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).
How might a landlord deal with a tenant in disrepair, partway through the lease?
Serve notice on T to put into repair, consider forfeiture, or serve an interim dilaps schedule. Following that, the lease may provide for Jervis v Harris.
What is administration?
An insolvency procedure that allows the reorganisation of an insolvent companies affairs for the benefit of creditors. The key aim is to rescue the company.
What is liquidation?
Winding up a company when it cannot pay its debt.
What is alienation?
Disposal/part disposal of a leasehold interest.
Which of the RICS rules for firms relates to client money?
Rule 8
What lease terms are important for property managers?
Rent (inc. definitions), service charge, repair, alienation, break clause.
Who does an assignee have a direct relationship with?
The landlord.
Who does a sub-tenant have a direct relationship with?
The tenant, who in turn has a direct relationship with the landlord.
Why would a sub-letting be preferred over an assignment (5 reasons)?
The lease requires it; only part of the premises is required; if the market rent is higher than the passing rent then a profit rent is possible; the tenant intends to reoccupy at some point; the new party is of weaker covenant strength.
What considerations should be had when dealing with an application to assign or sublet?
Does the lease permit it? Would the tenant give an undertaking for costs? What is the impact on investment value? What is the covenant strength of the new party? What security can there be?
What is the aim of the Landlord and Tenant Act 1988?
Provides a statutory duty on the landlord to deal with consents dilligently and within a reasonable period of time. Failure to do so = damages claim.
What is a licence for alterations?
Document granting consent and conditions for alterations - it protects the parties at rent review and dilapidations.
When dealing with a request for alterations, what should be considered?
Ask for full plans/spec; undertaking for costs; document everything in LfA; check long term impact in case of tenant default; consider reinstatement; is planning consent/building regs required; Equality Act implications; get RAMS
What insurances should a property have?
Reinstatement for fire, storm, flood, terrorism, subsidence, cover for loss of rent/SC, theft etc.
What are the usual English quarter dates?
25th March, 24th June, 29th September, 25th December
When is rent overdue?
Depends what the lease says but technically anything after the payment date.
What should be considered before raising rent demands?
Check that you are not waiving right to forfeit.
What should be considered before accepting rent?
Has this tenancy expired? A new protected tenancy may be inadvertently created. Am I waiving my right to forfeit?
What are the landlord’s remedies for breach of repair (4)?
Serve a repair notice; forfeit; serve interim schedule of dilaps; Jervis v Harris
What are the 5 types of insolvency?
Administration, CVA, receivership, voluntary liquidation, bankruptcy
What does the Occupiers Liability Act 1957 do?
Creates a responsibility towards visitors at the property.
What does the Occupiers Liability Act 1984 do?
Creates a responsibility towards anyone on the premises, whether a visitor or trespasser.
What issues need to be considered when managing empty property?
Business rates, insurance, security, maintenance, water risks, frost
What might you suggest when advising an occupier on a lease in relation to service charge?
Require the s/c to be handled in accordance with the RICS PS; request a cap or index-linked increases to the s/c.
What is the reimbursement at year end to a tenant called if a service charge does not spend all of the budgeted money?
A balancing payment.
What is a sweeper clause?
Allows the landlord to collect service charge for items not specifically defined in the lease. The courts tend to interpret these clauses narrowly.
What legal regulation is there for service charges in commercial property?
None. The lease (and RICS PS) govern how the s/c is handled.
How do you ensure value for money in the services provided to a building?
Get lots of quotes.
What would you look for in a contractor who is tendering for works in a property?
Competence, history of complying with H&S, appropriate PI cover and good financial standing.
How would you ensure accurate apportionment of utility costs in a multi-let building?
Have sub-meters for each tenant.
To whom is the property manager’s duty of care?
Primarily the client, but also the tenant (they are spending business money on the premises/services) and the building itself.
How would you calculate a management fee?
On a fixed price basis - %-based is a disincentive to getting value for money.
What legislation applied to property managers during Covid-19?
The Coronavirus Act 2020 - s82.
What did the Coronavirus Act 2020 (s82) do?
Imposed a moratorium on forfeiture for non-payment of rent.
What did the government’s voluntary Covid-19 code of practice say?
It encouraged parties working together towards a shared recovery. Tenant should pay in full if possible, should prioritise s/c and insurance. Both parties should be transparent about their situation.
What options does a landlord have with a tenant in rent arrears (7)
1 - payment plan 2 - court proceedings 3- use of deposit 4 - former T/guarantor 5 - statutory demand 6 - CRAR 7 - forfeiture
What question should a landlord ask when considering how to recover rent arrears?
Do I want vacant possession?
