Property Management L3 Flashcards
What is an assignment?
Tenant transfers legal interest in lease to another tenant. Incoming tenant takes over lease obligations.
What is sub-letting?
Lease property from tenant, rather than Landlord. Original tenant maintains relationship with Landlord, and sub-tenant has relationship with original tenant.
Difference between assignment and sub-letting?
With assignment, original tenant is no longer liable under the lease. With sub-letting, original tenant remains liable but creates new relationship with sub-tenant. Landlord and sub-tenant have no direct relationship.
Why sub-let rather than assign?
Lease requirement
Tenant may want to re-occupy in future
New party may be of lesser covenant strength
Typical alienation clause?
Permitted to assign/sub-let whole but not part, with LL consent not to be unreasonable withheld or delayed
What should PM do when receives application to assign or sub-let?
Review lease - what are the terms? Are there reasonable grounds for witholding conset? Is there AGA clause?
Request undertaking of surveyor and legal costs
Check if proposed market rent is same as passing rent
Check effect on investment value of property
Check if incoming tenant will pay a rent deposit
Surveyor to provide recommendation to client and obtain client approval
Licence for Assignment or Licence for Sub-Letting required
Aim of LL & T Act 1988?
S1 of LL & T Act 1988 states consent must be provided within reasonable timeframe (no delays)
Aim of LL & T Act 1927?
S19 of LL & T Act 1927 states consent must not be unreasonably withheld
S18 of LL & T Act 1927 limits the amount of damages a LL is able to recover for breach of T repairing covenants
Benefit of Licence for Alterations?
Protection for LL - requires T to reinstate unit at end of lease, back to how it was originally let
Protection for T - prevents LL from rentalising alterations/improvements at rent review
Key RICS publication in regard to alterations?
RICS Guidance Note: Licence for Alterations in Commercial Property, 2nd Edition 2013
Provides advice for surveyor
Notes importance of avoiding delays
Ensures licence is complete to protect parties
Licence must clearly document works agreed
Process for completing LtA application?
Receive T application - needs to be in writing, surveyor to check lease provisions and request undertaking
Review it and get third party input (Building Manager / Building Surveyor / Planners / Insurers)
Consider nature of works, whether rental value would be improved as result, the impact on building operations, consider getting warranty, LL to confirm if they require reinstatement at lease expiry
Respond and obtain undertaking for costs from T
Document the LtA
Complete final inspection to ensure works were done accordingly.
Note: if T believes LL being unreasonable at any stage, can go to Court
Different ways that consent to make alterations can be granted?
Automatically by lease terms (no consent required)
Formal Licence Deed - used for projects where there are internal changes being made
Simple Letter Licence - less complex project, no solicitor necessarily required
Why should inspection be carried out after completion of tenant works?
Surveyor needs to be satisfied that works were carried out to required standards, in line with plans and specifications
Need to check if snagging is required
PM responsibility when managing vacant building?
Building Insurance - inform them it is vacant and comply with the
Repairs - maintain fabric of building
EPC - obtain one
Inspections - regularly for insurance purposes
Health & Safety and Fire Risk Assessments to be carried out
Inform Council - Empty Rates
Isolate utilities and power supplies
Arrange for security
Maintain landscaping and asbestos register
Implication of Insurance Act 2016?
Key law which introduced more accoutnability for insurers
Introduced new responsibility to policy holders to provide all relevant information and aim to reduce claims
What is the tax on insurance premiums?
Insurance Premium Tax
Two fundamental principles of rent collection?
Accuracy of information provided
Timing of when demands are sent out / rent is collected by
Difference between standing order and direct debit?
Standing order = regular payment set up by payer, and payer has control
Direct debit = payer authorises the payee to take payments
Warning signs of future tenant rent arrears?
Persistent late payments and bounced cheques
Typical lease terms regarding interest on late rent?
2-4% above base rate 14 days after due date
First step when seeking to recover rent arrears?
Read lease - need to establish what procedures are in place
Remedies for rent default?
Negotiate payment plan
Draw down rent deposit
Pursue guarantor
CRAR
Serve Statutory Demand
Forfeiture
Court proceedings
What should be considered before drawing down on rent deposit?
Tenant covenant strength - will they be able to top it back up?
Future debt - if tenant struggling, may be wise to keep deposit for future debt EG dilapidations
Does LL need to give T notice before drawing down on rent deposit?
Depends what it says in rent deposit deed
Does LL have to use rent deposit for arrears?
No, can use deposit at LL discretion
Benefit of drawing down on rent deposit?
Good if tenant only struggling short-term and LL wants to keep tenant in occupation
Provides relief for tenant so they can focus on recovering business
Tenant can top up deposit when more financially stable
How can Court proceedings be used to recover tenant arrears?
LL can obtain court judgement
High Court Enforcement Officer may then enforce this but need to pay court fees
Similar to CRAR
Can be useful if tenant is still solvent as threat of going to Court may prompt payment!
However - slower process, more expensive etc
When can former tenant be pursued for arrears?
If Lease started before 1 January 1996
Privity of Contract was abolished by LL & T (Covenants) Act 1995
Before this, any tenant who was original tenant under lease was responsible for rent and other covenants throughout the term (even if lease had transferred to new tenant)
What is Statutory Demand?
Preliminary step to pursuing winding-up proceedings (AKA bankruptcy)
Can be used to put pressure on tenant to pay arrears
Used on undisputed arrears of £750 + where rent deposit has already been used
What is the process of serving a Statutory Demand?
Notice served and T has 21 days to pay or propose plan
After this time, LL can present winding up petition to Court
What is CRAR?
Commercial Rent Arrears Recovery
Replaced ancient law of distress for rent
Introduced in 2014 by Tribunals, Courts and Enforcement Act
Available to commercial Landlords to recover rent (plus VAT and interest)
No minimum amount of arrears required
What are CRAR timelines?
7 days unpaid rent
7 days notice
Enforcement Agent visits
7 days before sale of any seized goods
What goods cannot be seized under CRAR?
Perishable goods, work tools, and kit belonging to a 3rd party
What are tenants rights under CRAR?
Can apply to Court for order that no further steps can be taken without permission from Court
What is forfeiture?
Clause in lease that allows landlord to re-gain possession of lease
Either by peaceful re-entry or Court action
When can forfeiture be used?
When there is a forfeiture clause in the lease
No notice is required from LL
What are tenants rights under forfeiture?
Tenant has the right to apply for relief from forfeiture
Can only apply to Court as they are only one that can grant it
If they grant it, lease is restored as though forfeiture never happened
How can LL right to forfeit be waived?
If LL agrees payment plan with T
If CRAR is exercised
If S25 notice is served under LL & T Act 1954
How can lease be terminated by forfeiture?
Landlord can peacefully re-enter and change locks
Court proceedings can commence to recover possession
What was LL & T (Covenants) Act 1995?
Abolished Privity of Contract for all new leases as of 1 January 1996
Introduced Authorised Guarantee Agreements (AGAs) - former tenant guarantees lease compliance of assignee
S17 notice must be served on guarantor within 6 months of tenant not complying, and former tenant then required to pay the arrears
According to RICS Code of Leasing Business Premises, when should AGAs be used?
If assignee is of weak covenant strength, has no guarantor and is not paying a rent deposit
What is key consideration when reviewing rent arrear recovery methods?
Chance of re-letting the property
Current passing rent vs market rent (market conditions)
Vacant possession value and void cost, vs value as let
What was impact of Legal Aid, Sentencing and Punishment of Offenders Act 2012?
Made residential squatting a criminal offence
Commercial landlords must rely on Bailiff or Court to remove squatters/trespassers
Four main options for LL when T not fulfilling their repairing obligations?
Serve repair notice (S146 of Law and Property Act 1925)
Forfeit lease
Serve interim schedule of dilapidations
Do works themselves and charge tenant
What must be included in notice to repair?
This is S146 of Law and Property Act 1925
Must contain details of repairing breach that has occurred
Must state timescale allowed to remedy breach
Must state course of action proposed if T fails to remedy
How can LL forfeit lease for failure to repair?
Must be forfeiture clause in lease
LL must serve S146 notice on tenant (stating details, timescale and proposed course of action)
What is the leading case law for LL right to re-enter property to undertake repairs?
Jervis vs Harris
Gives LL right to pursue remedy against defaulting tenants to ensure premises are kept in good condition
In what circumstances can Jervis and Harris clause be used?
When tenant is solvent
When LL wants lease to continue
When LL wants to carry out repair themselves
Where threat of entry may compel tenant to do work themselves
3 possible stages of PPM?
Cyclical maintenance - regularly carried out activities EG plant servicing
Preventative maintenance - timetable provided by building surveyor for undertaking works
Responsive maintenance - repairing leak or unblocking drain etc
RICS key publication for service charges?
RICS Service Charges in Commercial Property, 2018
Effective from April 2019
Aims of Service Charge Professional Statement?
Improve best practice, fairness and transparency
Ensure timely issue of budgets and YE certificates
Reduce cause of disputes, and provide guidance on dispute resolution
What are the 9 mandatory requirements in Service Charge Professional Statement?
Recover expenditure in line with lease terms
Recover no more than 100% of costs
Annual provide budgets and explanatory notes
Annually provide service charge accounts (showing actual figures)
Annually provide service charge apportionment schedule
Service charge money to be held in separate bank account
Interest must be credited to SC account
When acting for tenant, advise that if disputing payment then withhold the amount in dispute
11 sub sections of Service Charge Professional Statement?
Service costs
Allocation and apportionment
Communication and consultation
Duty of care
Financial competence
Occupier responsibilities
Right to challenge
Alternative dispute resolution (ADR)
Timeliness
Transparency
Value for money
Exclusions
Responsibility of Property Manager when issuing service charges?
Ensure value for money
Ensure quality services that are regularly reviewed
Ensure standard of services are monitored
What is a sinking fund?
A fund set up for paying specific costs that occur occasionally EG roof repairs or painting needed every 5 years
What is a reserve fund?
A fund set aside to cover cost of major works or other significant items of expenditure
Useful for unexpected expenses
What is a depreciation charge?
Measure of the wearing out or reduction in life of an asset
Depreciation distributed across the useful life of the property (rather than taking one larger deduction the year you buy or improve the property)
4 methods of service charge apportionment?
Floor area
Fixed percentages
Weighted floor area (typical in shopping centre)
RV
Different types of insolvency?
Administration
Company Voluntary Arrangement (CVA)
Receivership
Liquidation
What are implications for Landlord when tenant goes into administration?
Company is protected from action being taken by moratorium so options to LL are limited
If rent being paid, equivalent amount can be claimed from administrator
Administrator may seek LL consent to assign lease
What are implications for Landlord when tenant goes into liquidation?
Landlord can deduct funds from rent deposit
Landlord can seek Court order for termination of lease
Landlord can forfeit lease
Landlord can consent to assignment of lease to new tenant
What was impact of Coronavirus Act 2020 for Landlord rent recovery?
Protected businesses during pandemic
Prevented Landlords from forfeiture or CRAR
Measures expired 25 March 2022
What was Commercial Coronavirus Rent Act 2022?
Came into effect 25 March 2022
Introduced arbitration process to resolve disputes regarding Covid rent arrears
Legally binding arbitration process
What is Occupiers Liability Act 1957?
Regulates duty of care
Occupier must ensure visitors will be safe in using premises
What is Occupiers Liability Act 1984?
Regulates duty of care
Occupier must ensure duty of care even to UNLAWFUL visitors EG trespassers
Difference between covenant being absolute/qualified/fully qualified?
Absolute = cannot do anything
Qualified = can do something with LL consent
Fully Qualified = can do something with LL consent, not to be unreasonably withheld or delayed
What is statutory duty placed on LL in LL&T Act 1927 and 1988?
Consent must not be unreasonably withheld (1927) or delayed (1988)
What is Corporate Manslaughter and Corporate Homicide Act 2007?
Companies can be found guilty as result of serious management failure / gross breach of duty of care
Fine can be unlimited
How do you hand over SC account upon sale or change of manager?
Complete interim service charge reconciliation
What is a cost undertaking?
Undertaking by one person to pay costs of another
What is warranty?
Written guarantee promising to repair/replace item within set time period
What is TUPE?
Transfer of undertakings of employment
Protects employees if business they are in changes hand
Moves employee from old employer to new employer
EG applies to people who provide service at property - cleaners, security etc
What is a duty of care deed?
Provides lenders with greater protection for their loans when lending in relation to property that is rented out and managed by an agent
RICS guidance note relating to Property Management?
Commercial Property Management in England and Wales
PM to act as agent for LL and manage LL responsibilities under leases
Collect rent, SC and other sums owed
Manage the property
What is Public Liability Insurance?
Covers cost of legal action and compensation claims made against your business by general public
Why is effective occupier liaison important?
Good relationship, make sure occupiers know who PM is and how to contact them
What are health and safety / fire obligations as PM?
Ensure there is GRA and FRA carried out annually
What insurance is a LL typically required to have under leases?
Insurance against damages to the property EG loss of rent and Public Liability Insurance
What is involved in third party procurement?
Contractor needs to be on approved supplier list (Workman document)
Must tender works - at least x3 contractors
Contractor must be Safe Contractor Accredited
Accreditation scheme that recognises an organisations capabilities for health and safety
What is death by negligence?
Person is liable for death of another due to negligent conduct
Why is rateable value not viewed as appropriate method of service charge apportionment?
Does not reflect reasonable assessment of benefit of using common services
Benefit of a PPM?
Performed to preserve a propoerty’s condition
Proactive approach - aims to avoid failures, unplanned disturbances and sudden maintenance costs
How would you manage a rent deposit?
Comply with Rent Deposit Deed
Hold funds in separate bank account which is designated as tenant deposits
Need these funds protected incase LL becomes insolvent
Two key RICS publications in relation to PM?
RICS Professional Statement - Real Estate Management, 3rd Edition 2016
RICS Guidance Note - Commercial Property Management, 2nd Edition 2011
What are 12 mandatory requirements for members set out in RICS Professional Statement, Real Estate Management 3rd Edition 2016?
Conduct business in honest, fair, transparent manner
Carry out work with skill and due diligence
Ensure clients are provided with clear terms of engagement
Avoid conflict of interest, and when they arise deal with them openly and promptly
Do not discriminate
Ensure communications are fair, clear, timely and transparent
Ensure all advertising and marketing is honest
Ensure client money held in separate accounts
Ensure professional indemnity insurance in place
Ensure scope of obligations of work is provided to all parties
Give realistic assessment of buying/selling/rental price
Ensure all inspections and meetings are carried out in accordance with client wishes
Tenant can’t pay rent so what do you do?
Go to site and see if they are still trading or if all is boarded up
Find out reason for inability to pay EG if changing bank account, might just take 6 weeks until new one set up for them to pay from. If struggling financially, could suggest:
Payment Plan
Drawing Down on Rent Deposit (if rent deposit deed in place and there is a separate rent deposit account)
Check lease to see if there is guarantor - serve S17 Notice of LL&T (Covenants) Act 1995 - can persue within 6 months of falling into arrears, and if they pay then guarantor is entitled to take an overriding lease
CRAR - enforcement agents sent to recover goods to cover the value of the debt. A letter is sent to the tenant which says the enforcement agents are coming in 7 days. If PM worried tenant will move or hide goods, then can apply to Court and get a Court Order to reduce timeframe
Enforcement agent takes item that belong to the tenant that have a value
Can take stock but can’t take perishable goods (these won’t have value once perished!)
Cannot take items that are leased to the business EG items on purchase agreement
Forfeiture - check lease for forfeiture clause EG ‘LL is permitted to forfeit the lease via walk in possession if rent remains outstanding for 21 days’
How is forfeiture for non-payment of rent different to forfeiture for non-compliance of repair?
Repair - Serve S146 of Law of Property Act 1925 - tenant gets 6 months to remedy breach
Rent - 21 days passes, walk in and change locks
What is a Statutory Demand?
It is the first step of a winding up procedure
Why is important to check tenant covenant strength before providing client with recommendation for non-payment of rent?
If tenant has limited stock, account shows that turnover is down, and they’ve used all government help that they can, then it might be too far gone for a payment plan!
Why is it important to look at management accounts as well as audited accounts?
The audited accounts might be a year or so out of date, because you submit these 9 months after year end
Audited accounts may not even take into consideration Covid-19!
Management account shows how business is doing on monthly or quarterly basis
Why would tenant sub-let rather than assign?
Flexibility to get unit back
If market rent is higher than passing rent, then tenant could get profit rent
What is a reasonable time to respond to application to assign?
Maybe 1 week but completely up to each managing agent
What is dilapidation figure based on?
The diminution in value as a result of the wear and tear
