Property Management Flashcards
Difference Assignment and sub-let (and what is impact on investment value); why are both used?
- assignment: new tenant has direct relationship w LL
- sub-let - new tenant has direct relationship w main tenant
Lease can be absolute, open or relative
why sub-let?
- requirement of lease
- for part of demise not whole
- MR > passing rent
- tenant wants to re-occupy in future
- new party is lesser covenant strength
What actions should be taken when dealing with app forconsent to assign of sublet?
read kease
- check MR
- what will be effect on inv value?
- has rent deposit been agreed?
- obtain the client approval to proceed
if consent, licence will be required
What are LL rememdies for illegal alientation?
forfeiture, damages or injunction
what is L&T
landlord and tenant Act - gives protection to tenants in situ - can opt out
Can you make profit from a service charge?
no you should only seek to recover the amount spent and no more
What are 3 examples of some of the service charge principles?
- All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
- Subject to section 4.2.7, owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services.
- Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants.
- Owners and managers must ensure that an approved set of service charge accounts showing a true and accurate record of the actual expenditure constituting the service charge are provided annually to all tenants.
- Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all tenants.
- Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
- Interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made.
- Where acting on behalf of a tenant, practitioners must advise their clients that if a dispute exists any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
- When acting on behalf of a landlord, practitioners must advise their clients that following resolution of a dispute, any service charge that has been raised incorrectly should be adjusted to reflect the error without undue delay.
Did you get a building surveyor out to look at the works once the alterations had been completed?
No due to the scale of the works which were minimal if it were large scale works I would have but in this case I asked our engineer to inspect
You are asked to prepare a property management plan for a new client with a portfolio of mixed-use commercial properties. What key elements would you include in your plan, and how would you tailor it to meet the client’s needs?
One of your managed properties is facing compliance issues with fire safety regulations. How would you manage this situation, and what steps would you take to ensure compliance?
A client is considering outsourcing the management of their commercial portfolio. How would you advise them on the pros and cons of outsourcing versus keeping property management in-house?
You are managing a commercial property with an upcoming lease renewal. The tenant is requesting a significant reduction in rent. How would you manage the negotiation, and what advice would you provide your client?
A client is concerned that their property’s service charge budget is too high, leading to tenant complaints. How would you review and manage the budget to address this concern?
You have been instructed to manage a retail property where the tenant has reported several maintenance issues. How would you handle the situation while ensuring minimal disruption to the tenant’s business?
client owns a multi-let office building, and one tenant has fallen into arrears. How would you approach this situation, and what advice would you give your client?
- Court proceedings
- Use of rent deposit
- Pursue former tenants and guarantors
- Servce statutory demand
- Commercial rent arrears recovery scheme
- Agree another mutually acceptable arrangement
- Forfeiture,
- PP
Note that it’s a holistic view, have duty to tenants as they pay service charge
How have you provided strategic advice on maintenance or capital improvements to enhance the value of a commercial property?
Have you ever had to resolve a service charge dispute? How did you handle it, and what was the outcome?
Can you describe how you advised a client on the recovery of service charges in a multi-tenant commercial property?
How have you provided advice to a client about managing their portfolio in response to changing market conditions?
Can you provide an example where you helped a client with lease negotiations or renewals? What key factors did you consider in your advice?
Have you advised clients on managing vacant properties? What were your recommendations to ensure security and minimize costs?
- building insurance and notifying insurers
- obtaining EPC
- H&S and fire risk assessment of building
- arrange security patrol, water flushing
- maintaining fabric of building
Can you describe a time when you provided strategic property management advice to a client? How did your advice add value to their portfolio?
What process do you follow for inspecting properties to ensure compliance with legal and contractual obligations?
we have internal inspection checklist with included checks such as H&S, water flushing, cleaning, checking emergency lights and fire alarms etc.
How would you approach a situation where a tenant is in breach of their lease obligations?
- understand what the breach is
- review the lease to see if they are indeed in breach
- determine severity
- put recommendation to client
- issue warnings/ letters/ arrange meeting as appropriate with tenants
Can you provide an example where you had to manage a property with multiple tenancies? How did you handle service charges, rent collection, and maintenance issues?
Explain how you would develop and manage an annual service charge budget for a multi-tenanted property.
How do you ensure maintenance and repairs are carried out efficiently in the properties you manage?
Can you describe a situation where you had to handle tenant disputes? How did you manage it, and what was the outcome?
How does a property manager handle arrears and debt recovery in commercial property?
What is the role of a property manager in ensuring tenant satisfaction and maintaining tenant relationships?
Can you explain the process of lease management in commercial property?
How do you ensure compliance with health and safety regulations in the properties you manage?
What is a service charge, and how is it typically structured in a commercial lease
What are the main legal obligations a property manager must consider when managing commercial properties?
Can you explain the key responsibilities of a property manager in commercial property?
- How does the lease impact on property management?
- What are the aims of the Service Charges in Commercial Property document?
- What is the law relevant to property management?
- What is your duty of care as a property manager?
Duty of care is to the client first and foremost - however there is also one to tenants who pay service charge
- What is CRAR and how can it assist in rent arrears matters?
Commercial Rent Arrears recovery
- Did the lease have any implications for late rent payments? Why was this not pursued?
lease related to late payments via interest charge - this was not pursued due to client strategy
- Did you discuss forfeiture with your client? If so, why was this not suggested as an option?
Again, forfeiture was not suggested due to the severity of this option
- Talk to me about the role of the reserve fund in this case.
What is difference between reserve funds and sinking funds?
- sinking fund - setting money aside for wasting asset over whole life of asset
- reserve fund for anticipated future costs of maintenance and upkeep to avoid fluctuations in svc each year (e.g. regular items such as cleaning and redecs)
- What methods of ADR are available for service charge disputes?
in lease mentions ‘appropriate ADR’ - mediation, arbitration - services charges must continue to be paid at this time
- How was the service charge calculated?
Would you accept rent if the lease as expired? Outside the Act
No as this may be seen as acceptance of continuation of tenure
What are remedies for rent default?
- court proceedings (coutnty court judgement) - useful is solvent
- rent deposit
- pursue former tenants and guarantors - check previous tenants if AGA in place
- serve statutory demand - preliminary to pursiuing bankruptcy - avsidble if no dispute on arrears levels ; tenant has 21 days to pay
- Commerial Rent Arrears Recovery Scheme - CRAC 2014
- only where minimum level due under commercial lease
- no min. level
- only for basic rent + VAT, not service charge
Timeline - min. 7 days unpaid rent; min. 7 days warning notice; enforcement agents visit; 2 clear days to follow; re-entry by enforcement agent to seize goods ; 7 clear days before sale of goods; fees must be specified on entry notice
6 Forfeit of lease- must be forfeiture clause in lease ; rent must be properly demanded;
7. Negotiate payment plan
8. agree on other mutally acceptable arrangement
What are different stages in Planned Maintenance Programmes?
- cyclical
- Preventative
- Responsive
What are the 9 principles of svc
9 Principles:
1. All expenditure recovered must be in accordance w lease
2. Owners/managers must not recover >100% of proper and actual costs
3. Must ensure svc budgets including appropriate explanatory commentary are issued annually to all tenants
4. Owners and managers must ensure approved set of svc accounts are provided annually to all tenants
5. Owners managers must ensure service charge apportionment matrix for property provided annually to all tenants
6. Service charge monies (inc.reserve and sinking funds) must be held in one or more discrete bank accounts
7. Interest earned on svc must be svc account after appropriate deductions have been made
8. When acting on behalf of tenant, practitioners must advise their clients if a dispute exists any svc payment withheld should only reflect the actual sums in dispute
When acting on behalf of LL, practitioners must advise clients that following resolution of a dispute, any svc raised incorrectly should be adjusted to reflect error without undue delay
What are methods of svc apportionment?
- Weighted floor area – shopping centres
e.g. first 10000 sqft @100%, then xx sqft at 80@ - Rateable value – no longer recommended but some leases will specify
- Floor area – simplest
- Fixed % or fixed amount
Note dictated by lease
Should have flexibility e.g. short term leases,
Void – LL pays
Note: if retail park mezz may increase sales, then LL could incorporate – check lease – if not in lease, then fair and reasonable (relates to LTA)
what types of insolvency are there?
- Administration - most common
- Receivership- when default to lender secured by fixed charge
- Company Voluntary Agreements - contract between company and creditors appropriate for when company is insolvent
What should you do if tenant becomes insolvent
- Tell client
- consider legal action
- read lease
- early contact with Administration/Receiver
- check monies owed in svc, rent, insurance
- ensure property is insured and tell insurers it’s vacant
submit claim for arrears and applicationfor rent - consider preparing schedule of dilaps
- consider positon re. empty rates
- think about re-letting property
- How does the lease impact on property management?
governs almost all aspects of the landlord and tenant relationship and by extension the property manager tenant relationship
- user clauses
- rent, service charge, insurance payment terms, service charge caps
- safeguarding
- guarantors
- LTA and works
- waste management
- grease traps
- What are the aims of the Service Charges in Commercial Property document?
- to provide transparent guidance for setting of service charges and understanding for users of svc
- Talk me through your review of the service charge budget and how this relates to the RICS guidance on service charges.
- not to recover more than 100%
- checked leases - to confirm in line
- issued annually to tenants with apportionment matrix
- What findings were found in your variance report?
- How were the service charges calculated?
- Where are accurate service charges important?
this relates to the operation and ongoing runnbing of the site
having the correct amount will smooth out expenditure and ideally not have any shocks in terms of expenditure
- not having accurate svc can mean higher costs down the line, perhaps ones that the LL will have to pick up and potentially lower the value of the property
- Why did you recommend removing the security guard element?
I understood the client’s strategy was to remove security barriers and replace with an electronic version, therefore the element was recommended to be removed
- Why is a licence to alter important in relation to the management of the property?
- What acts needed to be complied with to ensure the compliance of the property?
- Are there any insurance implications of the works proposed by the tenant for your landlord?
No insurance implications - also works to be reinstated at end of lease
Service charge booklet, what to include and process?
Variance commentary,
Apportionment matrix,
Management team
Items of expenditure
Note we adhere to RICS
Take me through service lines
What can and can’t be included?
e.g. installation of wifi, installation cannot but maintenance can
Key service lines
- Management – mgt fees, staffing costs , risk assessments , svc accounting fees
-Utilites – electric, gas, utilities consultancy
- soft services – cleaning, snow gritting, pest control, waste mgt, external landscaping
- hard services - heating/cooling, M&E maintenance, life safety systems maintenance , fabric repairs + maintenance, drainage maintenance
- income – car park income
- exceptional expenditure
- insurance – public + property liability , building insurance
- marketing – LL pays 50% towards marketing
-
Crawley Retail Park
What were the main items of increase?
Did you make any cost savings?
Did budget go up or down?
Increase – insurance and utilities
Cost savings – removal of security guarding
Budget down by 11%
Approx £1 psf
What are the RICS guidance for svc?
Mandatory requirements?
- All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
- Subject to section 4.2.7, owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services.
- Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants.
- Owners and managers must ensure that an approved set of service charge accounts showing a true and accurate record of the actual expenditure constituting the service charge are provided annually to all tenants.
- Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all tenants.
- Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
- Interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made.
- Where acting on behalf of a tenant, practitioners must advise their clients that if a dispute exists any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
- When acting on behalf of a landlord, practitioners must advise their clients that following resolution of a dispute, any service charge that has been raised incorrectly should be adjusted to reflect the error without undue delay.
Key principles of service charge?
- The service costs
Transparent, mgt fees fixed cost with no hidden markups
Owners don’t profit, - Allocation and apportionments
Allocated to correct lines and apportionment fair and reasonable - Communication and consultation
Managers should consult with occupiers on standard and quality of provision - Duty of care
Certifiers – duty of care to owners and occupiers
To occupiers - Financial competence
Independent review - Occupier responsibilities
Prompt payment, be proactive e.g. separating waste to facilitate recycling - Right to challenge/alternative dispute resolution (ADR)
- Timeliness
- Svc at least month before budget year w explanatory notes
- Actual expenditure with explanatory notes and acc policies within 4m of year end
- Transparency
- Value for money
- Exclusions
- Any initial costs (including the cost of leasing of equipment) incurred in relation to the original design and construction of the fabric, plant or equipment.
- Any setting up costs, including costs of fitting out and equipping the on-site management offices that are reasonably considered part of the original development cost of the property.
- Any improvement costs above the costs of normal maintenance, repair or replacement. Service charge costs may include enhancement of the fabric, plant or equipment, where such expenditure can be justified following an analysis of reasonable options and alternatives, and with regard to a cost-benefit analysis over the term of the occupiers’ leases. Managers should provide the facts and figures supporting such a decision.
- Future redevelopment costs.
- Costs and fees relating to the owner’s investment interest, for instance, asset management and rent collection, cost of letting units and matters between the owner and an individual occupier. This last category may include activities such as enforcement of lease covenants, dealing with landlord consents for assignments, sub-letting, alterations, rent reviews, additional opening hours, etc.
- Costs attributable to void premises and the owner’s own use of the property.
- Any costs arising out of the negligence of the manager or owner.
What is the rate of inflation ?
Difference CPI and RPI?
CPI – rose 2.5% to 12m to Dec 2024; 2.6% 12m to Nov 2024
RPI 3.9% to Dec / 4.8% to Nov
At time of service charge about 14% (RPI) 8% (CPI)
CPI excludes costs mainly relating to housing eg. Council tax, buildings insurance , mortgage interest – RPI typically will come out higher
When do you need to do a svc reconciliation?
Service charges in
commercial property – 2018 reissued 2023 as Professional Standard
Managers should issue budgets to occupiers, including an explanatory commentary and apportionment matrix at least one month prior to the start of the service charge year. Detailed statements of actual expenditure, together with accounting policies and explanatory text, should be issued within four months of the service charge year-end.
What are the benchmarks for each asset class?
Retail park: £1-£2
Shopping centre: £8-£12
Office
Industrial
How do you calculate service charge caps?
- Read Lease.
e.g. higher of current svc and RPI capped at 4% - check inflation figures on ONS
- calculate
What are common service charge caps?
- Mgt fees,
- Marketing
- Utilities
- RPI/CPI
- Inclusive clauses
What is reasonable increase in svc?
Compared to benchmarks , recent years due to inflationary pressures service charges have increased
Who picks up shortfall?
Landlord
What is included in centre mgt costs?
Staff
Rates
Office equipment
Management costs?
LL must pay 50% - brought in in PS 2018
What are apportionment methods ?
Benefits and weaknesses of methods
- Weighted floor area – shopping centres
e.g. first 10000 sqft @100%, then xx sqft at 80@ - Rateable value – no longer recommended but some leases will specify
- Floor area – simplest
- Fixed % or fixed amount
Note dictated by lease
Should have flexibility e.g. short term leases,
Void – LL pays
Note: if retail park mezz may increase sales, then LL could incorporate – check lease – if not in lease, then fair and reasonable (relates to LTA)
Talk me through your LTA
- email from tenant with their intent to make alterations -
- check lease for requirements - they required a licence to alter in this case
- receive submission with plans , drawings, etc.
Get confirmation of undertaking – fees are agreed within dept. £1000 plus VAT - plus building consultancy - in this case no need as reviewed by engineer onsite + Head of H&S ; legal fees
£1500 plus vat
4.- Client solicitors to confirm their fees - fees confirmed by tenant
- tenant provides full details of proposed works
- confirmed by building surveyor
- LTA legal document produced and signed, fees paid
- works go ahead s.t. method statement etc.
- works finished, check works in line with plans provided alongside engineer
‘without consent of the landlord’ – Consent will be provided in the form of a Licence for
Alterations and only once a technical review has taken place.
‘not to make any alterations’ – This is an absolute prohibition and your Landlord is under no
obligation to permit the works. In some circumstances approval may be considered. If
granted, this will require a Licence for Alterations.
‘no consent shall be required’ – A Licence for Alterations is not required. If works form part
of a large project it is prudent to send details to your Managing Surveyor and Property
Manager so they can provide confirmation that Landlord consent is not required.
After LTA how do you confirm the work has been done properly
If full LTA, get building surveyors
Mention why it’s important for regular PM inspections
What if start works without licence?
- Inform LL
- Send letter to tenant to desist
- Produce documents retrospectively (legal action, forfeiture
What are the benefits of LTA?
- Legally robust
- Stops tenant from making alterations that might endanger property or diminish value
- Clear (client care) and everyone knows where they stand
- Helps at lease expiry and rent review
What is included in LTA?
- Consent confirmed
- Schedule of works
- Specifications
- Making good clause
- Timings
- Carrying out and completing works
- Insurance
- Non-compliance clause
What are RAMS
Risk assessment and method statement
Talk me through rent collection and how it is done
based on 1. accuracy of info and 2.timing
Rent is deducted as per lease stipulation
- workflow to put onto system
- billings team that issue bills each period e.g. monthly, quarterly,
- PM/surveyor will approve
- Bills are sent in advance according to billing period
- tenants pay by standing order or direct payment (not direct debit but why)?
What are remedies for failure to pay arrears?
- Court proceedings
- Use of rent deposit
- Pursue former tenants and guarantors
- Servce statutory demand
- Commercial rent arrears recovery scheme
- Agree another mutually acceptable arrangement
- Forfeiture,
- PP
Note that it’s a holistic view, have duty to tenants as they pay service charge
Talk me through the CRAR process
used where there is minimum basic rent - cannot be used for insurance or service charge
7 days min unpaid rent
7 clear days warning notice
enforcement agents visit
2 clear days to follow
re-entry by enforcement agent
2 clear days to follow
Allow 7 clear days before sale of goods
fees must be specified on entry notice
What PS relate to handling client money
Client Money Handling, 1st edition 2019 effective 2020
Can firm keep interest?
Only if pre-approved by client
Unlikely, unless offsetting monies owed
RICs can make unannounced drop ins
How do you ensure compliance of PP?
Is it legally binding?
Typically it’s an agreement, but not legally binding.
- Monitor
- Have regular meetings with tenant
- Calendar reminders
What if they defaulted on PP?
- Renegotiate
- Issue letters PP with clause stating if miss PP, it falls away
What does the svc clause on lease say about reserve funds?
Reserve funds are funds in the service charge that are held in the event of large, one-off costs e.g. repairs, external cleaning, redecorations in order to avoid fluctuations
Sinking charge are similar but for a particular use, i.e. a wasting asset e.g. lifts, heating/cooling systems, plant and equipment
Talk me through how you set the service charge for the site in Crawley?
- Review expenditures and decide on contingencies
- Apportionments check
- Check schedules
- Svc caps calculation and input
- mgt caps (PMA) – set at 10% of service charge budget
- Discussed with the building manager
- Then sent to client for confirmation
- They then confirmed
£1 psf
Was this an improvement?
No – it was removal for a barrier
What were the increases and decreases?
- Removal of security guarding (installation of electric gates and no need for guard) – this was not an improvement
- Electricity increased - 15% of budget
- Risk assessments
- Mgt Fee increase 14%
o What is the minimum wage? What is the living wage? Which is legally binding?
Apr 24 - £11.44
Apr 25 - £12.21
Living wage is compulsolry for all workers over 21
Minimum wage for 18-20 year olds
“National Living Wage” - that’s the minimum amount all employers in the UK are legally required to pay workers aged 21 and over. Set by the government, this wage is a percentage of median earnings, with a target of reaching 66% of median earnings by 2024. The National Living Wage, alongside the National Minimum Wage (for those 18-20), provides a base-level income to protect workers’ rights.
The real Living Wage on the other hand is a voluntary wage rate independently calculated by economists at the Resolution Foundation on behalf of the Living Wage Foundation.
£12.60 in uk and £13.85 in London
