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RICS APC > Property Management > Flashcards

Property Management Flashcards

1
Q

What is the key RICS guidance for property management?

A
  1. Commercial property management in England &
    Wales 2nd Edition (2011) - Guidance note.
  2. Real estate management 3rd edition (2016) - Professional Statement
  3. Service charges in commercial property 1st edition 2018 - (reissued as a Professional Standard 2023)
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2
Q

What is the key RICS guidance for service charge management?

A

Service charges in commercial property 1st edition 2018 - (reissued as a Professional Standard 2023)

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3
Q

What are the methods of apportionment for service charge?

A
  1. floor area (most common)
  2. Rateable Value (not recommended by RICS - difficult if RV changes / is disputed and doesn’t consider common areas)
  3. Fixed Percentage / Amount (inflexible)
  4. weighted floor area (in shopping centre)
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4
Q

What are the limitations of the RICS Service Charges in Commercial Property 2018 (2023)?

A

Cannot override the lease

  • Renewal provides an opportunity to modernise.
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5
Q

What is a service charge?

A

A service charge allows an owner to recover their charges and any associated administrative costs of maintenance, repair and replacement of fabric, plant, equipment etc and any other works and services agreed by parties to be provided by the owner subject to reinstatement by the occupier.

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6
Q

What are the aims and objectives of there RICS Service Charge in Commercial Property Professional Standard?

A

4 aims

  • Improve general standard and promote best practice, uniformity, fairness and transparency in service charge management
  • Ensure timely issue of budgets and year end certificates
  • Reduce cause of disputes and provide guidance on resolutions
  • Provides guidance to solicitors, clients, and managers of SC in negotiating, drafting and operations of lease in accordance with best practice.
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7
Q

What are the principles of practice for Service Charge?

A

9 Mandatory Principles

  1. Recover expenditure in accordance with the lease
  2. Recover no more than the actual cost of the services
  3. Issue budget and explanatory notes annually
  4. Issue an approved set of accounts showing accurate record of expenditure annually
  5. Issue SC apportionment matrix annually
  6. Service Charge monies to be held in discrete account(s)
  7. Interest earned to be credited to SC accounts after appropriate deductions
  8. Any SC payment withheld by the Tenant should reflect only the actual sums in dispute
  9. If sum raised incorrectly, should be rectified w/out delay
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8
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
  • sets out 26 core principles to ensure fair, transparent and good quality services that provide value for money
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9
Q

How do you manage an empty building?

A
  • Inform insurers
  • Undertake regular inspections
  • Undertake Fire Risk Assessment
  • Maintain fabric of Building
  • Obtain EPC and consider MEES
  • Inform BR for empty rates
  • Drain down water
  • Turn off utilities (power, electric, gas)
  • Additional Security
  • Asbestos Register (inform Asbestos manager)
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10
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

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11
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

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12
Q

What is a 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

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13
Q

What is a reserve fund?

A
  • Fund formed to meet anticipated future costs of maintenance and upkeep, to avoid one-off large increase in service charge
  • Applies to regularly occurring items like cleaning and redecorating

-Useful for major works or unexpected expenses

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14
Q

What is Planned Preventative Maintenance (PPM)?

A

Scheduled maintenance routine prepared by building surveyor to forecast future repair needs EG upgrading facilities/services or refurbishment work

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15
Q

What are the steps for a licence to alter?

A
  • Review 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
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16
Q

What is an assignment?

A

Tenant transfers legal interest to another tenant, and new tenant takes over lease obligations

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17
Q

What is a Sub-Letting?

A

A Lease of the property from Tenant rather than Landlord. Original tenant maintains relationship with Landlord and Sub-Tenant has relationship with Tenant

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18
Q

Why would you recommend to your client a Sub-Let rather than Assign?

A
  • lesser covenant strength
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19
Q

What should PM do when received application to assign/sub-let?

A
  1. Check the alienation clause of the lease
  2. Request an undertaking for costs
  3. Check if proposed rent is the same as the passing
  4. Check covenant strength
  5. Check if AGA Clause / if new tenant will pay rent deposit
  6. Check if reasonable grounds for withholding consent
  7. Consider effect on investment value
  8. Provide recommendation to client and obtain consent
  9. Licence to assign / sub-let required

** copy of the sub-lease if subletting.

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20
Q

What is the Benefit of a licence for alterations to the Landlord?

A

LL - Reinstated at lease end

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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)
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22
Q

What is the Insurance act 2016?

A
  • introduced more accountability for insurers and responsibility to policyholders to provide relevant information
  • aims to reduce claims
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23
Q

What are the two fundamental rent collection principles?

A
  1. Accuracy of information provided
  2. Timing of when demands are sent/rent is collected
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24
Q

What is a standing order?

A

regular payment set up by payer, and payer has control

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25
Q

What is a direct debit?

A

payer authorises payee to take payments

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26
Q

Can you name some warning signs of future rent arrears?

A
  • persistent late payments
  • bounced cheques
  • arrival of post dated cheques
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27
Q

What is a payment plan?

A
  • 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
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28
Q

What is a Guarantor?

A
  • anyone who has agreed to guarantee performance of tenant
  • section 17 of L&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
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29
Q

What is a Rent Deposit?

A
  • 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
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30
Q

What does CRAR stand for?

A

Commercial Rent Arrears Recovery (CRAR)

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31
Q

Can you explain Commercial Rent Arrears Recovery (CRAR)?

A
  • 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

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32
Q

What are Tenant rights under CRAR?

A

can apply to Court for order that no further steps can be taken without permission from Court

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33
Q

What is a statutory demand?

A
  • 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
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34
Q

Can you explain forfeiture?

A
  • must be forfeiture clause in lease and rent must have been properly demanded
  • LL enters peacefully/commences Court proceedings to regain possession of lease
  • if breach other than rent, LL serves S146 notice under Law of Property Act 1925 providing details of breach and how to remedy
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35
Q

What are tenant rights under forfeiture?

A
  • Can apply to Court for relief
  • If granted, lease restored as though forfeiture never happened
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36
Q

What do you consider before drawing down rent deposit?

A
  • covenant strength
  • future debt
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37
Q

What is the process of court proceedings to recover arrears?

A
  • LL obtains Court Judgement
  • slow process and expensive
  • threat of Court action may prompt payment
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38
Q

How can Landlord right to forfeit be waived?

A

agree payment plan with T instead
CRAR exercised
s25 notice served under L&T Act 1954

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39
Q

Why is it important to provide clear communication with occupiers in respect of Service Charge?

A
  • Build good working relationship
  • Avoid dispute
40
Q

I see you created a Service Charge, how did you undertake this?

A

We purchased a property that was formerly occupied by a sole tenant (no SC in place). It was agreed the tenant would occupy the first floor of the premises and an interested party took occupation of the ground floor. Due to common area a SC was required.

  • Checked the lease documents to ensure SC clause
  • Used the services listed in the appendix of RICS SC in Commercial Property PS as a guide
  • I used other service charge budgets in the vicinity of the property and amended accordingly by applying the rate to the size of the common areas
  • Considered allocating the costs to two separate schedules however as the tenants benefit from the same availability and use I used one schedule
  • I apportioned the SC based on the floor area
  • I acted transparently advising the occupiers of the cost and shared a copy of the budget with them (with commentary)

** no set up costs were included
** Management costs were 10% of overall cost

41
Q

When should managers issue budgets to occupiers?

A

One month prior to service charge year

42
Q

What should be issued to the occupiers one month prior to service charge year?

A
  • Service Charge Budget
  • Explanatory commentary and apportionment matrix
43
Q

What is the floor area apportionment in SC?

A

The ratio the premises bear to the total lettable parts of the building or development.

**Manager should provide a full apportionment matrix to all occupiers within the building or development.

44
Q

What should be issued to the occupiers four months prior to service charge year end?

A
  • Detailed statements of actual expenditure with accountancy policies and explanatory text.
45
Q

What should leases include in respect dispute?

A

The provision for either party to require resolution via ADR

46
Q

What is the process of dispute for SC?

A
  • ADR (cost effective alternative to court proceedings) via Mediator or Independent Expert to determine dispute

If parties can’t agree on a mediator / expert the president of the RICS should be able to make an appointment

47
Q

What If a lease doesn’t cover or include provision for an alternative dispute resolution?

A

Nothing stopping the parties to proceeding on this basis if they are in agreement.

48
Q

When procuring services, what is the most important consideration?

A
  • Value for money

*Owner has the right to set out standards of the management of services but agents should consult with occupiers on standards / quality

49
Q

How do you ensure you obtain services which reflect are value for money?

A
  • Procurement exercise - obtain 3 quotes

(other method include benchmarking - check standards against industry-used index)

50
Q

What if a tenant was late on payment?

A

I would check the lease for any penalties

i.e. penalty interest on arrears when paid late

** usually payable after a short grace period, such as one to two weeks, and at a percentage more than the base rate, say 2-4% above.

51
Q

What if the property has been VAT registered by the Landlord?

A

VAT will need to be charged on the rent (at 20%)

52
Q

What are the advantages and disadvantages of standing order / direct debits?

A

Advantage: Easy administration

Disadvantage: Can lead to problems i.e. when rent should not be accepted e.g. contracted out lease has expired (could create a SOT)

53
Q

If an occupier defaults on rental payments, what would you take into consideration?

A

Financial position of occupiers based on:
- arrears
- payment history
- level of the passing rent in comparison to market
- number of chasers sent
- prospect of reletting
- covenant status (credit check or accounts on CH)

54
Q

What are options to recovering arrears?

A
  • Payment plan (first resort) - if want T to stay, avoids empty property costs, help recover arrears over prolonged period of time
  • Rent deposit - can be used to pay off arrear but no longer available to cover other breaches or dilaps claim
  • CRAR - Taking control of goods (rent must have been outstanding for more than 7 days) cannot be used on SC / insurance.
  • Existing Guarantor - Check the lease to check what may be recovered
  • Subtenants - requires rent due from subtenant to be paid direct to LL
  • Former T - could consider pursuing former tenants where they still owe rent if the lease was granted before 1 January 1996 and privity of contract applies
  • Statutory demand - arrears over £750, can present a bankruptcy or winding up petition to court if not paid within 21 days
  • Forfeiture - Last resort if permitted in lease.
  • Court Proceedings - Letter of action must be issued before any court application. (Online applications for £10,000 - £100,000, above £100,000 is the county court)
55
Q

How might you recover arrears under s81 under Tribunal Courts and Enforcement Act 2007?

A

Requires rent to be paid by the subtenant directly to the superior landlord (skipping the middleman)

56
Q

Can you recover debt from a former tenant?

A

Yes if they still owe rent and the lease was granted before 1 January 1996 and privity of contract applies (i.e. the original party can be pursued even if it has assigned its interest).

Can alternatively approach tenant’s guarantors using an authorised guarantee agreement if the lease was granted after that date.

57
Q

What is a section 17 notice under the Landlord and Tenant (Covenants) Act 1995?

A

If landlord believes current tenant won’t pay rent or other fixed charge - A s17 notice can be issued within six months of the sums falling due.

A former tenant or guarantor that pays sums due can request an overriding lease under section 19, so the risk of this being created (i.e. does the landlord want a lease to be granted to a party of potentially unknown covenant strength) should be considered before the section 17 notice is served.

58
Q

What is meant by ‘reconciliation’?

A

At the end of the year property managers reconcile all service charges, which means they compare the original estimated cost with the actual cost.

59
Q

What guidance are you aware of in relation to service charge during covid?

A

Covid 19 Service Charge and Insurance code of practice for commercial property relationships

Summary:
- Finances should be reduced if lack of use, and where practicable (if cost reduction Tenants are to be informed asap before end of year reconciliation)
- Management fees to reflect work undertaken

**Ministry of Housing, Communities, and local Government in consultation with various bodies

60
Q

What are the 5 types of insolvency (insolvency act 1986)?

A
  1. Administration
  2. Company Voluntary arrangement
  3. Receivership
  4. Voluntary liquidation
  5. Bankruptcy
61
Q

What is administration?

A

Administration protects a company from all legal action.

Administrator will try to create plan of action to satisfy creditors.

Administrator may negotiate CVA so company can keep trading, sell business, sell assets or close business.

Side Note:
-LL can claim amount equal to rent from administrator.

62
Q

What is company voluntary arrangement (CVA)?

A

Pay creditors ove fixed period.

If business has future, insolvency practitioner will work out amount can be paid and create a schedule

If 75% agree, CVA is approved (contract between company and creditors)

Side Note - if don’t pay creditors can wind up business

63
Q

What is receivership?

A

A 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.

64
Q

What is voluntary liquidation?

A

When the shareholders of the company decide to put the company into liquidation.

Insolvency practitioner appointed - liquidation (sell assets to pay off debt) - begins from the time the resolution to wind up is passed.

65
Q

What is ‘wind up’ of a company?

A

When a company chooses to liquidate their company.

The company will stop doing business and employing people.

The company will not exist once it’s been removed (‘struck off’) from the companies register at Companies House.

66
Q

What is bankruptcy?

A

A legal proceeding initiated when a person or business is unable to repay outstanding debts or obligations. It offers a fresh start for people who can no longer afford to pay their bills.

Creditors have a chance to get some repayment based on the individual’s or business’s assets available for liquidation (selling off assets and using the proceeds to pay off creditors and shareholders)

67
Q

What is the purpose of equality act 2010?

A

The Equality Act became law in 2010. It covers everyone in Britain and protects people from discrimination, harassment and/or victimisation.

68
Q

What are the 9 protected characteristics under the equality act 2010?

A

Age
Disability
Gender reassignment
Marriage and civil partnership
Pregnancy and maternity
Race
Religion or belief
Sex
Sexual orientation

69
Q

How does the equality act apply to property management?

A
  • Providing physical access and access to services for disabled people.
  • Reasonable adjustments may be required.
70
Q

What are the holistic 4 P’s in relation to property management?

A
  • People
  • Place
  • Price
  • Promotion
71
Q

What are Landlord and Tenant functions a property manager deals with day to day?

A
  • Lettings
  • Alienation
  • Rent Review
  • Dilapidations
  • Subletting
72
Q

What certifications are required for a building?

A
  • Health and safety certificate
  • EPC
  • Gas Safety
73
Q

What is reactive maintenance?

A
  • Repair emergencies
74
Q

How might you reduce costs of a building?

A
  • Utilities switching and efficiency benchmarking
75
Q

What is the 42 day rule in relation to empty rates?

A

A LL will benefit from empty rates when a building becomes vacant so long as the previous tenancy was for 42 days or longer.

76
Q

If you recommend to your client to CRAR what should you also inform them of?

A

CRAR will waive the right to forfeit the lease.

77
Q

Who is responsible for asbestos?

A

LL is liable but there is a duty placed on the property manager to manage asbestos (asbestos register if property vacant)

78
Q

What is the asbestos legislation?

A

Control of asbestos regulations 2012

79
Q

What are the types of asbestos surveys?

A

2 types:
- Management Asbestos Survey (view / sampling)
- Refurbishment and demolition - legally required prior to works

80
Q

What health and safety legislation should property managers be aware of / have consideration for?

A
  • Occupiers Liability Act 1984
  • Occupiers Liability Act 1957
  • Air Conditioning R22
  • RCS Surveying Safely
  • Control of Asbestos Regulations 2012
  • Corporate Manslaughter and Homicide Act 2007
81
Q

What is the Occupiers Liability Act 1984?

A

Sets out the duties which an occupier of a premises owes to persons, other than visitors, who come onto their premises (i.e. duty to trespassers/non-visitors)

82
Q

What is the Occupiers Liability Act 1957?

A

Creates responsibility for visitors to your property (all owed the same ‘common duty of care’)

83
Q

What is the RICS Guidance Note on Asbestos?

A
  • Asbestos and it’s implications for surveyors and their clients.
84
Q

What is the Corporate Manslaughter and Homicide Act 2007?

A

Companies and organisations can be found guilty of corporate manslaughter as a result of serious management failures resulting in a gross breach of a duty of care (e.g. death by negligence)

(Unlimited fine / PM role examined)

85
Q

What is air conditioning R22?

A

HCFC-22 Gas (R22), is a common refrigerant which has been extensively used in small and packaged air-conditioning equipment.

It has been banned in air-con units since Jan 2015 as may cause units to be replaced much sooner as it cannot be maintained.

86
Q

What is remedy for asbestos?

A
  • Removal or Encapsulation (after inspection / sampling / intrusion)
87
Q

What is ozone?

A

Ozone is an odorless, colorless gas made up of three oxygen molecules (O3) and is a natural part of the environment.

87
Q

What is Construction Design and Management Regulations 2015?

A

Risk assessments and planning to protect everyone involved in construction throughout the lifecycle of a project.

Main H&S duties are on the Principal Designer and Principal Contractor

88
Q

What is the EC Ozone Regulation No. 1005/2009?

A

This Regulation lays down rules on the production, import, export and destruction of substances that deplete the ozone layer.

89
Q

What does the Landlord and Tenant Act 1927 Section 19 refer to in respect of alienation?

A

section 19, Landlord and Tenant Act 1927

Where the alienation covenant provides that the tenant cannot assign, underlet, charge or part with possession without the consent of the landlord

the landlord’s consent will not be unreasonably withheld

90
Q

What is Landlord and Tenant Act 1927 say in relation to improvements?

A

Section 1, 2 and 3 gives a T who has made improvements to a premises a right to compensation at the end of the term of the tenancy.

(subject to a notice served on the LL of the intention to carry out the works and time limits)

91
Q

What is the Landlord and Tenant Act 1985?

(Resi only!)

A

Tenants rights

  • safe guards certain rights for a tenant
    (i.e. right to know the LL identity, right to written agreement, right to rent book and repairing obligations)
92
Q

What is the Landlord and Tenant Act 1987?

A

Grants the Tenant first right of refusal if LL makes disposal

93
Q

What is the Landlord and Tenant act 1988?

A

S1 and 2 of Act

  • introduces a number of provisions relating to assignment. Landlord must:
  1. give consent (except reasonable to withhold) within reasonable time
  2. Serve written notice on of their decision (detail conditions and if not provided, why)
  3. Pass application forward (i.e. superior landlord) within reasonable time
94
Q

Who bears the burden of proof under the LTA 1988?

A

Section 1 and 2 of the LTA 1988, the burden of proof is on the landlord to justify, with reasons, that they have acted reasonably in refusing consent and within a reasonable time.

95
Q

What is Section 19 of the Landlord and Tenant Act 1927?

A

Consent (assignment, subletting etc. is not to be unreasonably withheld

RICS APC (22 decks)

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