PE Leasing and Letting Flashcards
What legislation covers the disposal/acquistion of an interest in land (freehold or leasehold property with capital value)?
Estate Agents Act 1979
What does Section 18 say about Terms of Agency?
> Must be clear
> Must be agreed in writing, including any additional market costs or disbursements
> Must be itemised (not global)
What does Section 21 say?
> Must be open about personal interests
Personal interests must be declared in particulars and Heads of Terms (or don’t act if its inappropriate)
What should you do in negotiations according to the Estate Agents Act 1979?
> Act in the best interest of your client
Treat buyers/sellers honestly, fairly and promptly, i.e. give no misleading information and don’t discriminate
Inform client of offers in writing
Do you need to inform your client if you offer a service to a prospective tenant?
Yes
Under the Estate Agents Act 1979, do you need to belong to an approved redress scheme?
Yes
Who enforces the Estate Agents Act 1979?
National Trading Standards
What are these agency bases?
- Sole agency
- Joint sole agency
- Multiple agency
- Sole agency - 1 agent
- Joint sole agency - 2+ agents sharing fee
- Multiple agency - several agents and winner takes it all
Where would you find wording on agency rights to include in your Teams of Engagement?
> Estate Agents (Provision of Information) Regulations 1991
What is a ready, willing and able purchaser?
Fee due if purchaser introduced who is prepared and able to exchange unconditional contracts for purchase, even if client subsequently decides not to proceed
What are sole selling rights?
Fee due if unconditional contracts exchanged during period of sole selling rights, even if purchaser found by another agent or client. After expiry of sole selling rights, fee due if contracts exchanged with purchaser introduced during period or with whom agent had negotiations.
What are sole agency rights?
Fee due if unconditional contracts exchanged with purchaser introduced by agent or another agent or with whom agent had negotiations during period of sole agency. No fee due if purchaser found by client.
What does the Property Misdescriptions Act 1991 say?
Nothing - it’s been repealed
What was the main change brought in by the Consumer Protection from Unfair Trading Regulations (CPRs) & Business Protection from MIisleading Marketing Regulations 2008 (BPRs)?
Wider scope so cannot rely on caveat emptor principle
What is an average consumer under the CPRs/BPRS?
Reasonably well-informed, observant and circumspect (modified if the consumer is vulnerable or targeted)
What is material information under the CPRs/BPRs?
Required by average consumer to make informed transactional decision
Under the CPRs/BPRs, when may a commercial practice be deemed unfair?
- Giving false/misleading information
- Omitting material information (required to make informed decision)
- Aggressive practices, e.g. harrassment, coercion, exerting undue pressure
- Not acting with standard of care and skill in accordance with honest market practice and in good faith
- Engaging in banned practices
Are there any defences under the CPRs/BPRs?
- Due diligence
- Reasonable steps to verify information
- Signpost consumers appropriately
- Treat people fairly
Are you aware of any other relevant legislation?
Misrepresentation Act 1967
What is misrepresentation?
Misrepresentation of fact during negotiations which is relied upon and induces other party to enter contract
What can a misrepresentation be?
- Innocent
- Negligent
- Fraudulent
Is there any defence under the Misrepresentation Act 1967?
Reasonable grounds to believe facts represented were true
What does the Unfair Contract Terms Act 177 say?
- Terms of engagement must be fair and reasonable
- Exclusion clause to limit liability must be fair and reasonable (consumer only)
Name current RICS leasing and letting guidance?
RICS Real Estate Agency & Brokerage Professional Statement (1st Edition, 2016) (Purple Book)
RICS Real Estate Agency & Brokerage Professional Statement (3rd Edition, 2016)
Is a professional statement mandatory or advisory?
Mandatory
What does the Real Estate Agency & Brokerage (REAB) PS relate to?
Sales, letting, leasing and management of real estate
Under the REAB PS, should you appoint a sub-contractor without consent?
No
Under the REAB PS, should you appoint a sub-contractor without consent?
No
Under the REAB PS, do you need to inform your client if a dual fee liability may arise?
Yes
Under the REAB PS, can you disclose offers to other tenants?
Yes - if you have consent of your client and the tenant (and inform all parties)
Do you need PI insurance as a letting agent?
Yes
If you give advice on an anticipated market price or rent, does this constitute a formal valuation?
No
How long do you have to confirm offers in writing to your client?
1 day (2 in exceptional circumstances)
Can you fabricate offers?
No - see the Fraud Act 2006
What due diligence should you carry out on a letting or leasing instruction?
- Identify tenant demand and requirements
- Proposed rent and lease terms
- Check client is legal owner using Land Regsitry
- Consents (e.g. landlord, mortgage, guarantor)
- Any headlease terms impacting upon value/marketability
- EPC (see sustainability quiz)
- Asbestos risk register
- Access statement (Equality Act 2010 compliance)
- Floor plans - check demise
- Inspect
- Measure
- CDD under the 5th Anti Money Laundering Directive
Why would you check the head lease?
- Can you assign/sublet?
- Are there any side agreements/concessions?
- Are there any restrictions on use?
- Are there any other terms impacting on value?
- Is the lease inside/outside the Act?
- Is there a Service Charge?
What is alienation?
Ability to dispose of a lease or allow a third party to occupy
What is assignment?
Assignee steps into the shoes of the assignor (i.e. pays rent direct to the head landlord and assumes liabilities)
What is subletting?
Sub-tenant agrees sublease from head tenant and pays them rent. Head tenant remains in the picture and pays rent to the head landlord.
What does the Landlord & Tenant (Covenants) Act 1995 say?
- Applies from 1 January 1996
- For new leases, assignor (outgoing tenant) is automatically released from liabilities upon assignment
- For old leases, original tenant is liable until expiry (also includes subsequent tenants and guarantors who gave direct covenant in Licence to Assign)
- For old leases, original landlord (but not successors) liable until expiry
- Abolished pirivity of contract for new leases
- For new leases, successive landlrods liable until expiry unless released by tenant upon assignment or Court order granted on the grounds that the release is reasonable
- Under the new leases, no automatic requirement to provide a rent deposit or guarantor, although the landlord can require an AGA to be given when reasonable
Under the Landlord & Tenant (Covenants) Act 1995, what cannot be required as a prerequisite to assignment?
- No material breaches of tenant’s covenants
- No diminution in value of landlord’s interest
- Proposed assignee to be equivalent/better covenant strength
- Profit/asset test for proposed assignee
What is an AGA?
Authorised Guarantee Agreement - voluntary arrangement between landlord and most recent former tenant to guarantee lease obligations of immediate assignee, which falls away upon future assignment
Can a tenant assign to lease to it’s guarantor?
No - this would be void under the recent EMI ruling?
What does Section 19 1a of the Landlord & Tenant (Covenant) Act 1995 say?
Landlord can specify pre-conditions for assignment which don’t have to pass the reasonableness test (but they do have to be capable of objective assessment or independent review)
Why might a tenant prefer to sublet rather than assign?
May want to reoccupy at a later date?
What happens if there is no alienation clause in a lease?
The tenant is free to do what they want in relation to alienation
Why might a landlord prohibit subletting?
To retain control of who occupies the property
Which of these are typical conditions a landlord may include in a sublease clause?
- Subleases must be outside of the 1954 Act
- No subletting at a below market rent
- The subtenant must comply with the head lease
- The subtenant must provide a guarantor or rent deposit
- The sublease should contain rent reviews in line with the headlease
What is a pre-emption clause?
Landlord’s right to take back the premises in the event that the tenant wishes to assign or sublet their lease
What is a pre-letting?
Agreement between landlord/developer and tenant for occupation at a future date, e.g. Agreement for Lease plus pre-agreed form of Lease, Licence for Alterations etc.
Is an Agreement for Lease a binding contract?
Yes
Why might a developer or landlord use an Agreement for Lease?
- Reduces risk
- Can use to secure funding
- Kick starts larger schemes
- Can facilitate forward funding
Can an Agreement for Lease trigger a SDLT liability?
Yes - if it is substantially performed
What is a collateral warranty?
Creates direct contractural relationship -any tenant taking FRI lease will want these with professional team, main contractor and subcontractors with design input
What must you consider when erecting a marketing board?
Town and Country Planning (Control of Advertisement) (England) Regulations 2007
What planning regulatoins relate to marketing boards?
- Flat boards can be no larger than 2 sqm
- V boards can be no larger than 2.3 sqm
- 1 per building
- Must not project more than 1m from the wall
- Must not project >4.6m above the ground
- Need planning consent for illuminated, remote or boards erected on listed buildings or in conversation areas
Do you need your client’s consent to install a board?
Yes - see S13 Trade Descriptions Act 1968?
When considering tenant selection, what would you ask for?
- Bank, accountant and two trade references
- Previous or existing landlord reference
- 3 years audited accounts/business plan/credit rating
Why is tenant covenant strength important?
- It impacts investment value
- You need the tenant to pay rent on time
What is the profits test?
Net profit = 3x rent for 3 years OR net asset value = 5x rent
What security might you ask from a tenant?
- Rent deposit
- Guarantor
- Personal guarantee
- Rent paid in advance
What other leasing guidance or templates exist?
BFP Modern Commercial lease
RICS/British Retail Consortium Small Business Lease
If you were agreeing a new lease after a tenant vacated, what would you need to consider?
- Dilapidations liability - outgoing tenant could do works or pay a cash settlement
- Reinstatement provisions
- Compensation for tenant’s improvements
What is a Section 18 valuation?
Landlord and Tenant Act 1927 - limits landlord’s dilapidations claim to the lower of the cost to carry out the works (plus consenquential loss) or the diminution in value caused by the disrepair Dilapidations are £0 if redevelopment is proposed.
Is VAT always charged on rent?
Sometimes - if the property has a VAT election
How long does a VAT election last for?
20 years
Who may refer not to occupy a property where VAT is charged on rent (or may seek to negotiate a lower overall rent)?
Companies who are not VAT registered or have limited recoverability, e.g. charities, building societies
Is SDLT payable upon leases?
Yes - on lease premiums and the net present value of a new lease
What tax is paid on the occupation of non-domestic property?
Business rates
What is the current antecedent valuation date?
1 April 2015
What is the current rating list date?
1 April 2017
How do you calculate rates payable?
Rateable value * Uniform Business Rate (UBR)
When a building is empty, how long does an owner not have to pay rates for?
3 months (6 months for industrial properties)
What buildings are completely exempt from rates?
- Agricultural land and buildings
- Public religious worship buildings or church halls
- Buildings used for training or welfare of disabled people
What is the new business rates appeal system called?
Check challenge appeal
Who collects business rates?
Local Authorities
