Property Management Flashcards
1
Q
How would you set up a service charge account?
A
- Check the terms of the tenant’s lease, any excluded items
- Executive summary of services with a budget, forecast and actual expenditure at year end
- A service charge budget is prepared at the start of the SC period (contained in the lease)
- Sweeping up provision for overspend
- Service charge demand is based on budget
- Services will include:
- Management fees for the building
- Utilities
- Soft service e.g. cleaning, waste management, maintaining service road
- Hard service e.g. M&E repair, repairs and maintenance (roofing, lighting, paving)
- Any exceptional expenditure e.g. Christmas decorations, signage
- Lifts (check if GF tenants are responsible)
- Contribution to sinking fund
- Apportioned by floor area, rateable value, weighted floor area
- Services should be tendered regularly, say every 3 years
- PACT is a promoted ADR for Service Charge
2
Q
How would you apportion a Service Charge?
A
- Floor area
- Weighted floor area
- Rateable value
- Fixed percentage
3
Q
What do you understand by a regular planned maintenance programme?
A
- A programme agreed to maintain properties in a portfolio, including:
- Cyclical maintenance - regular activities carried out irrespective of condition such as servicing, health and safety maintenance, redecoration
- Preventative maintenance - dependent on condition survey prepared by a building surveyor which forecasts future repair needs such as upgrading facilities, replacing single glazing for double
- Responsive maintenance - initiated by building occupier such as a leak, blocked drain etc
4
Q
What’s a S18 diminution in value valuation?
A
- S18 of The Law of Property Act 1927
- The Landlord cannot claim more than the diminution in value of the reversionary interest caused by the tenant’s disrepair
- Known as diminution of value cap
- If the Landlord was to demolish or substantially refurbish the property, the claim would be nil
5
Q
What’s the difference between a schedule of condition and a schedule of dilapidations?
A
- Schedule of condition is a limitation of the tenant’s repair liability, which is annexed to the lease
- It is agreed through negotiation between Landlord and a Tenant
- Supported by photographic records and plans
- A schedule of dilapidations is a schedule of disrepair limited by the repairing obligations of the lease
- Three schedules:
- Interim - 3 years remaining on the lease
- Terminal - last 3 years and can be served 6 months before expiry
- Final - served at expiry or on a break date
- Tenants must respond to schedule within 56 days
- Key guidance is the Dilapidations Protocol 2012
- RICS Guidance Note, 7th edition, on Dilapidations endorses the Dilapidations Protocol and gives advice on all areas of dilaps including ADR, diminution in value and supersession
- Common forms of ADR are arbitration, independent expert determination, mediation
6
Q
What are the usual rent payment dates?
A
- English Quarters in advance
- 25th March, 24th June, 29th September, 25th December
7
Q
Tell me how you would manage rent arrears
A
- Check the lease for any remedies. Interest usually charged within 14 days of areas at 4%, RTL
- Significant restrictions due to rent moratorium, which ended on 25th March 2022, restrictions were:
- Court proceedings
- Serving a statutory demand for rent - current stat demands can be used but not for debts owned by a business tenancy
- Commercial Rent Arrears Recovery Scheme (CRAR), usual time line is 7 days unpaid and 7 days clear warning. Currently 554 days of arrears
- Forfeiture - must be forfeiture clause in lease
- Remedies available for Landlords during the pandemic:
- Using a rent deposit
- Pursuing guarantors and former tenants under AGA’s
- The Government launched an Arbitration scheme which the RICS is a part of
- Either party can make an application to the scheme which would look to apportion the debt, write some off or make awards for the debt
- The panel consists of arbitrators with decades of experience
- This is part of the Commercial Rent (Coronavirus) Act 2022
8
Q
What’s an AGA?
A
- An authorised guarantee agreement which is entered into by Landlord’s and a former tenant on the grant of an assignment
- A Landlord can reasonably require an AGA if the assignee is of lower financial standing than the assignor
- Contained within the Landlord and Tenant Covenants Act 1995
- To make a claim through an AGA, a Landlord must serve a S17 notice on the former tenant within 6 months of the start of the arrears
- A former tenant can take an overriding lease under S19 of the Act to remedy the arrears
9
Q
What are Landlord’s remedies for repair breaches?
A
- Inspect the property prior to issuing notice and make the tenant aware of the breach, they may repair this on their own based on the findings
- Failing this a Landlord can:
- Serve a S146 Notice under the Law of Property Act 1925 which gives the tenant a timescale to remedy the breach before forfeiture proceedings are issued against them (must be a forfeiture clause in the lease)
- Forfeit the lease following the notice
- Serve an interim schedule of dilapidations as long as there is at least 3 years remaining on the lease
- Do the works are recharge the tenant, subject to a Jervis v Harris clause being contained within the lease e.g. Winchester
10
Q
Can you give me an example of where you have provided reasoned property management advice?
A
- Maidstone
- The Landlord of a double lease had done substantial works to the rear of the property and left it in a very poor state of repair
- This seemed to cause water ingress into the staffing area of the property
- I inspected the property, raised my concerns with the Client who then prompted building control at the Council
- I instructed solicitors to carry out a Land Registry search of the proprietor and write to them
- Once the letter was received, the Landlord contacted me to reach an agreement to sort the issue
- Possible remedies:
- Sue for damages
- Deed of Variation to reduce the rent to £0 until the debt had been cleared
- Do the work ourselves (self help) which removes our damages claim and cover the cost
11
Q
Can you tell me some recent changes in planning law?
A
- New Class E, which replaces the old use class orders to bring into Class E:
- Shops
- Restaurants
- Cafes
- Offices (other than old A2)
- The idea was that this would create easier marketing conditions for Landlord’s rather than long change of use planning applications
- Tenant’s are resisting the changes, adopting old use classes in leases to limit their market rent exposure through comparable evidence
12
Q
Can you tell me what MEES are and what the rules are?
A
- The Minimum Energy Efficiency Standards, 2015
- From 1st April 2018, all new letting must be at least an E
- From 1st April 2023 all existing leases need to have a rating of at least an E
- Exemptions include:
- If a building doesn’t need an EPC such as listed buildings, religious buildings, temporary buildings
- Tenancies for less than 6 months and outside the Act
- Tenancy of 99 years or more
- A LL who spent £3.5k but saw no improvement
- Improvements with a buy back of more than 7 years
- When the devaluation of the building is more than 5% from improvements
- Exemptions need to be renewed every 5 years
- Penlaties:
- Breach for less than 3 months - 10% of RV with a maximum penalty of £50k
- More than 3 months - Minimum of £10k or 20% of RV with a maximum penalty of £150k
13
Q
What is a Licence for Alterations?
A
- It is a licence to make changes to a building with Landlord’s consent
- Check provisions of the lease regarding alterations
- Landlord and Tenant Act 1927 - LL’s must be reasonable when considering requests for alterations
- Typical contents:
- The demise
- Tenants covenants
- Time limit for works
- The works
- How they are to be valued at LR, RR
- To reinstate
- Manner of works to be carried out e.g. CDM regs
- Costs, fees and expenses usually paid by the tenant
- Purpose is to protect LL’s and Tenants with works and at RR’s and LR’s
- Example - Windmill Street, Gravesend
- Licence to change upper parts to flats
- Works to be disregarded at RR therefore to be valued as ancillary rather than residential
- The Licence is binding in Title so runs with the land
- The tenant was Halfords at the time of the licence (1995)
14
Q
What would you do when considering a sub-letting for your client?
A
- Read the lease, check alienation provisions such as:
- Is Landlord’s permission required and the extent of it
- Is it to be Contracted Out
- Is it at passing rent or market rent
- Check the tenants use class against the lease
- Consider tenant’s accounts and strength of covenant
- Consider taking a rent deposit for security
- Licence to underlet required
- What is the demand for the property when considering terms
15
Q
What are business rates and what is the current multiplier?
A
- A tax for non-domestic buildings, exemptions include:
- Religious buildings
- Agricultural land and buildings
- Buildings for training and welfare of disabled people
- Rateable value x multiplier (51.2p for normal businesses, 49.9p for small)
- Properties are revalued every 5 years
16
Q
What relief is there for business rates?
A
- Small businesses - don’t have to pay rates on RV’s lower than £12k
- Rural rate relief - if your property is in a qualified rural area
- Charities - don’t pay rates
- Enterprise zones - qualifying areas only
- Hardship relief - qualifying cases only
- Transactional relief - depending on how much your RV changes on revaluation
- Retail relief - pandemic focused if your business was forced to be shut during the lock down
- Local newspaper relief - if your property was used as office premises for journalists, reporters for a newspaper
- Nurseries discount - if the premises is on Ofsteds early years register
17
Q
Do you pay business rates on empty buildings?
A
- Yes
- 3 months empty rates relief for retail
- 6 months for industrial
18
Q
What’s a BID Levy?
A
- An extra tax on top of business rates to pay for a business improvement district
19
Q
Can you tell me about any recent changes to planning which affects property management?
A
- Introduction of Class E in September 2020
- Properties changed to E:
- Shops
- Cafes
- Restaurants
- Offices
- This was introduced to create a better High Street
- Occupiers are resisting the changes and insisting on tighter user clauses due to the openness of the use class creating a wider scope for valuation
20
Q
What are Property Manager’s core duties?
A
- Always consider Terms of Engagement
- Duties can include:
- Collection of monies e.g. rent, service charge
- Liaising with Landlord’s and Tenant’s on a variety of matters including repair, lease renewals, rent reviews
- Managing client accounts and tenant debt
- Issuing service charge budgets
- Managing the building upkeep, services
- Procuring insurance
- Energy management
- Adhering to health & safety, fire regulations
- Letting & agency of vacant units
- Dilapidations advice
21
Q
What Health & Safety issues should a property manager be aware of?
A
- Asbestos
- Legionella’s
- Gas/electrical tests
- Fire risk assessments
- Security
- Adhering to regulations e.g. CDM, H&S at Work Act
22
Q
Can you tell me about guidance for property management?
A
- RICS Real Estate Management, Professional Statement, 2016
- Provides guidance on:
- Ethics
- Securing instructions, different types of clients, vulnerable clients etc
- New lettings & lease renewals
- Managing real estate such as breaches of covenants, collecting rent, service charge
- Portfolio and asset management
- Ending instructions such as invoices, handing over documentation
- Safety and security such as personal safety, data protection
- Business management such as complaints handling procedures, handing clients money, recovering outstanding debts
23
Q
Can you tell me how you would manage an empty building? - Tenant or Landlord?
A
- Take instructions from your client on their objectives for the property
- Check the yield up clause in the lease
- Notify insurers or Landlord for their insurers
- Seal the letter box, strip out tenants fitting as a minimum
- Cap utilities, obscure windows (if required)
- Make arrangements for key management
- If marketing, instruct an EPC to be procured after strip out
- Instruct an agent
- Think about dilapidations
24
Q
Can you tell me how you managed rent arrears during the pandemic?
A
- It was very difficult!
- Limited number of remedies open to us
- Rent deposits
- Guarantors
- Most of our sub-tenants had rent deposits
- I found the best way to manage arrears was discussing the difficulties with the tenant’s themselves
- Examples, Andover:
- Barber sub-tenants, couldn’t open during the pandemic
- £5,000 worth of rent arrears
- The full deposit was used, £2,000
- £1,000 was wiped off subject to clearing the remaining debt within a year using a payment plan
25
Q
How did your client manage their rent roll during the pandemic?
A
- We wrote to all of our Landlords at the commencement of the pandemic to request a 3 month rent deferral
- This had limited success but we manage to manage the client’s rent roll with a fifth of Landlord’s agreeing to the provision
- Just before the June Quarter date we requested another deferral which wasn’t as successful
- Those who refused to the June deferral had the rent settled on the quarter date
- Those who agreed had the full back payment paid on the September Quarter date
26
Q
Apart from the rent deferral, did you carry out any other rent saving activities during the pandemic?
A
- Project Artemis - Artemis being the Greek god of hunting
- Targeted the top shops and proposed re-gears to the Landlord’s in the form of break releases or reversionary leases for a targeted rent reduction
- This saved the business £480k P.A. in rent of which I saved £40k P.A. across 14 deals
27
Q
How do you determine which rent arrear recovery to use?
A
- Consideration are made based on
- Size of the covenant
- Size of the debt
- Ability to re-let the property
- Exposure to voids, business rates etc
- Is it better having a tenant in the property not paying rent than having it back
- The success of recovering the debt and the cost of recovery
- Make recommendations to your client based on this
- I recommended payment plan for Andover
- Is the tenant in CVA, liquidation, if so make contact with the administrator as quickly as possible before a moratorium is imposed
