prop man Flashcards
Break clauses requirements
Vacant possession
no breaches in lease
no arrears
good state of repair (reinstated)
what would you first do when receiving a break clause
notify the client lawyer to ask if it has been served correctly, notify client
What about rent payable for break period
Read the lease, the full quarter would be payable and no refund unless there are explicit provisions in the lease.
Not to be unreasonably with held or delayed act?
L&T 1927 -
Use of accounts for covenant strength
Profits test 3x rent
All assets less liability = net worth stable over a 3 year period
Impact of covid 19 – Moratorium ?
Moratorium
- Restrictions on enforcement options for landlords
- CRAR prohibited unless a tenant owes more than 554 days of unpaid rent which pre dated the pandemic
- Insolvency protection for companies
- Statutory demands & winding up petitions prohibited where the companys inability to pay rent is the result of covid 19 n
- Moratorium preventing creditors taking actions during the period of protection
- Moratorium on forfeiture
- Suspension of the right to forfeit commercial leases for non-payment of rent – protection ended 24 march 2022
- Commercial rent act 2022 now in effect
- Protected vs un protected debt
Concession to combat ? covid arrears
Rent deferments
- No rent for a period of time, pay back monthly instalments
- Betting that we will be paid back later, could be a risk
Rent concessions
- Remove break option increase the term certain of the lease via deed of variation
- Provide additional rent free
- Increases capital value
Rent deposits
- There for that reasons, however uses up liquidity and back up, less guarantees
Guarantors and former tenants (AGA)
- Pursued
- Via section 17 notice within 6 months of tenant defaulting
Generally LBA (letter before actions) starts conversation vs actually actions
Ring fenced income
- All of debt 21 march 2020 to 25 march 2022 (different for each sector) ring fenced and protected, cant send bailiffs out
Give me some specific lease terms that influence the governing of property ?
Repairs, I would be asked which was liable for the repair of certain areas of a property. Check repairing provision. External repairs included ? FRI ?
Key drivers of value in a lease?
- Term
- Passing rent
- Rent reviews (OMR or fixed? Or RPI?)
- Break
- Incentives
- Exclusions of the act
- Insurance
- Repairs ? – all-inclusive large landlord costs
Lease vs a licence ?
- Street vs Mountford (1985)
- Longer than 6 months
- Exclusive possession (sharing part of a room, no)
- Payment of rent (can be peppercorn)
- Leases can usually be assigned whereas licence is personal to an individual/ entity (usually an alienation clause)
What would happen if you billed someone after expiry and the lease was outside the 54 act?
- It becomes a periodic tenancy
- Can be reversed – raise a credit
- You a referring that they can remain in-situ, can causes implications on whether or not you can force them to vacate
Landlord covenants act 1995 ?
- Assigning of a lease is the end of the direct relationship (abolishment of privity of contract)
What would you do to secure income in the case of an assignment ?
AGA
Rent deposit
What is an aga
An AGA is an agreement which places an obligation on an outgoing tenant to guarantee the performance by the new tenant or “Assignee” of the tenant covenants contained in the lease.
What about repairs from an aga
If the Assignee fails to perform the tenant covenants in the lease (which include payment of rents and repair obligations) the AGA allows the landlord to pursue the outgoing tenant under the terms of the AGA.
How long does an AGA last ?
It is usual that an AGA lasts from the date the outgoing tenant sells their interest in the lease to the Assignee until that Assignee has validly disposed of their interest in the lease to a third party or until the term of the lease comes to an end (whichever is sooner).
However tenant maybe able to negotiate a time limit
When should you require an AGA
The Code for Leasing Business Premises in England and Wales 2007 provides that an AGA should only be required by the landlord if the Assignee is of lower financial standing than the outgoing tenant or if the Assignee is registered or resident overseas. It is suggested that for smaller tenants a landlord should accept a rent deposit from the Assignee instead of an AGA from an outgoing tenant.
When would an aga be void?
Under statute, an AGA is void if it seeks to impose any further liability on the outgoing tenant than that contained in the lease.
Impact of ‘reasonable circumstances’ 1995 act
enants can seek to agree with the landlord that an AGA will only be necessary if the above factors are relevant. Alternatively a tenant can seek to negotiate that any lease expressly states that an AGA will only be provided if at the date of assignment it is “reasonable in the circumstances”. Without the inclusion of the reasonableness wording in a lease a landlord may be able to insist that the outgoing tenant enters into an AGA as a condition of the landlord giving consent to an assignment, even if the covenant strength and financial standing of the Assignee is greater than that of the outgoing tenant.
Consideration for the 54 act with an AGA
If the lease has security of tenure then we should ensure the AGA will extend past the contractual term. ‘during the holding over period’
Leasehold property (repairs) act 1938 and Law of property act 1925
- Serve section 146 notice on the occupier if they are not complying with their repairing covenants
- You have grounds as the landlord to ensure that they do
- First stage to surrendering a lease because they are failing to keep up with they repair
How do you action an aga is defaulting
section 17 notice within 6 months of tenant defaulting
1995 act strict on this
MEES
- Tightening
- 1st april 2018 all new lettings to have E or above
- 1st april 2023 min EPC E for existing tenancies as well
- This has been suggested to rise to C
- Unless valid reasoning
Valid reasoning for not complying with EPC requirements?
- 7 year payback test – obtain 3 quotes, upload copies of costs calculations, exemption last 5 years then the LL must try again
- All improvements made exemption
- Devaluation – making the property more energy efficient would devalue the property by 5%
EPC exemptions
- Listed building
- Temporary building
- Place of worship
- Detached building under 50 square metres
- Due to be demolished
- Vacant
Health and safety at work act 1974 application to management ?
- Puts responsibility of the controller of the space and employer of the time
- Bound to having a fire warded each occupier
- In control of the property I.E. Savills for the common areas, tenants to their demises
- Duty holders are either the landlord or the tenant
- Similar to asbestos – duty hold is the controller of the space
Can you explain some key sections of RICS guidance note commercial property management?
- Highlights PM key duties
- Additional responsibilities
- Provides advice on these
- Occupier liaison – regarding ensuring occupier knows the PM, seeking regular contact with each occupier, emergency contact details.
- Collection of monies – Rent, service change and insurance, Ensuring that information inputted in to our databasing system is accurate (accurate billing), reconciliations.
Please can you talk me through level 2 licence to alter?
- I received request – storage mezzanine
- Read the lease, alterations clause and requested information regarding the works, plans, sketches, as well as RAMS
- Identified that the works would require landlord consent and due to the works being of structural nature review from our building surveyor team
- liaised with the occupier asking them to confirm that they would cover relevant legal and surveyor fee
- After receiving confirmation from the occupier, I requested a review of the plans from a BS team and FM to review the RAMS
- After receiving their confirmation that the works were good and rams satisfactory
- I was then able to recommend to my client that the works go ahead and be documented via a licence to alterations
How did you determine whether the works were structural or not?
- I am not qualified to determine the whether alterations are deemed structural or not, however I will always liaise with my colleagues in BS to confirm whether or not alterations are deemed structural.
How did you determine whether LL consent was required?
- Key terms in the alterations clauses details what sort of alteration will require LL consent I.E. drilling in to the cladding or slab flooring.
What else could you have requested from the tenant before the licence to alter was drafted?
- An undertaking for costs at the commencement of the instruction
What is RAMS and why was it need in this instance?
- Risk assessment Method statement
- It details the potential hazards and risks and a method statement which details step by step guidance to mitigate these risks
- It ensures that the contractors are carry out works with safe working practices are being adhered to, to prevent injury to people on site
What act relates to Not to be unreasonably withheld or delayed
Landlord and tenant 1927 act
What is public liability insurance
provides cover for personal injury, death or damage to third party property. It also provides cover for the claimant’s costs and the insured’s defence costs.
What is the significance of unreasonable withhold or delay
You need reasonable grounds to opposed licences
You cannot unreasonably delay the process of licencing
What if a tenant proceeds with alterations with out permission ?
- If the landlord is happy
o Retrospective licence to alter - Un happy
o If reasonable grounds to refuse the works remove and reinstate the premise
o May be able to provide a revised scheme
o Breach of contract forfeiture of the lease
o LL to seek compensation arising out of losses
When would you refuse a request for alterations
- Devaluing the property
o Structural integrity compromised
o EPC implications
When would you complete a licence to alter?
o Before the works take place ideally although it could be done retrospectively
o Any alterations undertaken to the property which are not permitted under the terms of the lease and are stated to require landlord consent
What are the functions of a licence to alter?
o Protects parties at rent review and dilapidations at the end of the lease
o Most licences require the tenant to reinstate the demise at the end of the lease
What guidance does the RICS provide on licences to alter?
o RICS guidance note on Licence for Alterations 2013
Explain the basis of the LL and T 1927 Act?
o If a lease prohibits improvements to the demise without ll consent section 19 of the act imposes proviso that consent cannot be unreasonably withheld
o If section 19 procedures have been followed then the ll may be obliged to pay compensation for the alterations that may constitute improvements
o In the case of alterations – if the lease contains a qualified condition then the landlord consent is deemed not to be unreasonably withheld where work is improvement
o Fully qualified covenant
Talk me through your level 2 management report?
o I completed monthly management reports as part of my role in property management
o These report contained information regarding updates to the tenancy schedule, collections as well as up and coming lease event
o On one of our meetings our fm said that one of the tenants were considering exercise their option to break
o I used my report to identify how long they had to serve notice and what terms where need to be met
o I also detailed that due to numerous rental arrears they could not trigger the break clause
What other terms had to be met in order to trigger the break clause?
o Payments up to date (Break Date)
o Compliance with tenant covenants – particularly regarding repairs, yield up and putting the premises back in the condition it was when the tenant moved in. The test for material compliance is object and is based on how quickly the premises can be re let without the ll incurring expense or delay
o Vacant possession - any trading, building works, or repairs must be carried out before the break date, as if the tenant cannot give vacant possession on that date then the break clause is not valid and the lease continues to be binding.
Rent collection what are the key aspects?
o Accuracy of information – if we bill after expiry on a lease that is outside the act then it could create a periodic tenancy
o Timing
What are the remedies available for rent default
o Court proceedings
o Rent deposit
o Pursuing former tenants or guarantors S17 Notice
o Serving statutory demand
CRAR
Statutory Demand
Preliminary step to pursuing bank ruptcey or winding up proceedings. This can put pressure on a tenant to pay arrears. Advisable only when there is not dispute about the level of arears. Tenant has 21 days to pay arrears. After this time the landlord can present a bankruptcy or winding up petition to the court if the arrears are over £750.
How do you recover S/C arrears
Statutory demand
Talk me me through CRAR
o Only available to commercial ll
o No min amount of arrears
o Only for rent and vat
o Set of conditions that need to be met:
o 7 days unpaid rent
o 7 clear days of notice
o Enforcement agents visit
o 2 clear days to follow
o Re entry by enforcement agented to seize goods
o All 7 clear days before slae of goods
o Fees specified on the entry notice
Talk me through your l3 – licence to sublet
- I received a request to carry out a subletting of a industrial unit located in Gillingham
- First I read the lease having regard to the alienation clause of the lease
- Which detailed that the subletting would require landlord consent and be let at open market rent
- I then requested to review the HOT of the sublet once satisfied that the terms were in keeping with the lease
- I notified my client of the request and followed my clients in house licencing process which involved me commissioning a financial review and sanction check
- Once I had receive confirmation that these were satisfactory I advised my client that sublet should go ahead and that the agreement to open market rent would help support future lettings on the estate to enhance capital value
- I liaised with the tenant requesting that they confirm they were happy to cover the relevant legal and surveyor fees
Explain relationship of a sublet and how this differs from assignment
- In a sublet a the new tenant has a direct relationship with the current tenant, they then pay them the rent, who then pays the landlord
- In an assignment, the new tenant has a direct relationship with the landlord
Why would you sublet rather than assign?
- Requirement of the lease
- For part of the demise
- If market rent is higher than passing there is a profit rent
- If the tenant wants to re occupy
- The new party is of lesser covenant strength
Was a rent deposit agreed?
- Yes there was a rent deposit agreed as part of the HOT
- Additional funds to the head tenant further substantiated our case
Why might you refuse a subletting ?
- Proposed rent is below market rent
- Effect on investment value
- statutory basis
o Company was on UK sanctions list
o proposed use was not in line with that in the lease
Explain basis of landlord and tenant covenants act 1995?
- Relates to the assignment of leases
- Came in to force 1st jan 1996 (new lease)
- Abolished privity of contract – the original tenant is no longer liable for the coveants of the lease after it has been assigned
- In its place it provided AGAs, under an aga an out going tenant can agree to guarantee the performance of the covenants by the incoming tenants.
- LL must seek other methods to remedy poor paying tenants
Ensure assigned parties compliance with covenants?
- Rent deposits
- Guarantors
Talk me through your level 3 licence to alter
I receive a request from an incoming tenant to undertake a tenant fit out for them to carry out their business operations, vehicle servicing and detailing facility
Before requesting permission I read the lease and requested details regarding the works they were hoping to take out
After reviewing the works I identified that the installation of spray booths involved cutting in to cladding and roof of the demise
Aware extensive degree of works and possible implication this could have on the properties epc rating I advised the tenant and client that we would require my colleagues in building surveying to review the works.
After receiving confirmation from my colleague that the properties epc rating nor structure would be effected by the alteration I was able to advise my clien that alteration would not de value the property.
As such I requested a review of rams from our fm and advised my client that the alteration were okay to go ahead
Following up I emailed the tenant requesting them to confirm that they would be able to cover the relevant fees associated with the licence
Who signed the licence to alter?
Parties of interest
Landlord
Tenant
Whats included in a licence to alter
Particulars – landlord, tenant, property, the lease, the works
Background – tenant wishes to carry out alterations and requires ll consent
Definitions
Consent
Tenant obligation: complete works in good workman like manner, in line with its planning consent, making good the works and reinstatement unless notified 3 months before termination of the lease, tenant costs to reinstate the property
Plans of the works appended
Final stage of a licence to alter
Inspection to ensure that the works have be completed in line with the licence to alter
English Quarter days
(25th March), (24th June) (29th September) and (25th December)
What rule of conduct does the RICS professional statement handling client money based on
rule 1: firms must act with honesty integrity, maintain their professional obligations to themselves and those to the RiCS
What is Service Charge ?
Service charges are an amount that tenants pay to cover the cost of providing communal or shared services to a building and, if applicable, the surrounding estate.
Mandatory service charge requirements
1 All expenditure that the owner / manager seek to recover must be in accordance with the terms of the lease
2 Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services
3 owners and managers must ensure that service charge budgets, including appropriate explanatory commentary are provided annually to all tenants
4 Owners and managers must ensure that an approved set of service charge accounts showing true and accurate record of the actual expenditure constituting service charge are provided annually to all the tenants
5 Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all their tenants
6 Service charge monies (including reserve or sinking funds) must be held in one or more discrete bank accounts
7 Interest earned on service charge accounts - or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates - must be credited to the service charge account after appropriate deductions have been made.
8 where acting on behalf of a tenant, practitioners must advise their clients that of a dispute exists any service charge payment withheld by the tenant should reflect on the actual sums in dispute
9 When acting on behalf of a landlord, practitioners must advise their clients that following resolution of dispute, any service charge that has been raised incorrectly should be adjusted to reflect the error without undue delay.
What would you do if you took the property back vacant
Talk to insurers and follow their protocol, turn off services.
What are dilapidations
take place at lease expiry to bring the property back to its condition at the start of the lease assuming there is a repairing liability
What would you do regarding dilapidations
Check lease terms to understand the repairing responsibility of both parties and whether there is a schedule of condition, also check is there are any licences to alterations, tenant usually required to reinstate the property to how they took it.
What are the two choices a before lease expiry date with regards to dilapidations
Tenant can agreed to do the works
Tenant can pay a sum to the landlord to undertake the works
3 types of schedule of dilapidations
Interim Schedule - served by l or t with at least 3 year remaining
Terminal Schedule - served in last 3 years
Final schedule - served at or end of lease event (ll wants to agreed compensation for damages)
Outline a schedule of dilaps
Outlining repairing obligations
state remedy and the costa approach
fees for the claim regarding surveyors and lawyers
Negotiations conducted on a without prejudice basis until agreement reached
If agreement not reached the landlord surveyor may be required to prepare Scott schedule for the court / ADR
What if an alteration was an improvement
under the 1927 act the landlord my be required to pay compensation to the tenant, although they could suggest that the landlord pays for them (lease may exclude the right to compensation)
Insurance
Landlord arrange and recharge tenants
covers reinstatement of the building for a range on insurance purposes
GIA measurement
vacant property
insurance requirements for empty demise
obtain epc
risk assessment
inform rating team
drain water
turn off services
maintain AMP
Late payments of rent?
read the lease
2-4% above the bank base rate for 7 - 14 days after rent payment date
Talk me through statutory demand
Preliminary step to pursuing bankruptcy or winding up proceedings. puts pressure on tenant to pay arrears
only when no dispute over arrears
tenant has 21 days to pay
after this time landlord can present bankruptcy or a winding up petition to the court if the arrears are over £750
What if a head tenant stop paying rent?
LL can serve section 6 notice of the Law of Distraint Act 1908
requires subtenant to pay landlord directly until arrears are paid offby head tenant.
remedies for a breach in repairs
serve section 146 (set out time scale to resolve the issue and course of action should they fail to comply)
Forfeiture of the lease
Serve interim schedule of dilaps
LL re-entry to do the works - Jervis and Harris 1996 -
Three stages of PMP
Cyclical maintenance - regular maintenance
Preventative maintenance - future repairs
Responsive maintenance - repairing a leak say
What are the aims and objective of the s/c professional statement ?
Improve general standards and promote best practice
Uniformity, transparency and fairness
ensure timeliness issue of budget
reduce disputes
involves 9 mandatory requirments regard service charge
Whys of apportioning s/c
floor area
fixed %
RV
Weighted floor area - shopping centres
What is a sinking fund
involves periodically setting aside funds for a wasting asset (aircon major plant)
what is a reserve fund
fund formed of monies used for anticipated future costs (prevents major fluctuations in s/c) - external cleaning and redecoration
What is occupiers where not using the demise in line with their planning use
Notify client and occupier
breaching terms of the lease
could forfeiture
When should s/c budget be issues
1 months before s/c year
When should the tenants receive detailed statements of account expenditure
within 4 months of s/c year end
What if you have a s/c surplus
return to the tenants
What if a lease inside the 54 act ends
holding over
Planning for your l3 alterations
yes pp was pending, ensured licence detailed this
