor

Question 40

What do you know about CPR?

Answer 40

It controls unfair practices used by traders when dealing with consumers, and creates criminal offences for traders that breach them.
*You must not mislead customers
*Particulars must be accurate

Question 41

Tell me about changes to use classes?

Answer 41

The new Class E encompasses commercial, business and services (A1, A2, A3, D1 and D2)

Question 42

What factors impact letting value/lease terms?

Answer 42

*Alienation
*Rent review clause
*Repair obligations
*Break clause
*Energy performance
*Security of tenure (contracted out?)