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APC - Commercial Real Estate > Property Management > Flashcards

Property Management Flashcards

1
Q

What is a service charge?

A

– a means by which a landlord can recover from a tenant the cost of operating, maintaining and repairing a building.

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2
Q

What factors generally govern service charge?

A

– size of the building/estate; type of building (construction type); amount of services provided; service charge clause in the lease.

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3
Q

How might an s/c be apportioned?

A
  • % of total floor area of building/estate; % of total rateable value of building/estate; weighted/zoned if one tenant enjoys greater amount of services.
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4
Q

What does a s/c not include?

A

– costs associated with lettings; initial development/construction costs; improvements above normal repair/replacement; redevelopment costs; collection of rent, costs associated with landlord negligence. Set up costs

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5
Q

What are the aims of the RICS Professional Statement on S/C?

A

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.

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6
Q

What 9 principles are contained in the RICS Professional Statement on S/C?:

A

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.

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7
Q

What are the differences between a sinking fund, a reserve fund and a depreciation charge?

A

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.

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8
Q

What are the three covenant types for alteration and alienation clauses?

A

– fully qualified (landlord’s consent not to be unreasonably withheld or delayed); qualified (landlord’s consent required); absolute (total prohibition).

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9
Q

What is the relevant legislation(s) for the above?

A

– 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.

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10
Q

Why might a L want to restrict alterations?

A

– maintain investment value; maintain rental value; preserve character; preserve structural adequacy; not leave themselves open to liability (planning, building regs etc.)

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11
Q

What is the process for dealing with an application for alienation?

A

– 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.

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12
Q

What dispute resolution methods are recommended by the RICS for service charge disputes?

A

Mediation and Independent Expert determination.

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13
Q

What are the RICS documents to do with property management?

A
  1. RICS PS Real Estate Management (2016) 2. 2. RICS Practice Standard Commercial Property Management in England and Wales (GN).
  2. Also RICS PS Service Charges in Commercial Property 2018.
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14
Q

What are some of the different types of insolvency?

A

Bankruptcy, administration, liquidation (/winding up) and CVA.

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15
Q

What are remedies for a landlord for the recovery of rent?

A

Forfeiture, CRAR, use of rent deposit, pursuing guarantor/AGA

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16
Q

What is a CVA?

A

Company Voluntary Arrangement. A voluntary settlement between and insolvent company and it’s creditors.

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17
Q

How does a CVA work?

A

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.

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18
Q

What is CRAR?

A

Commercial Rent Arrears Recovery (2014). Takes possession of some company assets and sells them to recover outstanding rent.

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19
Q

What is forfeiture?

A

Right for a landlord to end a lease early due to a tenant breach of covenant, meaning the landlord regains possession of the premises.

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20
Q

Why must a landlord be careful with forfeiting leases?

A

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)).

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21
Q

What are the differences between breaches of the lease in forfeiture terms?

A

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.

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22
Q

What notice must be served to forfeit a lease?

A

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.

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23
Q

What rights does a landlord have to recover service charge where there is a dispute?

A

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.

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24
Q

What is a service charge shortfall and why might it occur?

A

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).

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25
Q

How might a landlord deal with a tenant in disrepair, partway through the lease?

A

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.

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26
Q

What is administration?

A

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.

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27
Q

What is liquidation?

A

Winding up a company when it cannot pay its debt.

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28
Q

What is alienation?

A

Disposal/part disposal of a leasehold interest.

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29
Q

Which of the RICS rules for firms relates to client money?

A

Rule 8

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30
Q

What lease terms are important for property managers?

A

Rent (inc. definitions), service charge, repair, alienation, break clause.

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31
Q

Who does an assignee have a direct relationship with?

A

The landlord.

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32
Q

Who does a sub-tenant have a direct relationship with?

A

The tenant, who in turn has a direct relationship with the landlord.

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33
Q

Why would a sub-letting be preferred over an assignment (5 reasons)?

A

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.

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34
Q

What considerations should be had when dealing with an application to assign or sublet?

A

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?

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35
Q

What is the aim of the Landlord and Tenant Act 1988?

A

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.

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36
Q

What is a licence for alterations?

A

Document granting consent and conditions for alterations - it protects the parties at rent review and dilapidations.

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37
Q

When dealing with a request for alterations, what should be considered?

A

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

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38
Q

What insurances should a property have?

A

Reinstatement for fire, storm, flood, terrorism, subsidence, cover for loss of rent/SC, theft etc.

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39
Q

What are the usual English quarter dates?

A

25th March, 24th June, 29th September, 25th December

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40
Q

When is rent overdue?

A

Depends what the lease says but technically anything after the payment date.

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41
Q

What should be considered before raising rent demands?

A

Check that you are not waiving right to forfeit.

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42
Q

What should be considered before accepting rent?

A

Has this tenancy expired? A new protected tenancy may be inadvertently created. Am I waiving my right to forfeit?

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43
Q

What are the landlord’s remedies for breach of repair (4)?

A

Serve a repair notice; forfeit; serve interim schedule of dilaps; Jervis v Harris

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44
Q

What are the 5 types of insolvency?

A

Administration, CVA, receivership, voluntary liquidation, bankruptcy

45
Q

What does the Occupiers Liability Act 1957 do?

A

Creates a responsibility towards visitors at the property.

46
Q

What does the Occupiers Liability Act 1984 do?

A

Creates a responsibility towards anyone on the premises, whether a visitor or trespasser.

47
Q

What issues need to be considered when managing empty property?

A

Business rates, insurance, security, maintenance, water risks, frost

48
Q

What might you suggest when advising an occupier on a lease in relation to service charge?

A

Require the s/c to be handled in accordance with the RICS PS; request a cap or index-linked increases to the s/c.

49
Q

What is the reimbursement at year end to a tenant called if a service charge does not spend all of the budgeted money?

A

A balancing payment.

50
Q

What is a sweeper clause?

A

Allows the landlord to collect service charge for items not specifically defined in the lease. The courts tend to interpret these clauses narrowly.

51
Q

What legal regulation is there for service charges in commercial property?

A

None. The lease (and RICS PS) govern how the s/c is handled.

52
Q

How do you ensure value for money in the services provided to a building?

A

Get lots of quotes.

53
Q

What would you look for in a contractor who is tendering for works in a property?

A

Competence, history of complying with H&S, appropriate PI cover and good financial standing.

54
Q

How would you ensure accurate apportionment of utility costs in a multi-let building?

A

Have sub-meters for each tenant.

55
Q

To whom is the property manager’s duty of care?

A

Primarily the client, but also the tenant (they are spending business money on the premises/services) and the building itself.

56
Q

How would you calculate a management fee?

A

On a fixed price basis - %-based is a disincentive to getting value for money.

57
Q

What legislation applied to property managers during Covid-19?

A

The Coronavirus Act 2020 - s82.

58
Q

What did the Coronavirus Act 2020 (s82) do?

A

Imposed a moratorium on forfeiture for non-payment of rent.

59
Q

What did the government’s voluntary Covid-19 code of practice say?

A

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.

60
Q

What options does a landlord have with a tenant in rent arrears (7)

A 
1 - payment plan
2 - court proceedings
3- use of deposit
4 - former T/guarantor
5 - statutory demand
6 - CRAR
7 - forfeiture
61
Q

What question should a landlord ask when considering how to recover rent arrears?

A

Do I want vacant possession?

62
Q

What is the benefit of using a payment plan when a tenant is in arrears?

A

It keeps the tenant in occupation and avoids empty rates liability.

63
Q

When could I pursue a former tenant for a current tenant’s rent arrears?

A

If the lease was assigned on a lease pre-January 1996.

64
Q

What is an AGA?

A

Authorised Guarantee Agreement (LT(C)A 1995). S17 notice must be served and arrears recovered from assignor within 6 months of defualt.

65
Q

What is a statutory demand?

A

The preliminary step to pursuing winding up/bankruptcy proceedings.

66
Q

What is the timeline for CRAR?

A

7+ days rent must be overdue, a notice must be served with 7 clear days, enforcement agent visits, 2 clear days, enforcement agent returns, seizes goods, 7 day gap before goods can be sold.

67
Q

If you are advising a tenant in a recession, what might you advise in relation to rent?

A

Asking to pay monthly rather than quarterly.

68
Q

What is the difference between a direct debit and a standing order?

A

A direct debit is a bank’s permission to take money on a specified date. A standing order is a fixed amount, set up by the payer.

69
Q

What would you do if a property you are managing becomes vacant (7)?

A

Notify the insurers, drain down the water system, undertake a HSRA and FRA, remove combustible material, isolate power supply, seal the letterbox, change the locks.

70
Q

What are dilapidations?

A

A claim for damages for a breach of the repairing clause.

71
Q

What is section 18 of LTA 1927?

A

A statutory cap on the dilaps claim, limited to the diminution in value of the landlord’s interest.

72
Q

What is a quantified demand?

A

A statement showing what the landlord considers to be their overall loss (including loss of rent and professional fees)

73
Q

What is a Scott Schedule?

A

The quantified demand with the tenant’s surveyor’s comments added.

74
Q

What is supersession?

A

When any repairs/reinstatement would be valueless because the landlord’s intention (to redevelop, refurbish etc) supercedes those works.

75
Q

When would an interim schedule of dilapidations be served?

A

When there are 3+ years unexpired on the lease.

76
Q

When would a terminal schedule of dilapidations be served?

A

When there are less than 3 years remaining on the lease.

77
Q

When would a final schedule of dilapidations be served?

A

After the lease has expired.

78
Q

What is an FRI lease?

A

When the landlord is responsible for repairs and recovers the cost by way of a service charge.

79
Q

What is a schedule of condition?

A

A document which shows the condition in which a premises is taken. It limits the tenant’s repairing and reinstatement obligation.

80
Q

What is a Jervis and Harris clause?

A

The landlord serves notice on tenant to undertake defined repairs within a defined period, otherwise the landlord will enter, carry out the repairs and recover the cost from the tenant as a debt.

81
Q

What kind of maintenance programmes might a property manager consider?

A

Planned/cyclical maintenance; preventative maintenance and responsive maintenance.

82
Q

What defines the standard of repair?

A

The lease. Repair is distinct from renewal/improvement.

83
Q

What does the Corporate Manslaughter and Homicide Act 2007 say?

A

That a corporation can be guilty of either manslaughter/homicide if death occurs due to a gross breach of duty of care.

84
Q

What do the Control of Asbestos Regulations 2012 say?

A

They impose an obligation on the dutyholder to assess and monitor asbestos on premises annually. The dutyholder is whoever has the obligation to maintain and repair the premises.

85
Q

What are the two types of asbestos report?

A

Maintenance and refurbishment.

86
Q

What does the Regulatory Reform (Fire Safety) Order 2005 say?

A

That the employer or person in control of the premises has to take precautions to ensure fire safety, perhaps by undertaking a risk assessment and installing fire detectors and extinguishers.

87
Q

What does the RICS PS Real Estate Management (2016) say?

A

It gives 12 principles for property managers to follow, which are both technical and ethical:

1) Act fairly, honestly and transparently
2) Carry out work with dilligence and skill
3) Provide TOE with CHP
4) Avoid COI
5) No discrimination
6) Communicate fairly and in a timely manner
7) Truthful marketing
8) Client money
9) PII
10) understand client identity and your obligations to each party
11) realistic estimates of costs
12) all meetings/inspections as per client wishes.

88
Q

What are the principal duties of a property manager?

A

Financial administration (inc. rent) + operating and maintaining building.

89
Q

What is the latest practice statement relating to service charges?

A

Service charges in commercial property, 1st edition, 2018

90
Q

What are the 4 main aims & objectives in the service charges in commercial property practice statement?

A
  1. Improve general standards and promote best practice, uniformity, fairness and transparency in the management and administration of service charges in commercial property.
  2. Ensure timely issue of budgets and year-end certificates.
  3. Reduce the causes of disputes and to provide guidance on resolution.
  4. Provide guidance to solicitors, their clients (whether owners or occupiers) and managers of service charges in the negotiation, drafting, interpretation and operation of leases, in accordance with best practice
91
Q

What are the 5 types of insolvency under the insolvency Act 1986?

A
  1. Administration
  2. Company voluntary arrangement (CVA)
  3. Receivership
  4. Voluntary liquidation
  5. Bankruptcy
92
Q

What is the difference between administration and liquidation?

A
  • company administration aims to help the company repay debts in order to escape insolvency (if possible)
  • liquidation is the process of selling all assets before dissolving the company completely
93
Q

What are the key principles in the service charge code 2018?

A

here are 24 principles that deal with:

  1. The service costs
  2. Allocation and apportionment
  3. Communication and consultation
  4. Duty of care
  5. Financial competence
  6. Occupier responsibilities
  7. Dispute resolution
  8. Timeliness
  9. Transparency
  10. Value for money
  11. Exclusions
94
Q

Which RICS guidance are you aware of in relation to property management?

A
  • Real Estate Management, 3rd 2016 - professional statement
  • Commercial Property
    Management in England & Wales (2nd edition) - Guidance note
95
Q

What are the key principles contained in the professional statement - Real estate Management, 2016?

A
  1. Act in an honest, fair, transparent and professional manner
  2. Carry out work with due skill, care and diligence and ensure all staff employed have the necessary skills to carry out their tasks
  3. Ensure that clients are provided with term of business that are fair and clear, with details of the firms complaints handling procedure
  4. Do the utmost to avoid conflicts of interests and where they do arise, deal with them openly and fairly
  5. Not to discriminate unfairly in any dealings
  6. All communications with clients are fair, decent, clear and timely and transparent
  7. All advertising and marketing material is honest and truthful
  8. Any client money is held seperately and is covered by adequate insurance
  9. Hold appropriate PII/errors or omissions insurance to ensure a customer does not suffer a loss
  10. Make it clear the identity of your client and ensure all parties are clear of your obligations to each party
  11. Give realistic assessments of selling prices/rents/financial costs having regard to market evidence and using best professional judgement
    12 Ensure all meetings, inspections and viewings are carried out in accordance with the clients wishes, having due regard for security and safety.
96
Q

Give me some reasons for sub letting rather than assigning a lease?

A
  • requirement of the lease
  • if it is for part of the demise and not the whole
  • if the market rent is higher than the passing rent, then there is a profit rent
  • if the tenant wants to re-occupy in the future
  • if the new party is of a lesser covenant strength
97
Q

What does the Landlord & Tenant (covenants Act) 1996 relate

A
  • It relates to the assigning of leases
  • it came into effect on the 1st January 1996 (called ‘leases’)
  • abolished privity of contract for new leases
  • introduced AGA’s
  • A section 17 notice must be served on the guarantor within 6 months of the tenant defaulting to require the former tenant to pay the arrears.
98
Q

What steps would you take when dealing with a licence for alterations?

A
  • read the lease to check if Landlord’s consent is required
  • request full set of plans and a specification
  • consider whether building surveyors input is required
  • obtain an undertaking for the surveyors and legal costs
  • check the tenant has the necessary planning and building control consents
  • check RAMS and PII in place
  • provide recommendations to client and obtain instructions
  • instruct clients lawyer to prepare a licence for alterations
  • inspect the completed works to ensure they are as agreed
99
Q

What is the format of a schedule of dilapidations?

A

outline of repairing obligations

  • state the remedy and cost of the breach
  • loss of rent if appropriate, over the period to do the works
  • Fees + VAT for the claim for surveyors and lawyers
  • negotiations conducted on a without prejudice basis until an agreement is reached.
  • if an agreement is not reached, the landlords surveyor may be required to prepare a Scott’s schedule for the Court/ADR setting out the Landlord and Tenants position
100
Q

What are the four P’s

A
  • People
  • Place
  • Price
  • Promotion
101
Q

What should you do when a property becomes vacant?

A
  • notify the insurers and note their requirements
  • maintain the fabric of the building
  • undertake and record regular inspections (for insurance purposes)
  • undertake H&S and FRA
  • Inform the council for the payment of empty rates
  • arrange security, decommission services and isolate power supplies
  • seal up letterboxes to prevent arson
102
Q

What are the 4 options for Landlord to deal with a tenant who is not repairing their property?

A
  1. repair notice - need to serve section 146 notice
  2. Forfeiture for breach of repairing obligations - need to serve a 146 notice
  3. Serve an interim schedule of dilapidations - get a building surveyor to draw up a schedule
  4. Landlord carries out the repairs and recharges the tenant. Jervis Vs Harris (1996)
103
Q

Why is it important not to accept rent beyond the lease expiry date if the lease is outside the Act?

A

Because you could be creating a new protected tenancy

104
Q

What is the difference between Direct Debits and standing orders?

A

Direct Debits give a company permission to take money from your bank account on an agreed date. The organisation can collect however much you owe them, but they have to tell you in advance, how much they’ll take, when, and how often.

Standing orders give the bank an instruction to pay an exact amount to another account regularly

105
Q

Why is it important not to demand or accept rent if a tenant is in breach for non payment of rent?

A

Because this will waive the right of forfeiture

106
Q

What are the four ways to apportion a service charge

A
  1. Floor area
  2. Fixed percentage
  3. Rateable Value
  4. Weighted floor area
107
Q

What is a sinking fund?

A

A fund formed by periodically setting aside money for the replacement of a wasting asset.

108
Q

What is a reserve fund?

A

A fund formed to meet the anticipated future costs of maintenance and upkeep in order to avoid fluctuation or an anticipated large, one off increase in the amount of service charge payable in each year (eg. regularly recurring items such as external cleaning and redecorations

APC - Commercial Real Estate (20 decks)

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