Property Management Flashcards
1
Q
What are principles of Code of Practice for Service Charge?
A
There are 9 key principles:
1. Recover expenditure as per lease
2. Recover no more than 100% of actual costs
3. Issue budget and explanatory notes annually
4. Issue apportionment matrix annually
5. Issue approved set of accounts annually
6. Service charge monies to be held in discrete account(s)
7. Interest to be credited to service charge after appropriate deductions
8. Tenant to only withhold sum that reflects dispute
9. If sum raised incorrectly, should be rectified without delay
2
Q
What are updates of new Code of Practice for Service Charge (Service Charges in Commercial Property)
A
- old version was guidance note, this version is mandatory
- aims to reduce cause of disputes via 9 mandatory principles
- also includes 26 core principles that essentially state we want fair, transparent and good quality services that provide value for money
3
Q
How do you manage an empty building?
A
- inform insurers
- undertake regular inspections
- undertake FRA and GRA for H&S
- maintain fabric of building
- obtain EPC and consider MEES
- inform council to obtain empty rates
- drain down water
- turn off power, electricity and gas
- additional security
- maintain asbestos register
4
Q
What are the different types of insolvency?
A
Administration - administrator appointed by company, creditors or bank. Directors remain in office but have no power. LL can claim amount equal to rent from administrator. Administrator may negotiate CVA so company can keep trading, or may seek to assign lease
CVA - if business has future, administrator/insolvency practitioner proposes payment schedule that creditors vote on. If 75% agree, CVA is approved (contract between company and creditors)
Receivership - court-appointed tool that ensures lenders recover funds owed to them. Receiver is appointed under Law of Property Act 1925 to sell assets in order to pay debts
5
Q
How is insurance paid on a commercial property?
A
Usually LL arranges it and recharges T. Includes Reinstatement Cost Assessment (RCA) and measurement basis is GIA for this as per BCIS
6
Q
Where might you seek further guidance on insurance?
A
Insurance Act 2016
- key law that introduced more accountability for insurers, responsibility for policyholders and aim to reduce claims
7
Q
How is service charge apportioned?
A
- floor area
- fixed percentages
- rateable value (difficult if RV changes/is disputed and doesn’t consider common areas)
- weighted floor area (common in shopping centres)
8
Q
How do you benchmark a service charge budget?
A
- standards are checked against industry-used index which provides standard as point of reference
- two common benchmarking indices are Office Service Charge Analysis Report and Global Estate Measurement Code for Occupiers
9
Q
Sinking Fund
A
- fund formed by periodically setting aside money for the replacement of a wasting asset (EG lifts, AC and other major items)
- usually collected over whole life of wasting asset
- used for paying specific costs that occur occasionally
10
Q
Reserve Fund
A
- fund formed to meet anticipated future costs of maintenance and upkeep, to avoid fluctuations or one-off large increases in service charge
- applies to regularly occurring items like cleaning and redecorating
- useful for major works or unexpected expenses
11
Q
Planned Preventative Maintenance (PPM)
A
scheduled maintenance routine prepared by building surveyor to forecast future repair needs EG upgrading facilities/services or refurbishment work
12
Q
Steps for Licence to Alter
A
- Read lease
- Ask for plans and specifications (review with BM, building surveyor, planners or insurers)
- Obtain undertaking for costs
- Obtain client consent
- Instruct client lawyer to prepare LtA
- Inspect completed works
13
Q
Assignment
A
Tenant transfers legal interest to another tenant, and new tenant takes over lease obligations
14
Q
Sub-Letting
A
Lease property from Tenant rather than Landlord. Original tenant maintains relationship with Landlord and Sub-Tenant has relationship with Tenant
15
Q
Why Sub-Let rather than Assign?
A
- lease requirement
- tenant may wish to re-occupy
- new party is lesser covenant strength
- market rent higher than passing rent so original tenant gets profit rent
16
Q
What should PM do when received application to assign/sub-let?
A
- Read lease (alienation clause)
- Request undertaking for costs
- Check if proposed rent same as passing rent
- Check new T covenant strength
- Check if AGA clause
- Check if new T will pay rent deposit
- Check if reasonable grounds for withholding consent
- Check effect on investment value
- Provide recommendation to client and obtain consent
- Licence to Assign / Sub-let required
Note: if subletting will need to see sublease!
17
Q
Benefit of LtA
A
LL - reinstated at lease end
T - protected at rent review
18
Q
S1 LL&T Act 1988
A
consent must be provided within reasonable time frame (no delays)
19
Q
S19 LL & T Act 1927
A
consent must not be unreasonably withheld
20
Q
S18 LL & T Act 1927
A
claim for dilapidations is limited to diminution in value (difference in value of property if repairs not undertaken)
Note: if property getting demolished/redeveloped then value would be zero as no point putting property into original condition
21
Q
How can consent for alterations be granted?
A
- automatically by lease (no consent)
- formal licence deed
- simpler letter licence (less complex, no solicitor required)
22
Q
Insurance Act 2016
A
- introduced more accountability for insurers and responsibility to policyholders to provide relevant information
- aims to reduce claims
23
Q
Tax on insurance premiums
A
Insurance Premium Tax
24
Q
Two fundamental rent collection principles
A
- Accuracy of information provided
- Timing of when demands are sent/rent is collected
25
Standing Order
regular payment set up by payer, and payer has control
26
Direct Debit
payer authorises payee to take payments
27
Warning signs of future rent arrears
- persistent late payments
- bounced cheques
- arrival of post dated cheques
28
Payment Plan
- common way to help T that is genuinely struggling
- LL gets some rent while T recovers
- short term measure
- review accounts to see if justifiable
- agree in writing with LL & T
29
Guarantor
- anyone who has agreed to guarantee performance of tenant
- section 17 of LL&T Covenants Act 1995 allows LL to claim within 6 months of funds becoming due
- guarantor entitled to take overriding lease if they settle arrears
30
Rent Deposit
- check if rent deposit deed
- usually 6 months worth of rent
- T dislikes as locks up their funds
- LL likes as easy source of funds
- required if weak covenant, new business or overseas with no U.K. assets
- LL only gives notice that this will be used, if required in rent deposit deed
- does not have to be used for arrears
- good to draw down if T struggling short term and LL wants T to stay
31
Commercial Rent Arrears Recovery (CRAR)
- introduced in 2014 to replace Law of Distress for rent
- recover rent, VAT and interest
- 7 days rent due as minimum
- LL serves Notice of Enforcement via email/post/hand-delivered which states address, T type, due date of most recent funds and any notes
- Notice of Enforcement gives 7 days notice
- on day 8, enforcement agent enters and takes inventory and ‘takes control of goods’
- enforcement agents waits 7 days before selling goods
- T charged £75 for service
Note: cannot take goods that are on purchase agreements or belong to 3rd parties, anything that will breach the peace, work tools or perishable goods
32
Statutory Demand
- preliminary step to pursuing winding up proceedings (or bankruptcy)
- must be no dispute on arrears and they must be over £750
- T has 21 days to pay or propose a plan
- after this time, LL can present bankruptcy/winding up petition to court
33
Forfeiture
- must be forfeiture clause in lease and rent must have been properly demanded
- LL enters peacefully/commences Court proceedings to regain possession of lease after 21 days of non payment of rent (only advisable if got another tenant lined up to go in)
- if breach other than rent, LL serves S146 notice under Law of Property Act 1925 providing details of breach and how to remedy
34
What to consider before drawing down rent deposit?
- covenant strength (can T top-up)
- future debt (keep for dilapidations)
35
Court proceedings to recover arrears
- LL obtains Court Judgement
- slow process and expensive
- threat of Court action may prompt payment
36
When can former tenant be pursued for arrears?
- if lease started before 1 Jan 1996 and Privity of Contract was in place
37
What are Tenant rights under forfeiture?
- can apply to Court for relief
- if granted, lease restored as though forfeiture never happened
38
How can Landlord right to forfeit be waived?
- agree payment plan with T instead
- CRAR exercised
- s25 notice served under LL&T Act 1954
39
What are Tenant rights under CRAR?
can apply to Court for order that no further steps can be taken without permission from Court
40
LL&T (Covenants) Act 1995
- abolished Privity of Contract
- new leases from 1 January 1996
- introduced Authorised Guarantee Agreements
41
RICS Code for Leasing Business Premises
- LL should allow T to assign premises with LL consent not to be unreasonably withheld or delayed
- requirement for AGA should be explicitly stated in lease (only required if weak covenant strength, no guarantor and no rent deposit)
- subletting should be at rents not less than market rent, and subleases must in same terms as tenant lease
42
What are key considerations when reviewing rent arrear recovery methods?
- chance of re-letting the property
- current passing rent v market rent
- vacant possession value (and void costs) compared to value as let
43
Legal Aid, Sentencing and Punishment of Offenders Act 2012
- made residential squatting criminal offence that can be subject to police action
- commercial LL should use reasonable force to remove trespasser - use certified bailiff or civil legal proceedings via Court
44
What are the options for a Landlord if a Tenant is not fulfilling their repairing obligation?
1. Serve repair notice S146 of Law of Property Act 1925
2. Forfeit the lease
3. Serve interim schedule of dilapidations
4. Complete works and re-charge T
45
What needs to be included in Notice to Repair?
- this is S146 notice, which includes:
- details of repairing breach
- timescale allowed to remedy breach
- course of action proposed if breach not remedied
46
How can a Landlord forfeit a lease for failure to repair?
- must be forfeiture clause in lease
- serve S146 notice in tenant (state breach, timeline and proposed action)
47
Jervis v Harris
- leading case in respect of LL right to re-enter property to do repairs and then claim cost from tenant as debt
- claim for debt, not a claim for damages (T just needs to reimburse LL)
- means LL can ensure premises remain in good condition
48
When can Jervis v Harris clause be used?
- T is solvent
- LL wants lease to continue
- LL wants to do works themself
- threat of entry may compel T to do works
49
3 types of Planned Preventative Maintenance
- cyclical (regular EG plant maintenance)
- preventative (timetabled by surveyor)
- responsive (irregular EG unblocking drain)
50
Service Charges in Commercial Property (2018)
- effective April 2019
- promote best practice, fairness, uniformity and transparency
- ensure timely issue of budgets and YE certificates
- reduce disputes and provide guidance on resolution
- 9 mandatory principles
51
What are the 11 subsections of Services Charges in Commercial Property (2018)?
1. Service costs
2. Allocation and apportionment
3. Communication and consultation
4. Duty of care
5. Financial competence
6. Occupier responsibilities
7. Right to challenge
8. Alternative dispute resolution
9. Timeliness
10. Transparency
11. Value for money
52
Property Manager responsibility when issuing service charges?
- ensure value for money
- ensure good quality services
- ensure regular review of services
53
Depreciation Charge
- measure of wearing out or reduction in life of an asset
- depreciation is distributed across life of property
- write off certain amount of value
54
What to do if Tenant becomes insolvent?
- Tell LL
- consider legal action
- see if guarantor or rent deposit
- make early contact with Administrator/Receiver and register claim for arrears
- ensure property is insured and inform insurers if become vacant
- ensure property secure
- prepare schedule of dilapidations
- deduct funds from rent deposit if there is one
- forfeit lease or seek Court order to terminate lease
- consent to assignment of lease if an option
Note: do NOT accept keys - would constitute surrender!
55
Coronavirus Rent Act 2020
- S82 prohibited LL from forfeiting lease or CRAR between 25 March 2020 and 25 March 2022
56
Commercial Coronavirus Rent Act 2022
- came in 25 March 2022
- provided binding arbitration procedure for T forced to close due to pandemic
- if unable to reach agreement, then go to RICS Covid Rent Arrears Arbitration process as method of last resort
57
Occupiers Liability Act 1957
Occupiers must ensure visitors will be safe when using premises
58
Occupiers Liability Act 1984
Occupier must ensure visitors will be safe, even if they are unlawful visitors (trespassers)
59
Absolute v Qualified v Fully Qualified Covenants
Absolute - cannot do anything
Qualified - can do with LL consent
Fully Qualified - can do with LL consent, not to be unreasonably withheld or delayed
60
Corporate Manslaughter and Corporate Homocide Act 2007
Companies can be found guilty as a result of serious management failure or gross breach of duty of care, and can result in unlimited fine
61
How do you handover upon sale or change in managing agent?
- complete interim service charge reconciliation
- review RICS Information Paper on Commercial Property Handover Procedures 2015
62
Cost Undertaking
Undertaking by one person to pay costs of another
63
Warranty
Written guarantee promising to repair/replace item within set time period
64
TUPE
- transfer of undertaking of employment (protection of employment)
- protects employees if business they are in changed hand and you move employee from old to new employer
- applies to people who provide a service at a property
65
Duty of Care Deed
Provides lenders with greater protection for their loans when lending in relation to a property that is rented out and managed by an agent
66
Commercial Property Management in England and Wales (2011)
- PM acts for LL
- collect rent and other sums due
- manage property
67
Public Liability Insurance
Covers cost of legal action and compensation claims made against your business if third party is injured or the property suffers damage
68
What are the H&S obligations of a PM?
- ensure GRA and FRA carried out annually
69
What insurance does Landlord typically have?
- Public and Property Owner Liability Insurance
- loss of rent
- loss of service charge
70
What is involved in third party procurement?
- tender works to at least x3 contractors
- contractors must be Safe Contractor accredited (scheme that recognises H&S responsibilities of organisation)
- contractor should be on approved suppliers list
71
Death by negligence
Person is liable for death of another person due to negligent conduct
72
Benefits of PPM
- proactive approach
- preserves properties condition
- avoids sudden costs and unplanned disturbances
73
What are the 12 mandatory requirements in RICS Real Estate Management (2016)?
1. Honest, fair, transparent
2. Due diligence
3. Agreed terms of engagement
4. Avoid conflict of interest
5. Do not discriminate
6. Timely communication
7. Honest advertising/marketing
8. Client money in separate accounts
9. PII in place
10. Scope of work given to all parties
11. Give realistic selling/rental prices
12. Ensure inspections/meetings carried out as per client wishes
74
What should PM do if Tenant cannot pay rent?
- go to site and see if tenant still trading
- find out reason for inability to pay (financial issue or just changing bank?)
- if financial then payment plan, guarantor, rent deposit, CRAR or forfeit
75
Management Accounts v Audited Accounts
Management Accounts - shows business accounts monthly/quarterly
Audited Accounts - submit to Companies House 9 months after YE so could be 18 months out of date
76
How should management fees be raised?
- depends on Property Management Agreement
- ideally fixed basis subject to annual review or indexation, as stated in Service Charges in Commercial Property (2019)
Note: should not raise on percentage basis as considered disincentive for sourcing value for money
77
RICS Rules of Conduct - Rule 8: Handling Clients Money
- need copies of leases and legal docs
- need database of occupiers and their financial position
- need clear payment process
- need to forward sums to LL and report
- only relevant, trained people should handle client money and needs to be overseen by partner
78
3 types of dilapidation
1. Interim - with 3+ years left
2. Terminal - within last 3 years
3. Final - at expiry/once T vacated
- entitles LL to get property back in same condition it was handed to tenant in
79
Corporate Insolvency and Governance Act 2020
- schedule 10 restricted use on statutory demands and winding up procedures due to covid from 26 June 2020
- restrictions on statutory demands lifted 29 September 2021
- restrictions on winding up petitions lifted 31 March 2022 (and between October 2021 and March 2022, minimum was £10k rather than £750)
80
RICS Licence for Alterations Guidance Note (2013)
- sets out advice for surveyors dealing with applications for alterations
- states importance of avoiding delay and ensuring licence is completed to protect both parties
- licence must clearly document agreed works
81
RICS Guidance Note on Dilapidations (2016)
- aims to reduce claims between LL & T
- guidance on diminution valuations
- both parties must keep to timescales
- parties in dispute must make genuine effort to settle
82
Code of Practice for Commercial Property Relationships during Covid-19 (2020)
- designed to support businesses negotiate affordable rental agreements during pandemic
- main principles were: transparency, collaboration, unified approach
- want LL & T to work together to resolve rent arrears and rent reductions
83
RICS Real Estate Management (2016)
- aim for fairness and transparency
- aimed at commercial and residential property managers
- 12 mandatory principles
84
LL & T (Covenants) Act 1995
- relates to assignment of leases
- abolished Privity of Contract
- commenced 1 January 1996
- introduced Authorised Guarantee Agreements
- s17 notice can be served on guarantor within 6 months of tenant failing to pay rent and guarantor must pay arrears and can then take overriding lease
- can only be one AGA in place at one time
Note: if 6 months passed and s17 not served then guarantor does not have to pay
85
Reasons dilapidation settlement may not be agreed
- lease not an FRI
- reinstatement not required by LL
- building being demolished
- schedule of condition limits repairing liability for T
- T entered administration
- LL & T agree to roll over claim until end of next lease granted
86
Taking Control of Goods and Certification of Enforcement Agents Coronavirus Regulations 2020
- LL could not CRAR unless:
- 90 days rent due from March 2020
- 366 days rent due from December 2020
- 554 days rent due from June 2021
87
Leasehold Property (Repairs) Act 1938
- applies to leases of 7+ years with 3+ years until lease expiry
- protects tenants against interim schedules of dilapidation
88
Restructuring Lease / Lease Engineering
- LL chooses to do this to maintain value in investment or retain T
- grant longer lease for rent free period or lower rent
- agree to monthly payment of rent
- add or remove break clause subject to payment of premium
89
Two types of user clause
1. Planning use
2. Specific use
90
What works can a tenant complete without the need for an LtA?
- depends on what lease says
- usually non structural alterations so long as LL consent granted
- painting, adding wallpaper, adding furniture or pictures or other decorative items that can be removed without damage
91
Authorised Guarantee Agreement
- brought in under LL & T Covenants Act 1995 to protect LL
- if lease silent, may be unable to get AGA
- outgoing tenant guarantees performance of incoming tenant
- in place until end of term or until assignee assigns to third party
Note: if inside 1954 Act, AGA remains until lease terminated in accordance with Act
92
Surrender v Forfeiture
- in surrender, LL & T agree to release T from obligations
- LL does not have to agree surrender
- if LL has better tenant, would be ideal
Note: could agree reverse premium where LL pays T to surrender their lease
93
Liquidation
- have to become insolvent before undergoing liquidation
- company liquidated (wound up) if cannot pay
- insolvent company becomes liquidated after Creditor Voluntary Liquidation process
94
Sara & Hossein v Blacks Outdoor Retail (2023)
- S&H were the LL and Blacks was the T
- Blacks refused to pay SC for 2 years
- Arrears totalled over £400,000
- Supreme Court held ‘pay now, argue later’ - purpose of the lease was to prevent payment being withheld, but not to extinguish a counter claim
95
Who does the service charge money belong to?
The tenants
96
Letter Before Action
final letter provided to T giving timescale to pay arrears and states if not paid by X date then legal action will commence. Statutory Demand is usually faster way of recovering debt but very aggressive
