Property Management Flashcards
What is Use Class E and when was it introduced?
‘Class E’ is a broad category of commercial, business and service uses. It was introduced by the Business and Planning Act 2020.
Class E effectively amalgamates the former Class A1 (retail), Class A2 (financial and professional services), A3 (restaurants/cafes), B1 (offices) along with health/medical uses, creches, nurseries (all formerly D1 uses) and indoor sports/recreation (formerly D2 use). Permission is not required to change between any of the uses within Class E.
The only retail uses not included in Class E are small shops under 280 square metres, selling ‘essential’ goods and not located within 1km of other similar shops. These shops are in Class F2.
What is an assignment?
Tenant transfers legal interest in lease to another tenant. Incoming tenant takes over lease obligations.
What is sub-letting?
Lease property from tenant, rather than Landlord. Original tenant maintains relationship with Landlord, and sub-tenant has relationship with original tenant.
Difference between assignment and sub-letting?
With assignment, original tenant is no longer liable under the lease. With sub-letting, original tenant remains liable but creates new relationship with sub-tenant. Landlord and sub-tenant have no direct relationship.
Why sub-let rather than assign?
- Lease may prevent you from assigning
- Tenant may want to re-occupy premises in the future
- Achieve a profit rent
Typical alienation clause?
Permitted to assign/sub-let whole but not part, with LL consent not to be unreasonable withheld or delayed
What should PM do when receives application to assign?
- Review the terms of the lease - Is an AGA required or rent deposit, can consent be reasonably withheld etc
- Undertaking of surveyor and legal fees - Without prejudice save as to costs
- Request financial information from the incoming party - personal and bank references, 3 years of company accounts and profit & loss statements to undertake a profits test (profit must equal 3 times the liabilities for the property).
- Request credit control undertakes a credit safe check of the incoming tenant and anti-money laundering check
- You could undertake an inspection to ensure the existing tenant has not made an unauthorised alterations and as part of the valuation to ensure the proposed market rent is the same as the passing rent (this would be to ensure the tenant can pay the rent) as well as undertaking an investment valuation. If the incoming tenant has a stronger financial covenant then the ARY may decrease.
- Surveyor provides a recommendation to the client of the appropriate course of action based on covenant strength etc
- Ensure tenant has paid all arrears up until the assignment date
- LTA issued by the landlords solicitors for tenant signature.
Aim of LL & T Act 1988?
S1 of LL & T Act 1988 states consent must be provided within reasonable timeframe (no delays) which is usually 28 days
What is Section 3 of the LL & Tenant Act 1927?
Section 3 - Gives the right to tenants to carry out improvements to their property (even if alterations are prohibited in the lease) and to register those improvements.
- The tenant can serve a written notice on the landlord detailing the improvements they want to make under section 3 of the 1927 LL & T act.
- The landlord has 3 months to review these and if they reject these the tenant can apply to court. The landlord also has the right to undertake these works themselves and if they do they can reasonably increase the rent of the property.
- The tenant must show the court that the improvements will increase the letting value of the premises on termination,
are reasonable and in character and will not diminish the value of any other property belonging to the Landlord. - If the court deems the improvements can be registered for compensation or the landlord does not object, they should undertake them as detailed in the plans. They should ensure landlord has signed off the works to enable them to gain compensation at the end of the term.
- At the end of the term, the tenant can apply for compensation based on the additional value the improvements bring to the premises (or based on the reasonable costs of the work)
What is Section 18 of the LL & Tenant Act 1927?
limits the amount of damages a LL is able to recover for breach of T repairing covenants to the diminution value
What is Section 19 of the LL & Tenant Act 1927?
States consent must not be unreasonably withheld
Benefit of Licence for Alterations?
Protection for LL - requires T to reinstate unit at end of lease, back to how it was originally let
Protection for T - prevents LL from rentalising alterations/improvements at rent review
Key RICS publication in regard to alterations?
RICS Guidance Note: Licence for Alterations in Commercial Property, 2nd Edition 2013
Process for completing LTA application?
- Review the application and the terms of the lease - is landlord consent required
- If the tenant is undertaking works to life safety systems or structural works a building surveyor may be required.
- Obtain undertaking of fees for surveyor, legal fees and BC (if necessary)
- Landlords solicitors document the works with an LTA
- Tenant provides start date for the works including RAMS, responsible person etc
- Surveyor (&/or BC) inspection to ensure works have been carried out as detailed on the plans
Different ways that consent to make alterations can be granted?
Automatically by lease terms (no consent required)
Formal Licence Deed - used for projects where there are significant internal changes being made
Simple Letter Licence - less complex project, no solicitor necessarily required
Why should inspection be carried out after completion of tenant works?
Surveyor needs to be satisfied that works were carried out to required standards, in line with plans and specifications
PM responsibility when managing vacant building?
- Building Insurance - inform them it is vacant and comply with the terms
- Inspections - regularly for insurance purposes (usually every seven days). Undertake any repairs you find.
- EPC - ensure there is a current EPC if there isn’t one
- Health & Safety and Fire Risk Assessments to be carried out
- Inform Council - Empty Rates
- Isolate utilities and power supplies
- secure the unit
- Maintain landscaping and asbestos register
Implication of Insurance Act 2016?
The main aim of this act was to improve the responsibility insurers had to their policy holders. For example, before this act if a policy holder breached the terms of the insurance, the insurance would be automatically void from that date.
However, after this date if the policy holder rectified the breach to the correct standards the policy was reactivated
Remedies for rent default?
Meet with the tenant
Negotiate payment plan
Pursue guarantor
CRAR
Draw down rent deposit
Serve Statutory Demand
Forfeiture
Court proceedings
How can Court proceedings be used toc recover tenant arrears?
LL can obtain court judgement
High Court Enforcement Officer may then enforce this but need to pay court fees
Similar to CRAR
Can be useful if tenant is still solvent as threat of going to Court may prompt payment!
However - slower process, more expensive etc
When can former tenant who has assigned their lease be pursued for arrears?
If Lease started before 1 January 1996
Privity of Contract was abolished by LL & T (Covenants) Act 1995
What is Statutory Demand?
Preliminary step to pursuing winding-up proceeding’s (AKA bankruptcy)
Can be used to put pressure on tenant to pay arrears
Used on undisputed arrears of £750
What is the process of serving a Statutory Demand?
Notice served by the landlords solicitors, tenant has 21 days to pay, propose a plan or dispute the arrears position
After this time, LL can present winding up petition to Court
What is CRAR?
Commercial Rent Arrears Recovery - introduced in 2014 by Tribunals, Courts and Enforcement Act
What are CRAR timelines?
Tenant must have 7 days unpaid rent
landlord fills out warrant of control form, enforcement agents then give the tenant 7 working days notice to pay arrears
Once the 7 days expires, Enforcement Agents visit and take and seize any items they can
Another 7 days before sale/auction of any seized goods
Can you CRAR a sub tenant?
Yes under Section 81 of the Tribunals, Courts and Enforcement Act 2007, but you must give them 14 days notice not 7. If the sub tenant pays all of the arrears, this could give them an overriding interest in the property with them able to take over the lease.
What can the enforcements agents seize from the tenant when using CRAR?
- Only goods belonging to the tenant (Not 3rd Party)
- ‘Tools of the trade’ with an aggregate value of up to £1,350 eg computers. The tenant must still be able to operate a business eg can’t remove the chairs people are sitting on from an office
- Only non perishable goods with a value not greater than the rent arrears owed
Can a tenant stop CRAR?
Yes by paying the arrears or by applying to the courts and proving there is a dispute after which the court will take a view
Can a landlord speed up the CRAR process?
Yes, they can apply to court to speed up the CRAR process if they think the tenant is likely to abscond
How can a landlord forfeit a lease?
- By serving a Section 146 notice
- Through the forfeit clause in the lease eg peaceable re-entry and change the locks
What is a Section 146 Notice of the Law and Property Act 1925?
Served by the landlords solicitor on a tenant when they wish to commence forfeiture proceedings for breach of tenants covenant under their lease.
This notice must contain details of the breach, the reasonable timeframe to remedy the breach (usually 6 months) and any compensation the landlord believes it is owed eg tenant not maintaining their repairing covenant has caused damage to another building.
If the tenant does not respond, make the repairs to the correct standard within the reasonable timeframe or meet the reasonable costs, the landlord can apply to the court to have the lease forfeited.
Is a tenants breach of rent covenant treated differently when serving a section 146 notice?
Yes, the rent arrears must have been unpaid for 21 days and be at least £350
What must the landlord do to forfeit a lease (where the lease contains a forfeiture clause)?
- There must be no communication with the tenant for 21 days following the arrears becoming due. This is to show that the landlord has no intention of continuing the lease. Cannot CRAR or serve section 25 notice (obviously)
- The lease will usually state how long the rent will have to be owed for following the quarter day eg 21 days or 14 days to forfeit.
What is Section 17 of the Land lord and Tenants Covenant Act 1995?
The tenant can serve a notice on the Authorised Guarantor requesting them to pay any fixed charges under the lease when the tenant fails to do so. The guarantor can only be pursued for charges within 6 months of them falling due.
What was impact of Legal Aid, Sentencing and Punishment of Offenders Act 2012?
Made residentail squatting a criminal offence
Commercial landlords must rely on Bailiff or Court to remove squatters/trespassers
Four main options for LL when T not fulfilling their repairing obligations?
Serve repair notice (S146 of Law and Property Act 1925)
Forfeit lease
Serve interim schedule of dilapidations
Do works themselves and charge tenant
What is the leading case law for LL right to re-enter property to undertake repairs?
Jervis vs Harris
Gives LL right to enter the premises and undertake the repairs themselves where the tenant has been given a reasonable timeframe/notice to do so and hasn’t. The landlord can then recover these costs from the tenant.
3 possible stages of PPM regime?
Cyclical maintenance - regularly carried out actives EG plant servicing annually
Planned Preventative maintenance - timetable provided by building surveyor for undertaking works
Responsive maintenance - repairing leak or unblocking drain etc
RICS key publication for service charges?
RICS Service Charges in Commercial Property, 2018
Effective from April 2019
Aims of Service Charge Professional Statement?
Improve best practice, fairness and transparency
Ensure timely issue of budgets and YE certificates
Reduce cause of disputes, and provide guidance on dispute resolution
What are the 9 mandatory requirements in Service Charge Professional Statement?
Recover expenditure in line with lease terms
Recover no more than 100% of costs
Annual provide budgets and explanatory notes
Annually provide service charge accounts (showing actual figures)
Annually provide service charge apportionment schedule
Service charge money to be held in separate bank account
Interest must be credited to SC account
When acting for tenant, advise that if disputing payment then withold the amount in dispute
How can Property Manager ensure value for money when managing service charges?
Ensure quality services that are regularly reviewed on site or in performance meetings
Ensure contracts are agreed where necessary and retendered at expiry
Ensure 2/3 quotes are gained from approved contractors when it’s not an emergency
Rely on the PPM
What is a sinking fund?
A fund set up for paying specific costs that occur occasionally EG roof repairs or painting needed every 5 years
What is a reserve fund?
A fund set aside to cover cost of major works or other significant items of expenditure
Useful for unexpected expenses
What is a depreciation charge?
Measure of the wearing out or reduction in life of an asset
Depreciation distributed across the useful life of the property (rather than taking one larger deduction the year you buy or improve the property)
4 methods of service charge apportionment?
Floor area
Fixed percentages
Weighted floor area (typical in shopping centre)
RV
Different types of insolvency?
Administration
Company Voluntary Arrangement (CVA)
Receivership
Liquidation
What was Commercial Coronavirus Rent Act 2022?
Ending 25 March 2022
Introduced arbitration process to resolve disputes regarding Covid rent arrears
Legally binding arbitration process
What is Occupiers Liability Act 1957?
Occupier must ensure visitors will be safe in using premises
What is Occupiers Liability Act 1984?
Occupier must ensure duty of care even to UNLAWFUL visitors EG trespassers or squatters
Difference between covenant being absolute/qualified/fully qualified?
Absolute = cannot do anything
Qualified = can do something with LL consent
Fully Qualified = can do something with LL consent, not to be unreasonably withheld or delayed
What is statutory duty placed on LL in LL&T Act 1927 and 1988?
Consent must not be unreasonably withheld (1927) or delayed (1988)
What is Corporate Manslaughter and Corporate Homicide Act 2007?
Companies can be found guilty as result of serious management failure / gross breach of duty of care
Fine can be unlimited. An example would be the recent Cushman & Wakefield case where items were not removed from roofs when they should have been, something blew off and killed someone resulting in a £3 million fine.
What is TUPE?
Transfer of undertakings of employment
Protects employees if business they are in changes hand
Moves employee from old employer to new employer
EG applies to people who provide service at property - cleaners, security etc
What is a duty of care deed?
Provides lenders with greater protection for their loans when lending in relation to property that is rented out and managed by an agent
RICS guidance note relating to Property Management?
Commercial Property Management in England and Wales
PM to act as agent for LL and manage LL responsibilities under leases
Collect rent, SC and other sums owed
Manages the property
What is Public Liability Insurance?
Covers cost of legal action and compensation claims made against your business by general public
How would you manage a rent deposit?
Performed to preserve a property’s condition
Proactive approach - aims to avoid failures, unplanned disturbances and sudden maintenance costs
Two key RICS publications in relation to PM?
RICS Professional Statement - Real Estate Management, 3rd Edition 2016
RICS Guidance Note - Commercial Property Management, 2nd Edition 2011
What are 12 mandatory requirements for members set out in RICS Professional Statement, Real Estate Management 3rd Edition 2016?
Conduct business in honest, fair, transparent manner
Carry out work with skill and due diligence
Ensure clients are provided with clear terms of engagement
Avoid conflict of interest, and when they arise deal with them openly and promptly
Do not discriminate
Ensure communications are fair, clear, timely and transparent
Ensure all advertising and marketing is honest
Ensure client money held in separate accounts
Ensure professional indemnity insurance in place
Ensure scope of obligations of work is provided to all parties
Give realistic assessment of buying/selling/rental price
Ensure all inspections and meetings are carried out in accordancce with client wishes
What insurance is a LL typically required to have under leases?
Insurance against damages to the property EG loss of rent and Public Liability Insurance
How do you manage/balance expectations from landlord and tenants?
Clear communication
Set realistic expectations
Ensure timely maintenance/repair
Act as a mediator to disputes
How does Workman ensure value for money when instructing works?
- Workman has a procurement team that regularly assist in the re-tendering of contracts
- All contractors must be on Workman’s approved supplier list - They must provide 10 million in public liability insurance, be safe contractor accredited, meet certain financial minimums and pass a AML check
- We always ensure to get 2/3 quotes or tender when works are significant to ensure value for money
Why is it important to look at management accounts as well as audited accounts?
Audited accounts may be a year or so out of date as these are submitted 9 months after year end
Management accounts show a business is doing on a month/quarterly basis
What is dilapidation figure based on?
The diminution in value as a result of wear and tear from the tenant’s occupation
What happens if superior landlord consent is required?
Advise tenant potential for increased costs and longer time of processing as superior landlord may withhold consent - Agreement may be between three parties
What happens if you discovered unlicensed works on review or assignment?
Breach of lease
- May be able to reject assignment
- Potential to forfeit lease
- Retrospective licence
- Could rentalise (if improvement but depends on wording)
How do dilapidations relate to alterations?
Licence to alter an extension of the lease and will be considered at the end of the lease - May be required to reinstate and will be included in dilaps
How do MEES relate to alterations?
Reasonable to withhold LL consent if works negatively impact EPC rating
What are some key duties of a property manager?
Client report
Collecting monies
Service charge budget/rec
Occupier liason
Energy management
H and S compliance
Procurement of third party suppliers (contractors)
What are the two tests for insolvency?
Cash flow insolvency test
Balance sheet insolvency test
What is CVA?
Company Voluntary Arrangement
- Company in financial difficulty but not insolvent
- Makes a proposal to creditors to alter the lease terms so the company can get back to profitability - 75% of landlords must agree
What is administrative receivership?
Company breaches terms of borrowing - Creditor may appoint administrative receiver to collect money owed
What is compulsory liquidation?
Company unable to pay its debt - company wound up and stops trading and liquidator sells of assets
What is voluntary liquidation?
Company unable to pay its debt shareholders put it into liquidation
- Ceases to trade
- Assets sold off to repay creditors
-Certain creditors are paid before others eg HMRC
What is the difference between a typical insured and uninsured risk? (example of each)
Insured risk (e.g. escape of water) = risk which premises required to be insured under lease
Uninsured risk = risk not insured against (e.g. wear and tear issues)
What are the timescales for reporting within the service charges professional statement?
Budget = Issued minimum 1 month prior to start of SC year (comments and matrix
Reconciliation = within 4 months of SC year end (expenditure cert + explanations)
How does ADR relate to SC under the professional statement?
ADR supported and recommended as basis to settle SC disputes
- Lease has a provision for ADR and is proactively pursued
Tell me about the right to challenge under the service charge professional statement
Leases should have a provision for disputes to be resolved through ADR
RICS nominate suitable person if meditation cannot determine dispute
What is a winding up petition? What is it used for?
Step after statutory demand
Statement of intent by creditor to shut down business due to unpaid debt
Most serious legal action a creditor can take
7 days before financial info becomes public
Is there any RICS guidance with regards to alteration?
RICS Guidance Note: Licence for Alterations in Commercial Property, 2nd Edition 2013
What are the requirements under RICS Real Estate Management for rent demands?
You should submit rent demands in a timely manner and ensure they are clear and understandable by tenants
To include relevant taxation in demand
What protection can a tenant seek regarding property repairs?
Under Leasehold Property (repairs) Act 1938
- Protects tenancies of 7 years ore more with 3 years left to run against onerous interim schedules of dilapidations
- Have to serve a counter notice within 28 days of receiving the schedule in order for landlords claim to be suspended
Why is it often better to use ADR methods before/rather than going to court?
- ADR is quicker than court proceedings
- Cost - less money spent on professional fees for litigation
- Better quality of decision making in arbitration or independent determination as decisions are made by surveyors rather than a judge
- Confidentiality
- Great opportunity for negotiation
How are Arbitrators selected?
Under the Arbitration Act 1996, arbitrators are chartered surveyors who pass the Chartered Institute of Arbitrators exams and can then be chosen to hear cases, usually based on their expert subject
How does Arbitration work?
Arbitrators will order a hearing or written representation from both parties. They will judge the information provided and come to a binding conclusion. They cannot be sued and can only be overruled on a point of law.
Are you aware of any recent RICS publications for Property Management?
Property management, 1st edition, UK professional standard - essentially a stand alone PS for property management which used to be combined with agency
What is Part M of the Building Regulations Act 2010?
Ensuring developments and mixed use properties are DDA compliant eg accessible to people with disabilities
What is included in a PMA?
Identification of both parties & property to be managed
Terms of engagement
CHP
Details of PII
MGMT Fee & Basis
Services to be provided eg Budget / services / rent collection
KPIs & Reporting requirements
What is the Assigned Risks Pool?
If a UK regulated can provide evidence that they cannot gain PII they can access the ARP which is collectively underwritten by all RICS listed insurers.
What do the Privacy and Electronic Communications Regulations2003
apply to?
PECR - gives people specific privacy rights over:
-marketing calls, emails, texts and faxes;
-cookies (and similar technologies);
-customer privacy as regards traffic and location data, itemised billing, line identification, and directory listings.
What is the difference between a deed and a title?
A deed is the physical document that is handed over to show who owns the property. A title is a claim to certain rights over the property like it’s use etc.
How do you find title information?
On the solicitors data base
On the title register
What is an index map search?
It’s a search of the Land Registry mapping records
What is the Boots UK Limited v Trafford Centre Ltd 2008 case?
Defined what was and wasn’t included as marketing within the service charge, for example seasonal decorations and entertainment were seen as separate from marketing
When could a tenant be prevented from assigning their lease?
If the incoming tenant has a weaker covenant strength
If the incoming party won’t pay the legal/sols fees
If the incoming party won’t provide information reasonably requested eg financial accounts
If the current tenant is in breach of their lease
