Property Management Flashcards
What is a service charge?
– a means by which a landlord can recover from a tenant the cost of operating, maintaining and repairing a building.
What factors generally govern service charge?
– size of the building/estate; type of building (construction type); amount of services provided; service charge clause in the lease.
How might an s/c be apportioned?
- % of total floor area of building/estate; % of total rateable value of building/estate; weighted/zoned if one tenant enjoys greater amount of services.
What does a s/c not include?
– costs associated with lettings; initial development/construction costs; improvements above normal repair/replacement; redevelopment costs; collection of rent, costs associated with landlord negligence.
What are the aims of the RICS Professional Statement on S/C?
a) improve standards and promote fairness/transparency in dealings with service charges;
b) ensure timely issue of budgets and year end certificates;
c) minimise the cause of disputes and give guidance to dispute resolution when necessary;
d) provide guidance on drafting and interpretation of s/c provisions within leases.
What 9 principles are contained in the RICS Professional Statement on S/C?:
1) all service charge collected in accordance with lease terms; 2) no more than 100% of proper and actual costs recovered; 3) s/c budget with explanatory commentary issued annually to all tenants; 4) s/c apportionment matrix issued annually to all tenants; 5) approved s/c year end accounts issued annual to all tenants; 6) client monies held in discrete bank account; 7) all interest accrued credited to s/c account; 8) if advising a tenant in dispute, only the actual disputed sums are to be withheld, not the entire s/c; 9) if advising landlord in dispute, service charge is to be properly adjusted (if necessary) following resolution.
What are the differences between a sinking fund, a reserve fund and a depreciation charge?
sinking fund = funds set aside for replacement of wasting asset (eg, a roof, plant, lift)
Reserve fund = fund to meet anticipated future maintenance costs to avoid s/c fluctuations (eg, redecoration).
Depreciation charge = cost of installation charged to the landlord. A measure of the asset wearing out.
What are the three covenant types for alteration and alienation clauses?
– fully qualified (landlord’s consent not to be unreasonably withheld or delayed); qualified (landlord’s consent required); absolute (total prohibition).
What is the relevant legislation(s) for the above?
– Landlord and Tenant Act 1927 (section 19 (2) – converts a qualified covenant into a fully qualified covenant. Landlord and Tenant Act 1988 adds ‘without delay’ to a fully qualified covenant.
Why might a L want to restrict alterations?
– maintain investment value; maintain rental value; preserve character; preserve structural adequacy; not leave themselves open to liability (planning, building regs etc.)
What is the process for dealing with an application for alienation?
– read the lease; tenant to give undertaking for landlord’s reasonable surveying and legal costs; is the proposed rent the same as either of the market rent or passing rent (and does the lease have requirements for this); is the proposal going to be detrimental to investment value; are there any reasonable grounds for withholding consent; what security can we gain (AGA); report to client with recommendations; obtain approval; instruct solicitors for licence to assign/sublet.
What dispute resolution methods are recommended by the RICS for service charge disputes?
Mediation and Independent Expert determination.
What are the RICS documents to do with property management?
RICS PS Real Estate Management (2016) and RICS Practice Standard Commercial Property Management in England and Wales (GN). Also RICS PS Service Charges in Commercial Property 2018.
What are some of the different types of insolvency?
Bankruptcy, administration, liquidation (/winding up) and CVA.
What are remedies for a landlord for the recovery of rent?
Forfeiture, CRAR, use of rent deposit, pursuing guarantor/AGA
What is a CVA?
Company Voluntary Arrangement. A voluntary settlement between and insolvent company and it’s creditors.
How does a CVA work?
Company proposes to lower payments, 75% of the creditors must agree to the proposal for reduced payments. Landlord’s therefore do not often have much say.
What is CRAR?
Commercial Rent Arrears Recovery (2014). Takes possession of some company assets and sells them to recover outstanding rent.
What is forfeiture?
Right for a landlord to end a lease early due to a tenant breach of covenant, meaning the landlord regains possession of the premises.
Why must a landlord be careful with forfeiting leases?
The landlord must not waive the breach (act as if the rent is continuing - ie, triggering a rent review, demanding or accepting rent, discussing surrender openly, exercising CRAR (serving notices)).
What are the differences between breaches of the lease in forfeiture terms?
Continuing breaches (recur every day - breach of user) or once for all (happens once - alteration, alienation). If a once for all breach is waived, the right to forfeit has gone.
What notice must be served to forfeit a lease?
Section 146 LPA 1925 notice - unless breach is non payment of rent. The notice must specify the breach, require a remedy within defined period and specify if L requires compensation. Tenant failure to comply within time limit allows L to forfeit.
What rights does a landlord have to recover service charge where there is a dispute?
The landlord needs to prove the s/c is correct and then recover under the terms of the lease. Might use a payment plan or apply for a court judgement.
What is a service charge shortfall and why might it occur?
It is where the landlord cannot recover 100% of the service costs. Might occur if one tenant has a cap, if there are voids, if a tenant has been incentivised by a concessionary rate).
