Property Management Flashcards
Tell me about the RICS guidance on Service Charges/Real Estate Management/Commercial Property Management.
Launched in September 2018, The RICS Service Charges in Commercial Property, 1st Edition sets a marker for standards of management within commercial property. It replaces the existing RICS Service Charge Code and is effective for all service charge periods commencing from 1st April 2019.
The Royal Institution of Chartered Surveyors (RICS) has published a Professional Statement that provides guidance on the management and administration of service charges in commercial property. The statement sets out best practices and mandatory obligations for RICS members and regulated firms involved in this area. It aims to ensure that the management of commercial service charges is transparent, upfront, and fair.
The RICS Service Charges in Commercial Property, 1st Edition is a professional statement that establishes a benchmark for management standards in commercial property. It supersedes the previous three editions published as codes of practice. The statement provides guidance to solicitors, clients (owners or occupiers), and service charge managers in negotiating, drafting, interpreting, and operating leases according to best practices.
Are you aware of any additional RICS guidance on Service Charges?
The RICS (Royal Institution of Chartered Surveyors) has a Code of Practice for service charges in commercial property1. The Code is based on the second edition of Service Charges in Commercial Property: A Guide to Good Practice1. The Code is official RICS material and has more prominence than the Guide1. The Code includes the following mandatory requirements2:
Owners and managers must not seek to recover more than 100% of the proper and actual costs of the service unless the lease provides otherwise.
A service charge budget, with explanations, must be issued to tenants annually.
An accurate, signed record of expenditure must be issued to tenants annually.
An apportionment schedule must be issued to tenants annually.
Tell me about the relationship between alienation/alterations/repair/payment of rent and service charge on property management.
The relationship between alienation, alterations, repair, payment of rent, and service charge on property management is complex and multifaceted.
Alienation refers to the transfer of ownership of a property from one person to another. In the context of property management, it is important to note that the lease agreement may contain clauses that restrict or regulate the transfer of ownership. These clauses are known as alienation clauses .
Alterations refer to any changes made to the physical structure of a property. In most cases, landlords have control over alterations and may restrict the type of work that can be done. Structural changes are often restricted, while non-structural changes are usually allowed .
Repair refers to the maintenance and upkeep of a property. The responsibility for repairs is usually shared between the landlord and tenant, with the lease agreement outlining who is responsible for what repairs .
Payment of rent is a fundamental aspect of property management. The lease agreement will specify how much rent is due, when it is due, and how it should be paid .
Service charge refers to the cost of services provided by the landlord or managing agent in relation to the property. These services may include maintenance and repair work, cleaning, gardening, and security. The lease agreement will specify how much service charge is due, when it is due, and what services are covered .
In summary, alienation clauses regulate the transfer of ownership; landlords have control over alterations; responsibility for repairs is shared between landlord and tenant; payment of rent is fundamental; and service charge covers costs for services provided by the landlord or managing agent.
What is the statutory duty placed on landlords under the Landlord & Tenant Act 1927/1988?
The Landlord & Tenant Act 1927/1988 is a significant piece of legislation that outlines the rights and responsibilities of both landlords and tenants in the United Kingdom. While the Act covers various aspects of the landlord-tenant relationship, it does not explicitly impose a statutory duty on landlords. Instead, it establishes a framework for the rights and obligations of both parties.
The Act addresses several key areas, including:
Repair and Maintenance: The Act requires landlords to maintain the structure and exterior of the property, as well as certain installations for heating, sanitation, and water supply.
Rent: It sets out rules regarding rent increases, rent arrears, and the recovery of rent.
Tenancy Agreements: The Act governs the terms and conditions of tenancy agreements, including provisions related to security deposits, notice periods, and eviction procedures.
Improvements: It provides provisions for tenants to claim compensation for improvements made to the property.
Consent to Assign or Sublet: The Act establishes rules regarding a landlord’s consent to assign or sublet a property.
Reasonable Time: It defines the concept of “reasonable time” in relation to providing consent for landlord’s consent.
It is important to note that this is not an exhaustive list, and there may be additional rights and responsibilities outlined in other legislation or specific tenancy agreements.
The Landlord and Tenant Act 1927 places a statutory duty on landlords with respect to qualified covenants in a lease against assigning, underletting, charging, or parting with possession of the premises or any part without the landlord’s consent. The landlord must give consent unless there are reasonable grounds not to do so, and must notify the tenant of his decision and his reasons within a reasonable time. The Act also requires landlords to make repairs to the structure and exterior, as well as to installations such as boilers, pipes and electrics.
What remedies are available to landlords for breach of repairs?
Remedies for landlords for breach of repairs include:
Suing the tenant in the county court for breach of contract, damages, injunctions, or orders to compel the tenant to do the necessary work.
Forfeiting the lease and ending it early.
Entering the property and carrying out the repairs, then recovering the cost from the tenant.
Exercising a break clause and terminating the lease.
Claiming dilapidations at the end of the lease
What are the remedies for commercial rent default?
When a tenant defaults under a commercial lease by failing to make payment of rent, there are generally three main remedies available to the landlord1:
Distrain for rent in arrears: The landlord can seize the tenant’s goods to recover the arrears1.
Re-enter and terminate the lease: The landlord can re-enter the property and terminate the lease1.
Affirm the lease and sue for rent in arrears: The landlord can affirm the lease and sue for rent in arrears
What are the main rent arrears recovery options for landlords?
Court judgment, rent deposit, pursuing former tenants and guarantors, statutory demand, commercial rent arrears recovery scheme (CRAR)
How would you hand over a service charge account upon sale or change of manager?
The RICS information paper on commercial property handover procedures 2015 provides information on how to handle a change of managing agent or client
What information would be required?
A key responsibility of the landlord to the property manager is to provide information
regarding the property and the relationships with occupiers. A property manager cannot
effectively, efficiently and successfully manage a property without that information. The
property manager should make the landlord aware that if the landlord cannot provide
all necessary information then the property manager’s service will be impaired and that
additional costs may be incurred. Where there is a change in property manager the outgoing
property manager will provide the information to the incoming property manager. The
incoming property manager needs to check the information received. RICS’ information
paper, Commercial property service charge handover procedures (2011) goes into more detail
on handover from one managing agent to another.
Tell me about any RICS guidance you are aware of relating to licences for alterations.
According to the Royal Institution of Chartered Surveyors (RICS), there is a comprehensive guide available called Licence for alterations in commercial property1. This guide is most relevant to surveyors dealing with tenant applications to make alterations at offices and industrial properties in England and Wales2.
The process of obtaining a licence to alter involves several stages. Initially, the tenant applies to the landlord or managing agent to carry out alteration work. The landlord should pay due regard to the tenant’s requirements for fit-out works while ensuring that the proposals are properly scrutinized. The requirement for a licence to alter depends on the wording of the lease, and it is essential to refer to the lease as the first point of reference. Generally, minor non-structural works such as decoration or cosmetic fit-out, or installing or moving demountable partitioning, are permitted without a licence. However, it is important to note that even seemingly straightforward works may require a licence if they affect equipment or systems such as fire alarms or sprinklers1.
A building surveyor appointed by the landlord will conduct a technical review of an application. The surveyor will assess the complexity of the proposed work and provide a quotation for their fee. If input from other consultants such as structural or mechanical and electrical engineers is required, their fees should also be requested. The building surveyor often serves as the lead consultant, coordinating other consultants throughout the process and acting as a central point of contact for both landlord and tenant1.
The information provided by the tenant or their advisers describing the work is often of varying quality. It is not uncommon for information to be missing or irrelevant documents included. Therefore, it is crucial for surveyors to conduct a thorough review and ensure that all necessary information is provided1.
What are improvements under the LTA 1927?
Any alterations that render occupation of the premises more beneficial to a tenant constitute improvements for the purposes of the Act, including demolition of part and almost any scope of works the tenant desires.
What are your duties in relation to timings / reasonableness?
What constitutes “reasonable time” for the landlord to provide its decision will depend on the facts and circumstances. Nevertheless, this will generally be measured in terms of days or weeks rather than months. Factors that may affect the duration of time include what information the landlord requests, how the tenant responds to the request for information and whether the tenant communicates to the landlord a sense of urgency/limit on time. Yet in NCR Ltd v Riverland Portfolio No. 1 Ltd [2005] EWCA Civ 312 where unusual and complex issues were raised, the court held that the landlord should make a decision within a “comparatively short period”, which was held to be a period of two weeks. In addition, where the consent requested is in respect of a residential lease to be assigned for a substantial premium that will diminish as time progresses, the court is likely to consider that a landlord’s consent should be provided in a much shorter time span.
Where a landlord fails to comply with its statutory duties under the LTA 1988, a tenant can apply to the court for a declaration that the landlord is unreasonably refusing consent. Should the court grant the declaration, the tenant can proceed to assign the lease without the need for a formal consent. In addition, in the absence of consent by the landlord, the tenant can proceed without consent and if it is subsequently determined that the landlord unreasonably withheld its consent, the assignment would be considered lawful.
Further, where the landlord is found to be in breach of its statutory duties, the tenant can seek remedies which include damages and in certain circumstances, an injunction. Exemplary or punitive damages may also be claimed if the normal requirements for those damages are present. In determining if there has been an unreasonable delay by the landlord in its response to the tenant’s request for consent, the court may consider whether the tenant has suffered any loss as a result of the landlord’s delay.
Even if the landlord initially refuses consent and later then grants consent, the landlord may still be in breach of its statutory duty; however, whether or not a tenant would be able to claim damages will depend upon the tenant being able to show that it has suffered a loss as a result of the initial refusal.
The moral of the story for landlords – be timely in providing a reply to a tenant’s request for consent to deal with a property.
How does the Equality Act 2010 relate to alterations?
The Equality Act 2010 is a legislation in the United Kingdom that provides protection against discrimination, harassment, and victimization on the basis of protected characteristics such as age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation1.
Regarding commercial alterations, the Equality Act 2010 requires public sector organizations to make changes in their approach or provision to ensure that services are accessible to disabled people as well as everybody else1. These changes can include alterations to buildings by providing lifts, wide doors, ramps, and tactile signage. However, reasonable adjustments may also involve changes to policies, procedures, and staff training to ensure that services work equally well for people with learning disabilities1.
For example, public sector organizations must think ahead and anticipate what reasonable adjustments might be needed in advance. They should not simply wait and respond to difficulties as they emerge
What H&S considerations relate to alterations?
When it comes to alterations, there are several health and safety considerations to keep in mind. One of the key aspects is structural stability. It is crucial to assess the risks and prevent unintentional structural collapse during alterations, demolition, and dismantling1. This involves conducting a thorough survey and assessment, taking measures to prevent structural collapse, arranging for demolition, and consulting building control departments1.
To ensure the safety of workers and the public, it is important to follow guidelines and regulations related to structural stability1. Additionally, when undertaking alterations or repairs to your home, it is advisable to familiarize yourself with the Building Regulations2. These regulations are designed to ensure that new buildings meet health, safety, welfare, convenience, and sustainability standards2.
If you are using contractors for your project, you should also refer to the guidance provided by the Health and Safety Executive (HSE). Their brief guide offers advice on how to comply with health and safety laws when working with contractors3.
Remember, safety should always be a top priority when undertaking any alterations or construction work. If you have specific concerns or questions about a particular project, it is recommended to consult with professionals in the field.
How does MEES relate to alterations and your reasoned advice?
Dependent on the terms of a particular lease, MEES may affect decisions about alterations/fit-out, service charge, lease renewal negotiations and dilapidations.
Minimum Energy Efficiency Standards (MEES) are regulations that require a minimum energy efficiency standard to be met before properties in England and Wales can be let or sold. These regulations aim to help the UK government achieve its target of reducing emissions to net zero by 2050.
The MEES regulations apply to both domestic and non-domestic properties in England and Wales that are legally required to have an energy performance certificate (EPC)1. The regulations prohibit landlords from granting new leases unless the property has an EPC rating of E or higher. Starting from April 1, 2023, this prohibition will also apply to continuing/existing leases. As a result, both new and existing leases will be subject to the requirement of a minimum EPC rating of E from April 1, 2023.
While MEES primarily places the responsibility for compliance on landlords, it is also important for occupiers to consider MEES when making decisions about alterations/fit-out, service charge, lease renewal negotiations, and dilapidations.
Non-compliance with MEES can result in financial penalties and publication on a public register of non-compliance. The penalties can be calculated based on the rateable value of the property and can range from up to 10% of the rateable value capped at £50,000 for less than 3 months of non-compliance, to up to 20% of the rateable value capped at £150,000 for 3 months or more of non-compliance
