Property Management L1 Flashcards
What documentation does the RICS provide for property managers?
RICS Professional Statement – Real Estate Management 2016 (3rd edition)
Aims of the RICS Professional Statement – Real Estate Management 2016
Outlines the principles that share the culture of fairness and transparency that underpin all activities undertaken by real estate managers.
12 Principles of the RICS Professional Statement – Real Estate Management 2016
- HONEST Conduct business in honest, fair, transparent and professional manner.
- CARE & DIL - Carry out business with skill, care and diligence and ensure staff have necessary SKILLS.
- TOE & CHP = Always provide clients with terms of engagement & complaints handling procedure
- COI = Avoid conflicts of interest. If arise deal with them openly and fairly.
- DISCRIMINATION- Do not discriminate unfairly in dealings
- COMMUNICATION - Ensure good communication (clear, timely, transparent)
- MARKETING/ AD -Be honest with Advertising/Marketing.
- CLIENTS MONEY - Ensure clients money is held separately to other monies and covered by adequate insurance.
- PII INSURANCE- Have PII so client does not suffer negligence.
- OBLIGATION- Make sure all parties are clear of your obligations.
- USE PROF JUD - Always use your best professional judgement to provide best selling/buying price
- INSPECTION- Make sure inspections, meetings and viewings are carried out as per your clients wishes and having regard for security and safety of all parties.
Advice for Property Managers - RICS Professional Statement – Real Estate Management 2016 (3rd edition)
- ETHICS - duty of care, Conflicts of Interest, corporate social responsibility
- TOE - Securing instruction - Terms of engagement
- HOT - New lettings and lease renewals - negotiating lease terms & agreeing HOT.
- RENT/ SC/ SUS - Managing real estate - collection of rent & service charge & Sustainability
- Portfolio and asset management - Performance measurement, principles of portfolio management.
- ENDING INSTRUCTIONS- Ending an instruction- written confirmation and handover
- H&S - Safety & Security - H&S, personal safety, Data Protection
- MONEY, PII & CHP - Business Management - PII, Holding Client’s money, complaints handling
RICS Guidance Note for best practice for PM
RICS Guidance Note on Commercial Property Management, England and Wales, 2011.
Aims/ Outline of RICS Guidance Note on Commercial Property Management, England and Wales, 2011.
- Best practice for commercial property managers
- How PMs can be efficient, effective and accountable to client and statute law.
- DUTY OF CARE - States duty of care is to landlord (the client)
- KEY INFO FOR PM - Information on key duties like rent collections, service charge and H&S
- MODEL TOE - Provides model terms of engagement
RICS Guidance Note on Commercial Property Management, England and Wales, 2011. KEY POINTS
- Energy Management - PM should be aware of any new regulations relating to environmental performance of buildings. Client Carbon Reduction Commitment (CRC). i.e. meter readings in a timely manner. EPC FOR BUILDINGS
. - Management Fees - Fixed fee annual review or indexation – should not be related to the value of money.
. - Service Charge - Clear and transparency – apportionment under the lease provisions, Keep SC money in separate account
. - Managing the building – ensuring you have all the relevant lease info, handover info. – EXAMPLE AWARD HOUSE
Conti.. Energy Management
Need to be aware of envi perf of building –> Crucial EPCs monitoring
What is a blue chip covenant?
- Considered as a FTSE 100 company
- Reputation for quality, reliability and the ability to operate profitably in good times and bad
What is the Occupiers Liability Act 1957/1984?
FOR OCCUPIERS WHO PUT IN PLACE PREVENTATIVES TO DETER INTRUDERS
(4) STEPS TO PREVENT INJURY
.
(3) DUTY DISCHARGED BY TAKING STEPS TO GIVE WARNING
The Occupiers Liability Act 1984 has implications for those occupiers of premises who want to implement preventive measures intended to deter intruders from unlawfully entering their premises.
Subsection (4) provides that it is their duty to take reasonable steps to ensure that the intruder does not suffer injury;
.
but subsection (3) provides that their duty may be discharged by taking reasonable steps to give warning of the danger or discourage persons from incurring the risk.
Occupiers Liability Act 1957 vs 1984
The 1957 act is mainly concerned with lawful visitors and provides that all lawful entrants are owed the same ‘common duty of care’.
As the 1957 act was not concerned with trespassers, the 1984 was enacted to govern the duty of occupier to trespassers.
Case Law for Occupiers Liability Act 1984?
Lowery v Walker [1911]. The Claimant was injured by a horse when using a short cut across the defendant’s field. The land had been habitually used as a short cut by members of the public for many years and the defendant had taken no steps to prevent people coming on to the land.
Corporate Manslaughter and Corporate Homicide Act 2007
Deals with the criminal liability of organizations for deaths resulting from serious management failures.
Corporate Liability: The Act establishes that organizations can be held criminally liable for deaths that result from serious failures in their management systems.
Gross Breach of Duty of Care: To establish corporate manslaughter or corporate homicide, it must be proven that there was a gross breach of the duty of care owed by the organization to the deceased person.
- What are your duties under the Act?
Risk Assessment: Organizations are required to conduct risk assessments to identify potential hazards and risks associated with their activities.
Duty of Care: Organizations have a general duty of care to ensure the health and safety of their employees, customers, clients, and other individuals who may be affected by their activities.
Reporting and Investigation: Organizations should have mechanisms in place for reporting safety incidents and near misses.
What are the offences and penalties under the Act?
–> Corporate Manslaughter and Corporate Homicide Act 2007
- Penalties: If an organization is found guilty of corporate manslaughter or corporate homicide, it can face significant penalties, including an unlimited fine. The court may also order the organization to publicize the conviction.
- Crown Prosecution Service (CPS): The CPS is responsible for deciding whether to bring charges under the Act. It conducts investigations and, if appropriate, initiates legal proceedings against the organization.
What legal documentation do you require as a property manager?
- Title plan and register
- Leases - signed by LL & T
- Rent deposits
- Any licences
- Rent review memorandums
- Any deed of covenants and easements
Why is it important your property management database system is updated?
- This ensures we raise charges correctly
- We know if leases and inside or outside the act and don’t run the risk of creating a periodic tenancy
- We have key dates so can anticipate lease events.
What is Alienation
Alienation’ is the right granted in a lease for a tenant to assign, sublet, or share occupation of their property. –> I.E. Sublet the property or Assign the property
Alienation
Section 4 of L&T act 1988 - tenant can assign lease with L consent
Always read the lease!
The usual clause is that the landlord’’s consent is not to be unreasonably withheld or delayed.
Assignment vs Subletting
Upon ASSIGNMENT the new tenant (T2) has a direct relationship (used to be privity of contract) with the landlord
When SUBLETTING a new sub tenant (T2) has a direct relationship with the tenant (T1) and pays them the rent who then pays the landlord –> I.E. like UK Music at Savoy Hill - got profit rent
Alienation Clauses (x3)
Open covenant - Allowing alienation
Qualified covenant - Subject to some conditions
Absolute covenant - Not allowing a subletting or assignment
Why Sublet over assign?
- Its a requirement of the lease
- For part of the demise and the not the whole
- If the tenant wants to reoccupy in the future – take back occupation.
- The new party is of a lesser covenants strength
- If the market rent is higher that the passing rent (face rent) then there is a profit rent (E.G. Like UK Music, they got a £10K profit rent)
What to do when dealing with an assignment or a sublet
- Read the lease before advising client - are there any grounds for withholding consent
- Will the tenant undertake the surveyor’s and legal costs
- Obtain client approval to proceed
- Has a rent deposit been agreed and is there an authorised guarantee agreement
- Cov Strength of the proposed new tenant? Are there accounts and references to consider?
What Act relates to the Assignment of Leases?
The Landlord and Tenant Covenants Act (1995). Came into effect 1st Jan 1996
What does it do? –> The Landlord and Tenant Covenants Act (1995)
- It relates to the assignment of leases.
- It abolished privity of contract.
- Leases created after this act are known as “new” leases.
- It created Authorised Guarantee Agreements.
- Allowed for only one AGA to be in place at a time.
What is Section 17 Notice in the The Landlord and Tenant Covenants Act (1995)
A section 17 notice must have served upon a guarantor within 6 months of the tenant defaulting to require the former tenant who has entered an AGA to pay the arrears.
Section 17 - requires the landlord to act quickly when tenant falls into arrears - they must serve Section 17 notice on any former tenant and their guarantor within 6 months of the start of the arrears.
What is Privity of contract
“Privity of contract” refers to the legal relationship that exists between parties who have entered into a contract.
In the context of landlord and tenant law, it signifies the DIRECT contractual relationship between the landlord and the tenant.
The first (original) tenant can assign his interest in the tenancy but not his relationship with the landlord.
What is an Authorised Guarantee Agreement?
It is governed by the Landlord and Tenant (Covenants) Act 1995.
An AGA is an agreement which places an OBLIGATION on an OUTGOING tenant to guarantee the performance by the new tenant or “Assignee” of the tenant covenants contained in the lease.
The original tenant may still be liable for the lease obligations even after the assignment.
To address this, the landlord might require the outgoing tenant to provide an Authorised Guarantee Agreement.
If the new tenant (assignee) defaults on the lease, the landlord can pursue the original tenant (assignor) for any unpaid rent or breaches of the lease terms during the guarantee period.
It’s important for both parties involved (original tenant and new tenant) to review and understand the terms of the Authorised Guarantee Agreement .
There can only be one in place at any time
Steps of AGA
Steps:
1. Original Tenant (Assignor): assigns premises to new tenant
- Assignee: The new tenant (assignee) takes over the leasehold interest.
- Authorised Guarantee Agreement (AGA): The outgoing tenant (assignor) agrees to guarantee the performance of the lease obligations by the new tenant (assignee).
- Guarantee Period: The AGA typically covers a specific period, during which the original tenant remains liable for the lease covenants.
AGA Vs Privity of Contract
THE ACT ABOLISHED Privity of Contract meaning that under a lease granted after the Act came into effect, a tenant who assigns their lease to a new tenant is released from their direct contractual obligations to the landlord.
The Act introduces AGAs to ensure that the original tenant still has some responsibility for the performance of the lease by the new tenant.
What does an AGA allow the Landlord?
- If the Assignee/new tenant fails to perform the tenant covenants in the lease (which include payment of rents and repair obligations) the AGA allows the landlord to pursue the outgoing tenant under the terms of the AGA.
- An AGA also provides the landlord with the option to insist on the outgoing tenant taking on a new lease (on the same terms of the existing lease) if the new tenant defaults and the existing lease is disclaimed.
If a tenant makes an application to assign, is it reasonable to demand an AGA is put in place?
No as per the recommendations in the Code for Leasing Business Premises 2007.
The Codes Position on AGA
(The Code for Leasing Business Premises 2020)
The Code for Leasing Business Premises 2020 states that although AGA are common place exceptions by landlord, tenants should seek yo not enter into an AGA if for example the tenant tenant is financially strong enough, pay an app rent deposit and provides a suitable guarantor
When do you think it is reasonable to insist a AGA is put in place?
It would be reasonable to request for a AGA to be put in place if the assignee is a lower financial standard OR is resident registered overseas.
Assignment vs Sublet according to The Code for Leasing Business Premises 2020
Assign:
Leases should allow tenants to assign the whole of the premises with landlord consent which is not to be unreasonably withheld or delayed.
Landlord may set out circumstances for refusal but these should be reasonable and appropriate. A requirement for an AGA clause should be clearly stated in the lease.
Sublet:
Leases should allow tenants to sublet the whole of the premises and may allow subleases of part if appropriate without security of tenure.
- It states that new leases should permit a tenant to sub let the lease at market rent and not the passing rent, if the market rent is lower than the passing rent.
Subleases should be required to be on terms consistent with the tenant’s own lease.
What does the Code for Leasing Business Premises 2007 state about sub lettings?
It states that new leases should permit a tenant to sub let the lease at market rent and not the passing rent, if the market rent is lower than the passing rent.
If the market rent is lower than the passing rent, what risk could this pose to a Landlord?
- The Code for Leasing Business Premises states that new leases should permit a tenant to sub let the lease AT THE MARKET RENT and NOT the passing rent.
It could mean the tenant is making a loss on the rent and cannot afford the difference. They may then default on their rental payments. This could cause the landlord to incur costs to recover sums/take unit back.
What options are available to you if you find your tenant has illegally sublet/assigned?
- Effect forfeiture
- Claim damages
- Seek an injunction
As a landlord, what options are available to you if your tenant has sublet their lease but consistently misses rent payments?
- Look to surrender the current lease and agree a direct lease with the sub tenant.
- Serve a Section 81 notice under the Tribunals, Courts and Enforcement Acts 2007.
- From a tenant point of view you could request an overriding lease.
Can you CRAR a sub tenant?
You can only CRAR a sub tenant is a Section 81 notice under the Tribunals, Court and Enforcement Act 2007 has been served.
What does the Section 81 notice involve? (notice under the Tribunals, Court and Enforcement Act 2007)
It will be served to the sub tenant when the head tenant misses rent payment. It must state the amount of arrears owed to the superior landlord.
Another problem for the superior landlord is that the notice does not take effect immediately (unlike the current position), but instead the superior landlord has to wait for 14 clear days after the notice is served.
The problem with the 14 days’ delay is that if the superior landlord’s tenant recovers the rent from the sub-tenant during those 14 days, the notice will not catch the sub-tenant until it becomes liable for its next rent instalment, which can lead to significant delays if the rent is paid quarterly in advance. This 14 day delay undermines the effectiveness of this remedy for superior landlords.
Alterations
- Carried out by a tenant during their lease
- Must be approved in writing by the landlord prior to undertaking the works
- They are usually subject to reinstatement at the end of the lease
- Some works such as demountable partitioning or other non-structural works may not require landlord’s formal consent so Always Read the Lease.
Licence for Alteration
To be completed/ documented before the works commence
Obtain an undertaking for costs at the commencement of the instruction –> Legal and surveyor costs
Most licenses require the tenant to reinstate the work at the end of the lease
Why is it useful to document alterations?
x2 useful functions:
- To protect the parties at rent review
- To protect the parties at dilapidationd at the end of the lease
Why would a Landlord complete alterations on behalf of a tenant?
- They may do it as part of the agreed new lease terms
- May complete at rent review or lease re-gear
- Landlord can then rentalise these works.
What if the tenant completed improvements that added value, without the landlords consent which was required?
The landlord would have the right to rentalise these works.
RICS Guidance on LTA
RICS Guidance Note on Licence for Alteration 2013
RICS Guidance Note on Licence for Alteration 2013
Sets out advice to surveyors who are dealing with applications from tenants to make alterations to office & industrial premises
States the importance of dealing with the matter without unnecessary delay and ensuring the Licence is completed to protect both parties
Licence must clearly document the works agreed
How can a tenant apply to complete improvement?
- Tenant services a notice of intention to the landlord
- Must include their proposed plans
- The landlord must respond within 3 months
- If no response, tenant is free to carry out the works.
- If landlord objects the tenant will have to apply to the court for a Certificate authorising the improvement as a proper improvement.
When doing an LTA
- Read the lease - do yo need landlord consent for changes?
- Always ask for full scope of works/RAMS/specification
- If wayleave could ask for proposed route - Obtain an undertaking for the surveyor’s and legal costs
- All alterations need to be documented in an LTA
- Consider if reinstatement is required at lease expiry
- Check with Equality Act 2010 compliance and there is a RAMS in place
- Report to client and obtain instruction
- Instruct client’s lawyer to prepare LTA
- Inspect the completed works to ensure that they are as agreed.
Can you provide me with an example of how you have dealt with an application for alterations?
E.G. KINGS HOUSE, 1ST FLOOR
- I dealt with an application for alterations from a tenant.
- Following my review of the information the works were external and structural. I checked the lease to see if the works were permitted and if they required landlord consent of which they did.
- I notified my client of the application.
- I sent an undertaking for fees to the tenants.
- Fees were to cover my surveyor, legal and building surveyor fees.
- The letter also requested scope of works, existing and proposed plans, risk assessments and method statements.
- This information would then be passed to the instructed building surveyor to review and approve.
- On agreement of the works I would instruct a solicitor to document the licence for alterations.
Landlord and Tenant Act 1927
The Landlord and Tenant Act 1927 addresses various aspects of landlord and tenant relationships, including alterations to leased premises.
How could a landlord avoid the implications of the Landlord and Tenant Act 1927?
They could ensure they install a clause in the lease stating improvements require landlord consent and ensure they have a clear reinstatement clause.
