Property Management Flashcards
What are principles of Code of Practice for Service Charge?
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
What are updates of new Code of Practice for Service Charge (Service Charges in Commercial Property)
- 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
How do you manage an empty building?
- 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
What are the different types of insolvency?
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
How is insurance paid on a commercial property?
Usually LL arranges it and recharges T. Includes Reinstatement Cost Assessment (RCA) and measurement basis is GIA for this as per BCIS
Where might you seek further guidance on insurance?
Insurance Act 2016
- key law that introduced more accountability for insurers, responsibility for policyholders and aim to reduce claims
How is service charge apportioned?
- 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)
How do you benchmark a service charge budget?
- 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
Sinking Fund
- 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
Reserve Fund
- 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
Planned Preventative Maintenance (PPM)
scheduled maintenance routine prepared by building surveyor to forecast future repair needs EG upgrading facilities/services or refurbishment work
Steps for Licence to Alter
- 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
Assignment
Tenant transfers legal interest to another tenant, and new tenant takes over lease obligations
Sub-Letting
Lease property from Tenant rather than Landlord. Original tenant maintains relationship with Landlord and Sub-Tenant has relationship with Tenant
Why Sub-Let rather than Assign?
- 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
What should PM do when received application to assign/sub-let?
- 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!
Benefit of LtA
LL - reinstated at lease end
T - protected at rent review
S1 LL&T Act 1988
consent must be provided within reasonable time frame (no delays)
S19 LL & T Act 1927
consent must not be unreasonably withheld
S18 LL & T Act 1927
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
How can consent for alterations be granted?
- automatically by lease (no consent)
- formal licence deed
- simpler letter licence (less complex, no solicitor required)
Insurance Act 2016
- introduced more accountability for insurers and responsibility to policyholders to provide relevant information
- aims to reduce claims
Tax on insurance premiums
Insurance Premium Tax
Two fundamental rent collection principles
- Accuracy of information provided
- Timing of when demands are sent/rent is collected
Standing Order
regular payment set up by payer, and payer has control
Direct Debit
payer authorises payee to take payments
Warning signs of future rent arrears
- persistent late payments
- bounced cheques
- arrival of post dated cheques
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
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
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
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
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
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
What to consider before drawing down rent deposit?
- covenant strength (can T top-up)
- future debt (keep for dilapidations)
Court proceedings to recover arrears
- LL obtains Court Judgement
- slow process and expensive
- threat of Court action may prompt payment
When can former tenant be pursued for arrears?
- if lease started before 1 Jan 1996 and Privity of Contract was in place
What are Tenant rights under forfeiture?
- can apply to Court for relief
- if granted, lease restored as though forfeiture never happened
How can Landlord right to forfeit be waived?
- agree payment plan with T instead
- CRAR exercised
- s25 notice served under LL&T Act 1954