Mock Questions Transcribed (Viv) Flashcards
I’m going to go straight in there and look at your comparable evidence, which you haven’t really touched upon in your presentation. What was your best comparable and why?
My best comparables in this instance were recent transactions in the building - they were contemporary (within the last 2 years) and open market transactions carried out by my firm, so I had full evidence.
- The most recent deal was to a Software company on the 3rd floor in 2020. They took a 5-year lease with a 3rd year break at £52.50 psf (5 + 5 rent free).
- They also took a separate lease on the 1st floor in 2020 on the same terms (with 4 months rent free).
- I also had reference to the previous deal on the 4th floor in 2019 - this was at £52.50 psf (although I was fully aware market conditions have changed a lot since then and analysed contemporary evidence as well)
- On a Headline Basis my closest external comparable was 9 Holyrood Street - £57.50 psf in 2021.
Talk me through how you calculate Net Effective Rents, because in your case study you give an ‘Achieved Rent’ - not a Net Effective. Surely there’s a reason why you didn’t put Net Effective on your schedule?
I established the Headline Rent first so that I could devalue it to produce a Net Effective Rent - to reflcet the ‘true market rent’.
I used the Straight Line basis in Excel until the next lease event.
To do this, I aggregated the cost of all rental payments (to include rent-free / any other concessions) and divided this by the term certain.
I would deduct a 3-month fitting out period from the rent-free before devaluing (unless the space was ready fitted).
How did you calculate the Net Effective Rent for 9 Holyrood Street?
The headline rent was £57.50 psf.
I aggregated the cost of the rent (to include the rent-free period) and divided by the term certain (3 years as this was the break). It was ready fitted so no deductions were needed for fit out.
Did the calculation of Net Effective change the weighting of your comparable evidence in any way? Could you tell me how and why?
It did change the weighting - it devalued the headline rent to produce the ‘true market rent’.
Having analysed the Net Effective Rent, the evidence was clear of challenging market conditions off the back of the pandemic. Landlord’s were clearly granting longer rent-free periods (2.4 months per term certain).
The result was roughly a £5.00 psf devaluation of the headline rent.
You say you do it on a straight line basis in Excel - talk me through how you do that in a bit more detail please?
I use the straight line basis in Excel until the next lease event.
To do this, I aggregated the cost of all rental payments (to include rent-free period / any other concessions) and divided by the term certain.
I would deduct a 3-month fitting out period from the rent-free before devaluation (unless the space was ready fitted).
Do you do the cash flow to the first lease event or for the whole lease?
To the first lease event
Do you allow any normal fitting out period or do you take the whole incentive?
I deduct a 3-month fitting out period from the rent-free before devaluation (unless it is already fitted out).
You say this is of Grade B specification - how does the specification vary to a Grade A building? Can you give me 3 or 4 differences please?
It was Grade B = there were no bike racks / showers in the building, the common parts were dated, the air conditioning was simple comfort cooling as opposed to VAV/VRF/Fan Coil.
When you compare it to the BCO specification, it was apparent. BCO define Grade A specification as:
- Full access raised floor with floor boxes
- Approximate ceiling height of 2.6 - 2.8m
- Ceiling void of 350mm and a raised floor void of 150mm
- Maximised opportunity for daylighting
- Air conditioning and double glazed windows
- 1 cycle space per 10 staff, and 1 shower per 100 staff
- 1:8m2 to 1:10m2 occupational density
BCO 2023 update - recommending the adoption of 1:10m2 occupational density.
Also a minimum target of BREEAM Excellent for new schemes.
What was the floor-to-ceiling height, because in your photo it looks quite low? And how does this compare to what the BCO guide for Grade A?
4th floor: Floor-to-ceiling height was 2.3m
BCO Guide for Grade A = 2.6m - 2.8m
You granted an 8-month rent-free period. If i picked up the lease having completed the letting, how was that rent-free period documented in the lease?
I would look at the lease start date vs. the rent commencement date.
What was the process of getting the lease Outside of the L&T Act (1945)? How was it documented between lawyers? As an agent you should know how that’s done, perhaps…?
Section 38A of the Act sets out the procedure which must be followed for the Landlord to contract outside of the Act.
To contract Outside of the Act, a strict procedure must be undertaken.
The Landlord is required to serve a notice on the prospective tenant - warning that the proposed lease will not be protected. This is know as a ‘Health Warning’. (To advise the tenant they are being offered a lease which is not protected, and the tenant should not commit without professional advice).
The proposed tenant must then make a declaration in response, confirming that they have recieved the notice and accept its terms.
This procedure MUST be completed before the lease is signed.
There are 2 types of declaration:
1) SIMPLE DECLARATION = Given when the parties have recieved the warning notice at least 14 days or more prior to committing to the lease. (No need to track down an independent solicitor).
2) STATUTORY DECLARATION = Given when the parties have less than 14 days prior to committing to the lease. If this is the case, a “Statutory Declaration” must be obtained and requires an independent solicitor for oath.
How long is a Health Warning Notice when contracting Outside of the Act?
At least 14 days before granting a new lease. This would lead to a simple declaration. A simple declaration is just signed by the tenant (no need to track down an independent solicitor). A simple declaration can only be made if the tenant has recieved the health warning 14 days or more before grant of a new lease.
If the Health Warning is less than 14 days, a “Statutory Declaration” is required which must be made in front of an independent solicitor.
What are some of the main reasons for a lease to be granted Outside of the Act?
A requirement in the Head Lease to grant any subletting Outside of the Act.
The Landlord will want to reoccupy the property in due course.
The Landlord wishes to redevelop the property at lease end.
The Landlord wants future flexibility.
And what’s the main advantage for the tenant taking a lease Outside of the Act?
The rent will likely be lower for a tenant - they would pay a premium for Inside of the Act.
You said the common parts were quite dated - did you look at any discussions at all with the Landlord as to how they could be improved? What was there position there?
Part of my marketing recommendations report included refurbishment recommendations. This included:
New paintwork
Soft seating in reception
New passenger lift
Upgrading WCs
Going back to the rent-free period you agreed - was that initial or was it split out over the term, because I note there was a Tenant break at year 2?
The 8-months rent-free period was frontloaded in Year 1.
I strongly recommended amortising the rent-free over the duration of the lease term (to be taken as 2 months per annum).
This was negotiated with the tenant - however they would only accept if frontloaded in year 1. My client took a view and was keen not to lose the tenant and extend the void period even further than it had been.
Did you not consider splitting it out to incentivise the tenant to remain and not enact the break? This seems like a no-brainer doesn’t it?
Yes - I strongly advised amortising the rent free period over the duration of the term (2 months per annum).
This was negotiated with the tenant, however they would only accept if front loaded in year 1. My client took a view and was keen not to lose the tenant and extent the void period even further than it has been.
So there was clearly a big risk there that the tenant would use all the rent-free up for the 2-year period and then threaten to enact the break. What was the break notice period?
6 months.
(The required notice to exercise the break was 6 months before the break date).
Were there any conditions attached to the break at all?
Yes:
1) Up to date payment of all rent & service charge payments.
2) Making good and ensuring full vacant possession.
You mention there were terraces / balconies on the floor. Were they publically accessible? If they were publically accessible, how would you go about valuing them?
I attriute a higher rental value to them vs the other floors in the building. An element of outdoor space will generally command a rental premium.
(Strange question…)
What was the Rateable Value of the floor and what did you say to prospective tenants about that?
I am aware the VOA have revalued the Rateable Values of business properties and published a new Rateable Value list for England and Wales in April 2023 to reflect updated property market conditions.
The current uniform business rate for 2023 remains unchanged - this is £0.49 for RV’s less than £51,000 (small business multiplier) and £0.512 for RV’s of more than £51,000 (higher multiplier) in England.
So:
The Rateable Value for the 4th floor was £52,500. As this is higher than the threshold of £51,000, I use the higher multiplier (£0.512p). This = the Rates Payable of £14.50 per sq ft for the 4th floor.
What was the Service Charge for the building? What did it include?
The service charge was £7.39 per sq ft.
This is the amount the tenant will pay to cover the upkeep of communal / shared facilities.
Here the service charge included:
Lift maintenance
Cleaning of common parts
Lighting and power to common parts
Fire alarm maintenance
Maintenance of the exterior
Managing Agents (In this case Cluttons Property Management team).
Were there any major works planned for the building?
No - this was a ‘secondary investment’ for them
In your report you mention the Southwark Planning Restrictions in respect of a letting board. What were these briefly?
These mirrored the Town & Country Planning Regulations (2007). These were:
Planning permission MUST be required for letting boards over 2 sq m (flat) and 2.3 sq m (if V board).
Only 1 board per building.
1m max projection from the front of the building and NO illumination
Must have Landlord approval
Must be removed 14 days from completion of letting.
You mentioned the Hierarchy of Evidence. You also mentioned about previous lettings in the building which, to my mind, would be a very good indicator of value. What was the most recent transaction in the building?
The most recent transaction in the building was to a Software Company on the 3rd floor in Nov 2020 – they took a 5-year lease with a 3rd year break at £52.00 per sq ft (5 + 5 rent free).
They also took a separate lease on the 1st floor in Nov 2020 on the same terms but with 4 months rent free.
In terms of this being the 4th floor – what floor level adjustments did you make. If the building didn’t have a lift what level of rental adjustments would you make?
Being the top floor in the building and the only one benefitting from an element of outdoor space, the floor would command a rental premium.
However, the difference in natural light wasn’t noteworthy compared the lower floors.
Being the top floor is why it was important to ensure the headline rent remained at £53.00 per sq ft.
You mention about the Profits Test - what’s that?
The profits test is the market standard test to assess covenant strength (3x3).
The businesses’ net profit must be 3x the annual rent for 3 consecutive years (3 x 3).
Or the Net Asset Value of the business 5x the rent.
Also use an external Credit check – Dun & Bradstreet.
What was the EPC Rating for the building? What did you advise your client in respect of the regulations and changes happened the Energy Performance Certificates?
The EPC Rating was a D.
As of April 2023, all commercially property must legally have an EPC rating of ‘E’ or above to be let, including new leases.
I advised of future proposed legislation for the MEES to reach band ‘C’ by April 2027 and ‘B’ by 2030.
Interesting you say it’s D at the moment – what are you advising the Landlord in terms of upgrading the building, because it’s going to bite for him soon isn’t it?
Upgrading the Air Conditioning to VAV/4-Pipe Fan Coil/VRF.
Upgrade the lighting to energy efficient LEDs. Also install PIR motion sensor LEDs that turn off
Double glazing / triple glazing.
Recommend an EPC assessment to identify areas of upgrade.
Tell me about the Air Conditioning on the floor?
They were wall-mounted, air-conditioning cassette units of traditional comfort cooling.
These were electric and adjusted per floor.
You say you always adhere to RICS Surveying Safely (2018) – tell me how. Can you give me 3 or 4 takeaways?
The RICS ‘Safe Person’ concept – placing emphasis on the individual to ensure safety of themselves, colleagues and others health & safety.
Risk Assessments – Identify the ‘hazard’ and mitigate the risk.
Follow guidance for inspections – Appropriate travel arrangements, lone working, ensure PPE).
In your Level 2 example is an acquisition – a viewing tour of various offices. How did you establish your clients objectives and how did you relate that to the tour of the offices?
I arranged a meeting with the client to understand the key drivers behind their move.
I used a scoring matrix to benchmark their most important objectives and had regard to this when producing a shortlist for their review.
Did you give them any advice on their floor area requirements or had they got that themselves?
They had this themselves – they required 5,000 sq ft which was a slight downsize on their current floor.
You say some of the buildings were under construction. Talk me through how you identify approaching a construction site with your clients?
I call the building manager in good time prior to the inspection to find out what PPE was necessary and what was available on site.
I ensure all attendees sign in and out of the building register at the site.
I ensure I allocate extra time in between viewings to account for safety briefings.
I ensure I am aware of any hazards and identify the locations of fire escapes.
You say this is an office building under construction – what form of construction was it? How was it being built?
This was a new build scheme on White Lion Street of steel construction.
Are you aware of different types of office construction – have you come across a concrete frame building during your training?
The main types of office construction = Steel-frame construction & concrete frame construction.
How can you tell the difference between a Steel Frame Construction Office and a Concrete Frame?
Steel Construction = Less columns and a wider span between the columns
Concrete Construction = More columns, closer together columns and lower floor-to-ceiling height.
Looking at your Level 3 inspection example in Fitzrovia - there was a problem with damp in the building. Can you talk me through how that manifested itself and what the likely cause was please?
The main cause of the rising damp was due to a failure in the damp proof course or damp-proof membrane.
This meant that moisture from the ground could rise upwards through the walls via capillary action.
I am aware rising damp can also be caused by cavity wall tie failure – the cavity having debris in them allowing for moisture build up.
How high traditionally does rising damp rise? What did the damp look like?
Rising damp usually stops around 1.5m above the damp proof course.
I noted visible tide marks on the wall above the skirting board, peeling / cracking wallpaper and a musty smell.
What is damp proof course?
A layer of waterproof material at the base of a property to prevent rising damp.
