Property Management L3

Question 1

What are the key RICS documents relating to property management?

Answer 1

Real Estate Management, 3rd edition, Commercial Property Management in England and Wales RICS Guidance Note and the Service Charges in Commercial Property Professional Statement.

Question 2

Who do you have a duty to in property management related matters?

Answer 2

To the client, however a duty also exists to tenants.

Question 3

What are the traditional and modern quarter days?

Answer 3

25 March, 24 June, 29 September 25 December are the traditional quarter days. The modern quarter days are 1 January, 1 April, 1 July, and 1 October.

Question 4

How do you check the covenant strength of a tenant?

Answer 4

References from a previous Landlord, check 3 years of audited accounts. An external credit rating for the business such as Dun & Bradstreet or CreditSafe can be used.

Question 5

Why would you assess the covenant strength of a tenant?

Answer 5

The risk of tenant default affects security of income which in turn affects the capital value of the property.

Question 6

Talk me through the options for recovery of arrears?

Answer 6

Payment plan, drawing down on rent deposit, CRAR, seek arrears from guarantors, subtenants or former tenants, statutory demand, forfeiture, court proceedings.

Question 7

What is a payment plan?

Answer 7

Negotiated between the parties, these are an amicable way to keep the tenant in occupation and avoid an empty business rates liability for the landlord. They can help to recover the arrears due over a prolonged period, and should generally be the first resort, because they help to maintain a positive relationship between landlord and tenant.

Question 8

What is drawing down on a rent deposit and what are the negatives of this?

Answer 8

Take money from rent deposit to pay off debts. However, this course of action means that the deposit will no longer be available to cover other breaches of lease or at expiry in relation to any dilapidations claim.

Question 9

What is CRAR and when did it come into force?

Answer 9

Introduced in 2014 to replace Law of Distress for rent, recover rent, VAT and interest, 7 days rent due as minimum, LL serves Notice of Enforcement via email/post/hand-delivered which states address, tenant type, due date of most recent funds and any notes. The Notice of Enforcement gives 7 days’ notice, on day 8, enforcement agent enters and takes inventory and ‘takes control of goods’, enforcement agent waits 7 days before selling goods, T charged for service. It cannot be used for other sums such as insurance or service charge. An enforcement warning giving seven days’ written notice can be served on the debtor, before a certified enforcement agent (not a bailiff) is permitted to take control of goods to pay off the arrears.

Question 10

What type of leases can CRAR be used for?

Answer 10

CRAR can only be used for leases of commercial premises.

Question 11

What is a statutory demand?

Answer 11

Preliminary step to pursuing winding up proceedings (or bankruptcy) must be no dispute on arrears, and they must be over £750 has 21 days to pay or propose a plan, after this time, LL can present bankruptcy/winding up petition to court.

Question 12

What is forfeiture?

Answer 12

Must be forfeiture clause in lease and rent must have been properly demanded. LL enters peacefully/commences Court proceedings to regain possession of lease after 21 days of non-payment of rent (only advisable if got another tenant lined up to go in). if breach other than rent, LL serves S146 notice under Law of Property Act 1925 providing details of breach and how to remedy.

Question 13

What is the final resort in cases where the tenant is not paying?

Answer 13

Court proceedings.

Question 14

Can forfeiture be implied?

Answer 14

The lease must expressly give the landlord the right to forfeit.

Question 15

What is the RICS documentation in relation to service charges?

Answer 15

Service charges in commercial property 1st Edition, September 2018, effective from April 2019.

Question 16

What should services charges be?

Answer 16

Not for profit and not for loss.

Question 17

What is the purpose of a sinking fund?

Answer 17

Fund formed by periodically setting aside money for the replacement of a wasting asset (EG lifts, AC, and other major items), usually collected over whole life of wasting asset, used for paying specific costs that occur occasionally.

Question 18

What are principles of Code of Practice for Service Charge?

Answer 18

There are 9 key principles:1. Recover expenditure as per lease, 2. Recover no more than 100% of actual cost,3. Issue budget and explanatory notes annually, 4. Issue apportionment matrix annually Issue approved set of accounts annually, 6. Service charge monies to be held in discrete account(s), 7. Interest to be credited to service charge after appropriate deductions, 8. Tenant to only withhold sum that reflects dispute, 9. If sum raised incorrectly, should be rectified without delay.

Question 19

What are updates of new Code of Practice for Service Charge?

Answer 19

Now mandatory, was previously a Code of Practice.

Question 20

How do you manage an empty property?

Answer 20

Inform insurers, undertake regular inspections, undertake FRA and GRA for H&S, maintain fabric of building, obtain EPC and consider MEES, inform council to obtain empty rates, drain down water, turn off power, electricity and gas, additional security, maintain asbestos register.

Question 21

How is insurance usually dealt with for commercial properties?

Answer 21

Usually, LL arranges it and recharges T. Includes Reinstatement Cost Assessment (RCA) and measurement basis is GIA for this as per BCIS.

Question 22

How can service charge be apportioned?

Answer 22

Floor area, fixed percentages, rateable value (difficult if RV changes/is disputed and doesn’t consider common areas), weighted floor area (common in shopping centres).

Question 23

How do you benchmark a service charge budget?

Answer 23

Standards are checked against industry-used index which provides standard as point of reference, two common benchmarking indices are Office Service Charge Analysis Report and Global Estate Measurement Code for Occupiers.

Question 24

What is a reserve fund?

Answer 24

Fund formed to meet anticipated future costs of maintenance and upkeep, to avoid fluctuations or one-off large increases in service charge, applies to regularly occurring items like cleaning and redecorating, useful for major works or unexpected expenses.

Question 25

How would you deal with a tenant asking for a licence to alter?

Answer 25

Read lease, ask for plans and specifications (review with BM, building surveyor, planners, or insurers), obtain undertaking for costs, obtain client consent, instruct client lawyer to prepare licence to alter, inspect completed works.

Question 26

What is an assignment?

Answer 26

Tenant transfers legal interest to another tenant, and new tenant takes over lease obligations.

Question 27

What is a sub-letting?

Answer 27

Lease property from Tenant rather than Landlord. Original tenant maintains relationship with Landlord and Sub-Tenant has relationship with Tenant.

Question 28

What should you do when you receive an application to assign/sub-let?

Answer 28

Read lease (alienation clause), Request undertaking for costs, check if proposed rent same as passing rent, check new T covenant strength, check if AGA clause, check if new T will pay rent deposit, check if reasonable grounds for withholding consent, check effect on investment value, provide recommendation to client and obtain consent, licence to Assign / Sub-let required.

Question 29

How can Landlords right to forfeiture be waived?

Answer 29

Agree payment plan with T instead, CRAR exercised, s25 notice served under LL&T Act 1954.

Question 30

What is a Jervis v Harris Clause?

Answer 30

A clause in a lease or tenancy agreement which allows the landlord to serve a notice on a tenant to carry out repairs. Where a tenant fails to do so, the landlord may enter, carry out the works itself and recover the costs from the tenant as a debt.

Question 31

What does the Occupiers Liability Act 1957 do?

Answer 31

Introduces duty of care to visitors.

Question 32

What does the Occupiers Liability Act 1984 do?

Answer 32

Introduces duty of care to people others than visitors (trespassers).

Question 33

Is it mandatory to listen to what tenants want within a service charge?

Answer 33

No, it is not mandatory however it would be advisable.

Question 34

How do you ensure rental accounts are up to date and what would you do if they were not?

Answer 34

Monthly meetings to check arrears and then if a tenant has not paid, the initial step is to converse with the tenant. Then look to agree payment plan, forfeiture etc…

Question 35

If you wanted to refuse the licence for alteration, could you do this? If so, on what basis?

Answer 35

Yes, if the letting value of the property would be negatively affected.

Question 36

How would the above differ if it was an absolute covenant?

Answer 36

An absolute covenant means that the Landlord can refuse under any circumstance and so would be at the Landlords discretion.

Question 37

What is the difference between an ‘old lease’ and ‘new lease’ within the LTCA1995?

Answer 37

An old lease is granted before 1st January 1996, whereas a new lease is granted after this date.

Question 38

What are dilapidations?

Answer 38

Dilapidations represent the ‘exit costs’ for a tenant at the end of a commercial lease, although on occasions an interim schedule of dilapidations may be served during the lease. These costs are typically attributed to putting the property back to its original, pre-let state, i.e., repairs or reinstating any cosmetic alterations.

Question 39

What are the rules around empty rates for industrial premises?

Answer 39

For industrial premises, this 100% of the rates bill after a 6-month void.

Question 40

What are the rules around empty rates for offices?

Answer 40

For retail and office premises, landlords must pay 100% of the rates bill after a 3-month void period.

Question 41

What are the timings for the issuing of service charge budgets?

Answer 41

Managers should issue budgets to occupiers, including an explanatory commentary and apportionment matrix at least one month prior to the start of the service charge year. Detailed statements of actual expenditure, together with accounting policies and explanatory text, should be issued within four months of the service charge year-end.

Question 42

What are the aims of the service charge professional statement?

Answer 42

Improving the general standards and promote best practice, uniformity, fairness and transparency in the management and administration of service charges in commercial property. Ensure the timely issue of budgets and year end certificates. Reduce the causes of disputes and to provide guidance on resolution. 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.

Question 43

Name some core duties of a property manager?

Answer 43

Liaison with the landlord, collection of monies, dealing with defaulting occupiers, setting up and collecting service charge, hold deposits, managing the building, arranging, and collecting insurance money, liaising with occupiers, keep policy documents detailing how it meets these duties, energy management, ensuring health and safety and fire safety, detail the management fee, rent reviews, rating reviews, letting agency, dilapidations advice, acquisition and sale support advice.

Question 44

What are the 12 mandatory requirements within the RICS Professional Statement Real Estate Management?

Answer 44

Conduct business in an honest, fair, transparent, and professional manner. Carry out work with due skill, care, and diligence, and ensure that any staff employed have the necessary skills to carry out their tasks. Ensure that clients are provided
with terms of engagement which are fair and clear. These should meet all legal requirements and relevant codes of practice including reference to complaints-handling procedures and, where it exists, an appropriate redress scheme. Do the utmost to avoid conflicts of interest and, where they do arise, deal with them openly, fairly, and promptly. Not discriminate unfairly in any dealings. In all dealings with clients, ensure that all communications (both financial and non-financial subject matters) are fair, clear, timely and transparent. Ensure that all advertising and marketing material is honest, decent, and truthful. Ensure that all client money is held separately from other monies in appropriately designated accounts and is covered by adequate insurance. Have adequate and appropriate professional indemnity insurance or equivalent in place that complies with the RICS Rules of Conduct. Having proper cover is a key part of managing your risk. Ensure that it is made clear to all parties with whom you are dealing the scope of your obligations to each party. Where provided as part of the service, give a realistic assessment of the likely selling, buying or rental price, associated cost of occupancy or of the likely financial outcome of any issues, using best professional judgment. Ensure that all meetings, inspections, and viewings are carried out in accordance with the client’s lawful and reasonable wishes, having due regard for the security and personal safety of all parties.

Question 45

Name some statutory obligations a property manager needs to be aware of?

Answer 45

Gas safety, fore safety, electrical safety, asbestos.

Question 46

When might you not recommend accepting a rent payment?

Answer 46

When you suspect money laundering.

Question 47

What type of notice can be used to pursue a former tenant or guarantor?

Answer 47

Section 17 notice

Question 48

What is the limit of debt for a statutory demand?

Answer 48

Once you have applied to set aside a statutory demand, the 21-day time limit for dealing with the demand stops until the court has decided whether to grant your application.