Property Management (Level 3) Flashcards
Professional Standard - What is included in Service Charges in Commercial Property (2018)?
- Introduction
- Mandatory requirements
- Core Principles
- Best Practice
- Appendix A: Compliance Checklist
- Appendix B: Cost classifications
- Appendix C: Sample Report
- Appendix D: Handover Procedures
Professional Standard - What are the 9 principles of Service Charges in Commercial Property (2018)
- Recover no more than 100% of costs
- Expenditure recovered in accordance with lease
- Budgets must be issued annually / Budgets include explanatory comments
- Service charge monies held in one or more discrete bank account
- Reconciliation provided annually
- Service charge apportionment matrix issued annualls
- All interest earned, credited to service charge accounts, after appropriate deductions (tax etc)
- Service charge disputes should only reflect the sums in dispute
- Incorrect service charges adjusted without delay
Professional Standard - What is Real Estate Management (2016) and what is the structure?
Professional Standard - Mandatory
Introduction
Ethics
Securing Instructions - terms of engagement
Leasing - negotiation / heads of terms
Management - rent, repairs, insurance, service charge
Asset/Portfolio Management
Terminating Instructions - written confirmation, handover
H&S - data protection / H&S
Business Mnaagement - PII, CHP, Clients Money
Professional Standard - What are some of the core principles in Real Estate Management (2016)?
- There are 12 core principles
- Honesty, fairness, transparency
- Act with due skill and diligence
- Terms of Engagement + CHP
- Do not discriminate
- Ensure client money is held separately
- Appropriate PII cover
Professional Standard - Prior to accepting an instruction, what should real estate managers do according to Real Estate Management (2016)?
- Conflict of Interest check
- Written permission to act on their behalf
- Confirm identity of client (Bribery, Corruption, Money Laundering and Terrorist Financing, 2019).
Professional Standard - Upon receiving management instruction, what should members do according to Real Estate Management (2016)?
- Communicate with client, discuss requirements
- Agree level of feedback and reporting
- Agree Terms of Engagement (PMA)
o Scope
o Fees
o Duration
o Business terms
o Exclusions
o Jurisdiction details - Sign and date Terms of Engagement before providing to client
- Give client opportunity to negotiate terms
Professional Standard - How would you instruct a sub agent under Real Estate Management (2016)?
- Ensure client permission
- Could be seen as breach without
Professional Standard - What are vulnerable customers in Real Estate Management (2016)
- Customer with specific needs
- Must not discriminate
Guidance Note - What is Commercial Property Management in England & Wales, 2011
- Best practice for commercial property managers
- advice on property manager core duties, including rent collection, service charges, managing buildings, H&S, and procurement of third-party suppliers.
- summary of all relevant statute law and a model term of engagement.
Guidance Note - What is included in Commercial Property Management (2011)?
- Property manager core duties
- Appendix A – Legislation
- Appendix B – Property management contract
Legislation - Name all key legislation relevant to property management under Commercial Property Management (2011)
Landlord and Tenant Act 1995
Abolishment of privity of contract for assignments
Landlord and Tenant Act 1954
security of tenure
Landlord and Tenant Act 1988
Applies where tenancy includes a covenant that a occupier cannot assign, sublet etc without consent
Landlord must either give consent or give written notice not to consent
Energy Performance of Building Regulations 2012
Landlord must present an occupier with valid EPC certificate
EPC must be compliant and valid
Construction Design Management Regulations 2015
Appointment must ensure competency
Fire Safety Order 2005
Responsible person (person in control of premise) must take fire precautions
Fire Risk Assessments
Control of Asbestos Regulations 2012
Obligation on duty holder to carry out sufficient assessments
The Defective Premises Act 1972
Duty of care on landlord to prevent injury on premises by ensuring proper maintenance
Transfer of Undertaking Employment Regulations (TUPE)
Protect employees during transfer of any business, including a service charge provision change
Applies when change in service provision e.g. if new cleaning contract is adopted, employees of previous contractor may be transferred.
E.g. intu shopping centres!
Data Protection Act 2018
Regulates processing of information relating to individuals
Personal dats must not be processed by data controller unless an entry is made on register
Register maintained by information commissioner
Equality Act 2010
Have regard to socio-economic inequalities, discrimination, victimisation
Relates also to supply of services.
Alienation - What is the difference between Assignment and Sub-letting
Assignment - Contractual relationship between assignee and landlord (privity of contract)
Subletting – Contractual relationship between former tenant and landlord
Alienation - What is assignment?
- Lease transferred to another tenant (3rd party)
- Landlord will not want assignment to weaker covenant.
- Pre 1995, the assigning tenant remained liable for assigning tenant
- Post 1995, the Act abolished privity of contract, releasing tenant from liability of assignee’s performance.
- The 1995 Act allows an AGA to be put in place, where the outgoing tenant guarantees the lease obligations of the new tenant (immediate assignee).
- AGA only lasts until assignee assigns the lease to another party.
- The landlord can request reasonable conditions on assignments, such as financial checks. If conditions not met, the landlord can reasonably refuse assignment.
Alienation - What is subletting?
- Sublease granted from original tenant to sub-tenant
- Original Landlord-tenant relationship remains intact
- Contractual chain remains between landlord and tenant.
Alienation - How quickly would you respond to application to sublet?
- Under 1988 Act Have to deal with application promptly
- Reasonable timescale
- Typically 7 days
Alienation - What does the 1995 Covenants Act do?
- Abolition of privity of contract
- Authorised Guarantee Agreement (AGA)
- Reasonable conditions for assignment
Alienation - What is Alienation?
Ability to sub-let or assign a lease
Alienation - Who pays rent after a lease is sublet?
Subtenant pays, former tenant, who pays landlord
Alienation - Who pays rent after a lease is assigned?
Assignee pays Landlord rent
Alienation - What types of alienation clauses can leases have?
Open, qualified, absolute
- open allows alienation
- qualified subject to Landlord consent
- absolute now allowed.
Alienation - What is the typical clause relating to alienation regarding consent?
Landlord consent is not to be unreasonably witheld or delayed
Alienation - Why would you chose to sub-let over assign a lease?
- requirement of lease
- part of demise and not whole
- if Market Rent = Higher than Passing Rent = Profit Rent
- If tenant wants to re-occupy in future
- the new party is of lessor covenant strength
Alienation - How would you deal with an application to assign or sublet?
- Read the lease
- Undertaking for legal costs from tenant
- Is proposed rent the market rent or passing rent
- Impact on investment value of property
- Is alienation permitted? on what grounds?
- strength of covenant of new tenant?
- request accounts of incoming tenant
- rent deposit / AGA agreed?
- Provide client with written recomendation
- if consent granted, assignment or subletting will be granted
Alienation - What is the difference between an Authorised Guarantee Agreement (AGA) and privity of contract?
- Privity of Contract (pre-1995 Act) – binds original tenant for whole lease duration
- AGA (post-1995 Act) – binds original tenant to period assignee occupies.
Alienation - How long does an AGA remain in place?
- As long as the new tenant (assignee) remains in place
Alienation - How is an assignment documented?
The assignor and assignee enter into a Deed of Assignment, a legal document transferring all rights, obligations, and liabilities of the lease from the assignor to the assignee.
Alienation - What are the reasonable grounds for refusing consent for assignment?
- Lower covenant strength
- Different use
- Planning?
Alienation - How is a sublease documented?
The head tenant and subtenant enter into a Sublease Agreement, outlining the terms, duration, and rent payable. This agreement must comply with the terms of the original lease.
Alienation - What is a profit rent?
- when subletting a premise
- profit rent is gained by the original tenant
- difference between rent paid to landlord, and rent received from subtenant
Alienation - What is the difference between a lease and a licence?
A lease grants exclusive possession and a legal interest in the property for a fixed term, offering security of tenure and statutory protections.
In contrast, a license provides only permission to occupy without exclusive possession or legal interest, is flexible, and offers no statutory protections or security.
Alienation - What is exclusive posession?
Exclusive possession is the legal right of a tenant or occupier to have control over a property, allowing them to exclude others, including the landlord, from the premises. It is a key characteristic of a lease. Exclusive possession indicates that the tenant has control over who can enter or use the property during the term of the lease, and it distinguishes a lease from a license.
In contrast, with a license, the occupier does not have exclusive possession, meaning the licensor (landlord or owner) retains the right to enter and use the property as they see fit. Exclusive possession is often critical in determining whether an agreement is a lease or a license.
Alienation - What is privity of contract?
When a lease is created between a landlord and tenant, privity of contract exists between them, meaning both are bound by the terms of the lease (e.g., rent payments, repairs, etc.).
When a tenant assigns a lease to a new tenant (assignee), the privity of contract between the original tenant and landlord is typically broken. However, if an Authorised Guarantee Agreement (AGA) is in place, the original tenant can remain liable for the assignee’s obligations, despite the assignment.
Subletting does not affect privity of contract between the landlord and tenant. The tenant (sublessor) remains in privity of contract with the landlord, and a separate sublease is created between the sublessor and the subtenant.
Alienation - What is privity of estate?
Privity of estate refers to the legal relationship that exists between parties who have a direct interest in the same piece of property. e.g. typically between owner of land (landlord) and renter of land (tenant)
In the context of leases:
Privity of estate exists between a landlord and the current tenant in possession of the property, regardless of whether they are the original tenant or an assignee. This means that the parties are bound by the covenants that “touch and concern” the land, such as paying rent, maintaining the property, or repairing obligations, as these covenants relate directly to the use of the property.
When a lease is assigned to a new tenant, privity of estate between the landlord and the original tenant ends, and it transfers to the new tenant (assignee). The landlord and assignee now have privity of estate, meaning they are both bound by covenants related to the land.
However, privity of estate does not exist between a landlord and a subtenant. In subletting, the privity of estate remains between the landlord and the head tenant, while the subtenant is in privity of estate only with the head tenant.
Alienation - What are landlord remedies for illegal alienation?
forfeiture
damages
injunction
Alienation - What is the Landlord and Tenant Act 1995 (Covenants Act)
- relates to assignment of lease
- came into force on 1st January 1996 (‘called the new lease’)
- abolished privity of contract between original tenant and landlord after assignment of lease
- introduced AGA ‘authorised guarentee agreement’ in-place
- most recent former tenant only to guarentee performance of assignee
- voluntary arrangement
Alienation - How do you pursue arrears from an AGA?
- if lease has been assigned and AGA in place
- serve Section 17 (1995 Covenants Act) Notice upon guarantor within 6 months of tenant defaulting to require former tenant to pay arrears
- can only be 1 AGA in place at a time
Alienation - What does th Code for Leasing Business Premises (2020) say about assignments?
- although commonplace, tenants should not enter AGA if assignee is of stronger covenant, pays a rent deposit, and or a suitable guarantor
- leases should allow tenants to assign whole premise with landlord consent, which is not be be unreasonably witheld or delayed
- requirement for AGA should clearly be stated in lease
Alienation - What does th Code for Leasing Business Premises (2020) say about subletting?
- leases should allow subletting of whole premises and may allow subleases of part
- rent not less than market rent
- subleases should be on terms consistent with tenants own leases
- no security of tenure
Alterations - What are alterations?
- carried out by tenant during lease
- must be approved in writing subject to lease terms
- usually subject to reinstatement at end of lease
- some works such as demountable partioning may not require consent (always RtL)
Alterations - What is a Licence for Alterations?
- completed before works commence
- Obtain an undertaking of costs at commencement of instruction
- 2 useful functions: protect parties at rent revieew and dilapidations at end of lease
- most licences require tenant to reinstate at end of lease
Alterations - How would you deal with an application for consent for alterations?
- read the lease
- Real Estate Management (2016) respond within 5-days best practice
- landlord approval?
- ask for full set of plans and specification
- obtain undertaking of fees
- reinstatement required?
- financial bond required?
- planning consent and building regulations approval?
- Equality Act 2010 / CDM 2015 compliance?
- RAMS - risk assessment and method statement
- public liability insurance in-place?
- provide report to client and obtain instructions
- instruct client lawyer to prepare LTA
- inspect work to ensure they are as agreed
Alterations - If a lease prohibts improvements, what can tenants do?
Landlord and Tenant Act 1927
Section 19 Notice
- if lease prohibits improvements, 1927 act contain provisio that such works cannot be unreasonably witheld
- if Section 19 followed, Landlord may have to pay compensation for alterations that may constitute as improvements
Dilapidations - How do you deal with dilapidations?
- read the lease
- check lease terms to define repairing obligations
- check if any LTA was granted
- tenant typically required to return building to original state
Dilapidations - What are the tenants choices when it comes to dilapidations?
- undertake works themselves, or
- tenant pay settlement to landlord
breach + loss + evidence = recovery
Dilapidations - 3 forms of schedules?
Interim - served with at least 3 years remaining
Terminal - last 3 years of lease
Final - at or after lease expiry
Dilapidations - What is the format of a dilapidation schedule?
- outline repair obligations
- state the remedy and cost of breach
- loss of rent, if appropriate, over period to do the works
- Fees + VAT for claim for surveyors/lawyers
- Negotiations conducted without prejudice until settlement reached
- if agreement not reached, surveyor must prepare a Scott schedule for the Court/ADR, setting out a summary of the landlirds/tenants position
Dilapidations - What guidance is there on dilapidations?
RICS Professional Standard Dilapidations (2016)
- aims to reduce claims between landlords and tenants
- guidance on diminuation valuations
- interim and final claims guidance
- requires both parties to agree to timescales
- parties expect to make genuine endeavours to settle
- quantified demand is the complete statement of costs sought in damages
Dilapidations - What is a Section 18 Valuation (1927 Act)
Section 18 valuation (Landlord & Tenant Act 1927)
→ Limiting or defining the amount of damages that a landlord is able to recover for a breach of the tenants repairing covenant
- Intention to Redevelop:
- Dimunation in value e.g. if repairs are £100,000, but the property value has only reduced by £50,000. Tenant is only liable for £50,000
Dilapidations - What are reasons settlement is not agreed?
- lease not on FRI
- reinstatement not required
- schedule of condition limits repairing liability
- if building is to be demolished
- use of diminution in value cap
- tenant in adminstration
Insurance - Who is responsible for insurance?
Typically landlord to arrange and re-charge tenant
Insurance - What types of insurance typically required?
building insurance, public liability insurance, and professional indemnity insuranc
+ VAT
Insurance - what measurement is used for building reinstatement valuation
GIA
Insurance - What law relates to insurance?
Insurance Act 2016
Insurance - What is insurance premium tax?
tax levied on premiums?
Insurance - How do you deal with insurance?
RICS members must comply with relevant regulations such as the Financial Conduct Authority (FCA) in the UK if they are involved in selling or recommending insurance products beyond property-related advisory.
Empty Buildings - What would you do if a building was empty?
- inform insurers
- vacant property inspections
- H&S and FRA risk assessment
- Seal letterbox to stop fly-tipping
- Planned maintenance programme
- Frost controls
- Boiler maintenance
- Maintain asbestos register
- Emergency light testing
- fire alarm testing
if squatters - inform bailiffs/police
Rent Collection - What are the fundamental principles of rent collection?
- accuracy
- timing
Rent Collection - When is rent paid?
Typically quarter days but read the lease
Rent Collection - When are Quarter days
25 March
24 June
29 September
25 December
Rent Collection - When do you charge interest on late payments
Typically state in lease timframe and interest due
typically say 2-4% above base rate of bank
Rent Collection - Do you charge VAT on rent?
- read the lease
- is property VAT elected
Rent Collection - Do you charge VAT on service charge?
- yes but read the lease
- is property VAT elected?
Rent Collection - What method do you use to collect rent?
- direct debit - receipt sets up
- standing order - the payer sets up
Rent Collection - What system do you have in place to ensure rent is only demanded where necessary
Monthly demand reports, check demand and authorise
Rent Collection - What happens if you accept rent from tenant whos lease is outside 1954 Act?
Could create new protected tenancy, security of tenure
Rent Arrears - What are warning signs of potential rent arrears?
- bounced cheques
- persistent late payments
- arrival of post-dated cheques
Rent Arrears - Talk me through how you would deal with a tenant in arrears?
- Read the lease to familiarise myself with tenants’ obligations, and any grace period.
- Arrange meeting with tenant (on-site if possible) to understand reasons for non-payment. Guage how well tenant is trading! Important to advise client on this.
- Speak to client and discuss reasons.
Rent Arrears - What do you do if a tenant becomes insolvent?
- Read the lease
- Check rent deposit
- Guarantors to pursue
- Contact administrators, submit claim for arrears (proof of debt form)
- Secure property
- Inform insurers
- Cannot take keys unless its for H&S purposes, confirmed in writing.
Rent Arrears - How would you check if there was a rent deposit?
- read the lease
- check rent deposit deed
- seperate rent deposit account with their name on it
rent deposits typically require tenant to top up after drawig down
Rent Arrears - How should rent demands be submitted?
- In-line with lease
- Timely manner
- Relevant taxation
Rent Arrears - What would you do to recover arrears if tenant wasnt trading?
- not serve CRAR
- visit site to confirm
- engage with tenant
- advise client
- potentially forfeit lease
Rent Arrears - When can you charge interest?
Read the lease
Typically 7-14 days after rent payment date 2-4% above Bank Base Rate
Rent Arrears - how would you recover service charge arrears?
tenant meeting
check rent deposit deed
Letter before action
CCJ - Count Court Judgement - apply to County Court with proof of service charge debt. The judgement will lead to the tenant paying the sums due
Rent Arrears - What are the remedies for rent default?
- Negotiate payment plan
- Rent deposit
- Pursue former tenants and AGA’s
- CRAR
- Letter before action
- Court Proceedings (CCJ)
- Statuatory Demand
- Forfeiture
Rent Arrears - What would you do before recommended payment plan?
- Consider tenants covenant strength before
- Check tenant accounts (management and audited)
- Audited accounts may be outdated (accounts submitted 9 months after year end).
- Management accounts much clearer view on monthly/quarterly basis (need to be requested as not publicly available).
Rent Arrears - When could you use a rent deposit?
- Read the lease
- Check Rent Deposit Deed
- withdraw money owed to settle arrears
Rent Arrears - How would you pursue former tenants / guarantors?
- check to see if AGA in place
- check if lease is dated pre-January 1996
- Serve Section 17 Notice of Landlord and Tenant (Covenants) Act 1995 to recover money from assignor within 6 months of rent default
Rent Arrears -How would you check to see if there is a guarantor?
- Check the lease
- Side agreement maybe
- Request from tenant
Rent Arrears - How would you serve a Statuatory Demand?
- first step in commencing bankruptcy for individuals or winding-up proceedings for companies
- put pressure on tenant to pay arrears
- advisable only when no dispute regarding amount of arrears
- statuatory demand is served
- tenant has 21 days to pay arrears
- after this period, if not paid, the landlord can present bankruptcy or winding-up petition to the court
- Over £750 for companies
- Over £5,000 for individuals
Rent Arrears - How would you commence Court Proceedings (CCJ)?
- send letter before action
- typically provides 14 days to settle debt
- no response then submit online claim form (name, adress, debt owed, date etc)
- once filed, county court will issue claim to debtor
- tenant has 14 days to dispute or pay
- if tenant does not pay, the court will issue a CCJ to tenant, requiring payment.
- if still no payment, can send baillifs or obtain a charging order against the property.
- ## slow process and costly
- useful if tenant is still solvent
- even when court judgement is achieved, landlords often have to take legal steps to enforce judgement
Rent Arrears - How would you commence CRAR?
- no minimum amount of arrears
- can be used for rent demand + VAT and interest payable, not service charge
- commercial only
- minimum 7 days unpaid rent
- appoint enforcement agent to serve Notice of Enforcement
- minimum 7 days clear days warning notice
- enforcement agent visits
- re-entry by enforcement agent to seize goods
- allow 7 clear days before salee of goods. Goods must be valued
- fees must be specified on the entry notice
Can request court order to shorten 7 day response period if attempted CRAR before and Tenant locks store
Rent Arrears - What is the enforcement agent permitted to seize?
- Stock, unless essential for business operation
- Have to belong to tenant (cannot be financed, e.g. car on Hire Purchase)
Rent Arrears - How would you commence Lease Forfeiture for rent arrears?
- Bring to clients attention
- Review lease
- Look at grace periods (typically 7-21 days)
- Make sure not to waive rights (doctrine of waiver)
- Must contain forfeiture clause – allows landlord to enter premise
Either:
peaceable re-entry or,
court proceedings (submit claim to court) - court issue posession order - Consider if tenant applies for relief (usually available if tenant applies promptly and pays arrears) – generally expected to apply within 6 months
- Relief = reinstatement of lease if pays
- Court decides whether to grant possession
Rent Arrears - What is tenant relief from forfeiture?
- Tenant can apply to court for relief
- If granted, lease will be re-instated
- For non-payment of rent apply for relief up until point of possession order
- This allows tenant to pay arrears to reinstate the lease
- For other breaches: within 6 months of forfeiture
Rent Arrears - How would you pursue a subtenant for arrears to the head tenant?
Section 6 of Law of Distraint Act, 1908
- if headtenant defaults, LL can pursue subtenant for arrears
- allows landlord to service notice to subtenant to ensure any arrears due from tenant can be received by superior landlord
Rent Arrears - How would you pursue an AGA for arrears?
Section 17 of Landlord and Tenant (Covenants) Act 1995
- serve s.17 notice on any former tenant and guarantors within 6 months of the start of arrears
Rent Arrears - If there is a guarantor on lease, and permitted to pursue, and arrears are paid off, what does it entitle that guarantor to do?
Right to take overriding lease of that property
Restructuring Leases - What is lease engineering / regearing?
- grantinga longer lease in return for a lower rent / rent free period
- Agreeing to a Company Voluntary Arrangement (CVA) or pre-pack administration with a tenant
- Agree to monthly payment of rent
- Insertion or removal of break clauses sibject to the payment of premium
done to retain value / tenants
Repairs - what is the definition of repair?
- liability cannot arise in absence of repair
- repair is distinct from renewal - a tenant cannot be expected to hand back a wholly different premise
- Tenants may be responsible for inherent defects
- Repair is not an improvement
- An effective FRI lease is when the landlord is responsible for repairs and recharge via service charge
Repairs - What is Public Liability Insurance? (Licence to Alter, Hinckley)
- Insurance for injuries or property damage suffered by 3rd parties, e.g. visitors
- e.g. visitor slips or neighbouring tenant property is damaged.
- Not a legal requirement but recommended by RICS
Repairs - What type of repair obligations are found in leases?
- FRI – fully repairing and insuring (internal and external repairs)
- IRI – internal repairing and insuring (internal repairs)
Effective FRI?
Repairs - What remedies are available for a breach of repairs?
- Serve repair notice
- Forfeit lease (s.146)
- Interim schedule of dilapidations
- Do works and re-charge tenant (Jervis v Harris)
Repairs - Talk me through serving a repair notice?
- A notice to repair served under Section 146 of the Law of Property Act 1925 may be served by landlord during the lease, subject to terms of the repair works required by the lease
- usually served to remedy one specific issue
- notice must be in writing
- must include details of breach
- must include timescales allowed to remedy
- must include course of action should fail to remedy breach
Repairs - Talk me through serving a forfeiture notice?
- must be a forfeiture clause in lease
- have to serve section 146 notice
- should state why tenant is in breach and outline what must be done to remedy breach
- must allow tenant reasonable timeframe to remedy
Repairs - What does a Section 146 Notice include?
- Details of breach
- Demand tenant must remedy breach
- Tenant must be given reasonable time to remedy
- Specify time frame
- Peaceable re-entry not appropriate other than rent
Repairs - Talk me through serving an interim schedule of dilapidations?
- instruct a building surveyor to prepare a draft or formal schedule to serve upon tenant
Repairs - Talk me through how the landlord could undertake the works themself?
- leading case is Jervis v Harris (1996)
- landlord can undertake works and re-charge the tenant
- landlord must be re-imbursed for works
- ensure premises are kepy in state of good repair
Jervis v Harris clause should be used when:
- tenant is solvent
- landlord wants lease and rent to continue
- landlord wants to retain control and carry out repair works
- the threat of entry may compel the tenant to do the works
Repairs - What is the Repairs Act 1938?
- this act applies to leases granted for 7 years or more, and at least 3 years until lease expiry
- aims to protect tenants against onerous interim schedules of dilapidations
- the act requires landlord to serve a s.146 notice on the tenant
- the court is only to permit enforcement of repairing covenant if landlord can prove one of following:
1. immediate remedy is necessary to prevent substantial diminution in property’s reversion value
2. Immediate remedy is neccesary to comply with current legislation
3.If tenant does not occupy whole premise, immediate remedy is required in interest of other occupier
4. the breach is capable of immediate remedy at a relatively small cost
Planned Maintenance Programme - What type of planned maintenance programmes are there?
Cyclical - regular repair works carried out irrespective of condition e.g. redecoration
Prevantative - depedant on condition survey, forecast future repair needs e.g. replacement of double glazing
Responsive - intated by building occupier typically e.g. repairing leak
Schedules of Condition - What are schedules of condition?
- agreed prior to commencement of lease
- limit tenant repairing obligations in respect of agreed items of disrepair for the duration of the lease
- reinstatement limited to terms of schedule of condition
- must include photographs and plans
Service Charge - Talk me through the typical arrangements of a service charge?
- SC Budget issued at least 1 month prior to SC year commencement, agreed with tenant
- Quarter Billings typically
- Service Charge reconciliation occur annually
- Annual Statement issued within at least 4 months after SC year end
- balancing payment at end of year upon presentation of audited accounts
- use of sweeping up clause for unexpected costs
- service charge caps are increasingly common
- payments usually reserved as rent in the lease
Service Charge - Where are service charge monies held?
- Separate service charge account
Service Charge - When reviewing the service charge budget, what clauses did you pay attention to?
- Any service charge caps, or
- Service charge caps related to RPI-linked increases, or
- Any omitting clauses
Service Charge - What is the audited expenditure?
- Reviewed service charge expenditure for previous year
Service Charge - What budget variations did you note for Salisbury? (Service Charge Budget, Salisbury)
- Reactive works
- Utilities
- Additional cleaning
Service Charge - How did you apportion the costs? (Service Charge Budget, Salisbury)
Sq Ft Basis (Percentage)
In accordance with Service Charges in Commercial Property (2018)
Service Charge - What was the budget for the centre? How much did it increase by? (Service Charge Budget, Salisbury)
- £350,000 - £4.50 psf
- (increased by £20,000)
Service Charge - How do you calculate property management fee and service charge fees?
- Fixed fee relating to the work that goes into the management (person hours taken)
- Typically use timesheets to estimate work
Service Charge - Why shouldn’t you use % of service charge expenditure fee for service charge management fee?
- Because the property manager would be incentivised to increase the budget.
- Fixed price basis!! Subject to annual review / indexation.
- However, leases always override!
Service Charge - Should you include caps in the budget pack?
- No, I would not disclose private tenant information
Service Charge - What service charge provisions are in leases?
- Caps on service charge contributions
- RPI linked service charge cap
Service Charge - What guidance is there on Service Charges?
Service Charges in Commercial Property (2018) - Professional Statement
Service Charge - What are the aims of Service Charges in Commercial Property (2018)
- improve genera standards
- ensure timeline issue of budgets and year-end certificate
- reduce disputes and provide guidance on resolution
Service Charge - What are some limitations of the Service charges in commercial property (2018) Professional Standard?
Existing lease terms → cannot override lease (lease always prevails over Professional Standard)
Not Binding on Non-RICS Firms
Service Charge - What do the appendices of the Service charges in
commercial property (2018) Professional Standard provide?
A) Compliance checklist (e.g. apportionments, value for money (competative tender), management fees
B) Standard Industry Cost Classifications
C) SC sample report
D) SC handover procedures, including:
the reconciliation of any outstanding closed service charge years
the handover of any credit balance on the service charge account
the recovery of any shortfall or arrears, including specifically which party (buyer or seller)
can pursue the arrears and how and
the supply to the buyer or its managing agent of adequate records and information to provide continuity in the management and administration of the service charge arrangement for the current service charge year
Service Charge - How does ADR relate to SC under the Service Charges in
Commercial Property (2018) Professional Standard
ADR is supported and recommended as the basis to resolve service charge disputes
Lease makes provision for ADR
ADR is proactively pursued
Service Charge - Tell me about apportionment under Service charges in commercial property (2018) Professional Standard
Costs should be allocated to the relevant expenditure category. Where reasonable and appropriate, costs should be allocated to separate schedules and the costs apportioned to those who benefit from those services.
The basis and method of apportionment should be demonstrably fair and reasonable
to ensure that individual occupiers bear an appropriate proportion of the total service
charge expenditure that clearly reflects the availability, benefit and use of services.
Service Charge - How do you classify costs when setting a service charge budget?
The Industry Standard Cost Classifications should be used in reporting budget and actual expenditure, in Appendix B
Service Charge - Tell me about the right to challenge under Service charges in
commercial property (2018) Professional Standard
All new leases (including renewals) should make provision for either party to require the resolution of disagreements through alternative dispute resolution (ADR) as a costeffective alternative to court action.
If the parties cannot agree a mediator, or an independent expert to determine the dispute, the President of RICS should (on request) nominate a suitable person.
Where leases do not allow for ADR, parties are reminded that there is nothing to stop them agreeing to use ADR to resolve a dispute.
Service Charge - What steps do you take to ensure that service charge documents are distributed in accordance with the Service Charges in Commercial Property (2018) guidelines?
To comply with the Service Charges in Commercial Property (2018) guidelines, I ensure that tenant certificates and booklets are clear, transparent, and provided promptly.
I work with the client accountant to ensure the tenant certificates are accurate and contain a detailed breakdown of service charge expenditure.
I also ensure that the documents explain any variances from the budget.
These documents are distributed in a timely manner and made available for tenants to review within the recommended periods set out in the guidelines.
Service Charge - How do you deal with tenant queries or disputes regarding the service charge reconciliation?
When a tenant raises a query or dispute regarding the service charge reconciliation, I first review the tenant’s concerns and revisit the relevant cost codes and supporting documentation.
I provide the tenant with a detailed breakdown of the disputed charge and explain how it was calculated.
If the tenant is still not satisfied, I may arrange a meeting to discuss the matter in person and, if necessary, escalate the issue to the landlord or seek independent advice, all while maintaining open communication with the tenant.
Service Charge - What methods of service charge apportionment are there?
- Floora Area
- Fixed Percentage
- Rateable Value
- Weighted floor area (e.g. department store)
Service Charge - How do you ensure openness and transparency when preparing service charges?
- Provide tenants with regular statements, budgets, reconciliations
- No Profit Principle (no profit from service charge items)
- Fair apportionment
- Independant Certification (certified by qualified accountant)
- Contract Transparency
- ADR (Mediation / Expert Determination)
- Detailed record keeping
Service Charge - How did you ensure invoices were appropriately cost coded?
- Paid regard to Appendix B of Service Charges in Commercial Property (2018)
- Ensured all cost codes were
Service Charge - How would you handover a service charge?
Refer to Service Charges in Commercial Property (2018)
Service Charge - Why do you benchmark a service charge?
- ensures operational performance standards are checked against an industry-used index, to ensure best practice
- Global Estate Measurement Code for Occupiers (MSCI)
Service Charge - What are accruals?
recognizing service charge expenses that have been incurred but not yet invoiced or paid by the end of a financial period.
Accruals are typically recorded in the property’s service charge accounts to ensure that costs are properly matched with the period in which they were incurred, even if the actual payment or invoice happens later.
Service Charge - What are prepayments?
Prepayments are amounts paid by tenants before the actual service or expense is incurred. E.g. paying service charge payments quarterly in advance.
Service Charge - What was included in the tenant certificate and tenant booklet?
Apportionment report, variance report and balancing charge/credit invoice/credit note
Service Charge - When should service charge reconciliations be distributed?
No later than 4-months after service charge year end, in line with Service Charges in Commercial Property (2018)
Sinking Funds / Reserve Funds - Can you explain the difference?
Sinking Fund: Planned, long-term projects or repairs (e.g., replacing a roof or lift).
Reserve Fund: Unplanned, immediate or short-term expenses (e.g., emergency repairs).
both accounted for in service charge budget
Sinking Funds / Reserve Funds - What guidance is there?
RICS Information Paper - Sinking Funds and Reserve Funds (2014)
User Clause - Type types of user clause
Planning Use
Specific Use
User Clause - How would you change the use?
typically require landlord consent not to be unreasonably witheld
- restrictive user clause can depress market rent e.g. restriction on hours of working for offices
Insolvency - What are the forms of insolvency?
Administration
Receivership
Company Voluntary Arrangement (CVA)
Insolvency - What is Adminstration?
- administrator appointed by creditors (Enterprise Act 2002) to rescuse insolvent company
- most common rescue route
- processed commenced by company, lendors or creditors
- purpose is to provide a period of protection whilst administrator attempts to rescue company
- protection is called moratorium - restricts actions to be taken
- administrators must send proposals to creditors within 8 weeks and with their agreement, will implement a strategy. Most commonly:
1. pre-pack businesss sale
2. administration trading
3. close down and wind up - while a tenant is in administration the options to landlord are limited due to the moratorium.
- if rent is still being paid, an equivalent amoutnt can be claimed from the administrator
- the administrator may seek landlord consent to assign the lease.
- Severity: Moderate to High
- Company is insolvent, but administrator aims to rescue company
- Aims to achieve better returns for creditors than liquidation
- Provide protections from creditors
Insolvency - What is Receivership?
The Receiver takes control of the company and realise its asets, often by selling the business as a going concern with a view to repaying the lender
- Severity: High
- A secured creditor appoints a receiver to recover debts
- Focus on paying creditor rather than saving company
- Doesn’t necessarily lead to full liquidation
Insolvency - What is a Company Voluntary Arrangement (CVA)?
- contract between a company and its creditors appropriate for when a company is insolvent, but the directors beleive it has a viable future, with financal restructuring
- the arrangement will be binding on all creditors if it is approved by at least 75% of the creditors having regard to their value of debt
- Severity: Moderate
- Company continues trading while repaying debt by agreement to creditors
- Company is insolvent but has chance to recover over time
- Technically like a payment plan
Insolvency - What is pre-pack administration?
- allows directors of a company to buy out and retain elements of the business which are trading well and placing the remainder of the company into administration
Insolvency - What to do if a tenant becomes insolvent?
- tell your client
- consider taking legal action before a moratorium is in place
- read the lease, check rent deposit/guarantor’s
- make early contact with administrator/receiver
- inform insurers
- submit a claim of arrears (proof of debt)
- consider schedule of dilapidations
ADR - What is ADR and what are the different forms?
Mediation
Conciliation
Arbitration
Expert Determination
ADR - What is Mediation?
Parties wanting to negotiate settlement of issue
Instruct mediator to engage in meaningful dialogue
If cannot agree on mediator, RICS can appoint
Cost effective and flexible
ADR - What is Conciliation?
Very similar to mediation but conciliator plays more active role in suggesting solutions
ADR - What is Arbitration?
Parties agree to appoint arbitrator
Expert in field
Parties put forward case, arbitrator decides on best case
Arbitrator’s decision (award) is legally binding and final
ADR - What is Expert Determination?
Used when the issue is a technical issue not legal
Decision can be binding or non-binding
Expert doesn’t have to refer back to parties before making decision, making it quicker and more cost effective
CHP - How would you deal with disputes between occupiers?
- Written policies in place for handling disputes between occupiers
- Procedures adopted should be made available and their existence made known, including response times.
- Tenants have right of quiet enjoyment
- Enforce conditions of occupancy if under your remit
- If not under your control, advise tenant to speak to local authority
CHP - How would you deal with a complaint about you?
Complaint Handling Procedure (CHP) – Complaints Handling (2016) Guidance Note
Refer complainant to form Complaints Handling Procedure (CHP)
CHP should be in writing, and should explain how to complain to your company
Whenever Terms of Engagement issued, complaints should be made clear (CHP)!
- Stage 1:
Complaint made to Director
Acknowledging Complaint
Formal complaint to be made in writing
Acknowledge within 7-working days
Investigating Complaint
Provide formal response within 28 days - Stage 2:
If unable to resolve complaint, opportunity to take complaint to independent redress providers, approved by RICS Board (RICS Dispute Resolution Service). - Keep records of complaints
AML - How do you safeguard money against money laundering?
Countering Bribery, Corruption, Money Laundering and Terrorist Financing (2019)
Money Laundering: concealing origin of proceeds of crime by cleaning money
Key provisions
Requirements to have an AML and financial risk assessment
Maintain internal procedures to identify and prevent laundering
Providing staff training
Comply with new customer, enhance and simplified DD requirements
Comply with PEP requirements
Record keeping, policies and procedures – keep for 5 years
AML checks for source of wealth before exchange
Additional high-risk factors for enhanced due diligence
Report strange transactions to serious organised crime agency (SOCA).
AML - What AML checks are there?
Customer Due Diligence (CDD)
Identify client and identity
Identify beneficial owners
Company name, numbers, address
Name of directors
Details of business relationships
Enhanced Due Diligence (EDD)
High risk country / PEP
PEP is higher risk to corruption
More detailed on source of wealth
More detail on why?
Simplified Due Diligence (SDD)
Transaction where there is a low risk of money laundering or terrorist financing
Not appropriate for checking parties to a property transaction
AML - What are AML Red Flags?
- Inability to provide documents
- Change to involved parties
- Unusual features e.g. urgency or loss making
- Unusual currency
AML - What are the penalties for money laundering or failing to prevent it?
- Serious Money Laundering:
14 years imprisonment / unlimited fine
Breaching Proceeds of Crime Act 2002 - Tipping off
Involves informing induvial / organisation that they are under investigation or Suspicious Activity Report (SAR) has been filed against them.
Tipping-off compromises an AML investigation, and under POCA, this can lead to:
5 years / unlimited fine
Tendering - How often would you re-tender service charge contracts?
- recomended every 3/5 years
- if deemed no longer competative
- subject to contract terms
Utilities - Talk me through how utilities are paid for?
?
Service Charge Reconciliation, Birmingham - How much over budget were you? What was the budget? What was the service charge psf?
£53,000 budget
£60,000 actual
£7,000 over budget
circa £7 psf
Service Charge Reconciliation, Birmingham - How many schedules were there?
2 schedules
Whole building
2nd Floor (added utilities for common areas)
Service Charge - What queries did you respond to from the auditors? (Service Charge Rec, Birmingham)
- Explanations for variances (roof leaks – external repairs and maintenance)
- Support expenditure documentation
Service Charge Reconciliation, Birmingham - Why were you over budget?
- Unforeseen roof repairs required
- Variance of £10k over budget
Service Charge Reconciliation, Birmingham - What accruals did you make?
Accruals for roof works.
Works had been complete but invoice not yet received
Ensures expense recorded in correct accounting period
Service Charge Reconciliation, Birmingham - How did you ensure invoices were correctly cost coded?
- ensure numbered correctly
- paid respect to cost classifications in appendix B of Service Charges in Commercial Property (2018)
Service Charge Reconciliation, Birmingham - What questions were raised regarding expenditure?
- reasons for differences in budgetted v actual
- proof of tendering
- quotations
Service Charge Reconciliation, Birmingham - How long after service charge year end should reconciliation be issued?
4-months maximum
APAM aims for 3-month benchmark
tracks internally
CRAR, Trowbridge - Talk me through this example
- Shopping Centre
- Monthly calls with credit controller to assess arrears
- Rent was not paid on quarter date
- Client advised to provide tenant with 30-days grace
- Rent arrears remained taking enforcement action (CRAR)
Service Charge, Salisbury - When should the budget be issued?
1 month before the service charge start date
Service Charge, Salisbury - Were their any omitting clauses?
?
Service Charge, Salisbury - How many schedules were there?
only 1 schedule, but two seperate budgets
- Commercial
£4.50 psf
£360,000 pa
80,000 sq ft.
March Year End - Market walk
£2.16 psf
£30,000
15,000 sq ft
December Year End
Service Charge, Salisbury - What was the previous budget and what was the increase?
previous £340k
circa 12% increase
current £360k
Service Charge, Salisbury - How often should you retender?
3-5 years check?
To ensure competative pricing
Service Charge, Salisbury - What impact did the new budget have on landlord shortfalls?
Shortfall was circa £10,000
(2 Vacant Units)
Service Charge, Salisbury - What was included in the budget commentary pack?
?
Service Charge, Salisbury - Why is there 2 seperate budgets?
?
Licence to Alter, Hinckley - What is CDM 2015?
Construction and Design Management Regulations (2015)
Ensure health and safety risks are properly managed during construction phase
Principle Designer – appointed by client
Principle Contractor – appointed by client
Designer
Contractor
Workers
Licence to Alter, Hinckley - How did removing a kitchen constitute as structural?
As the tenant plans included the part-removal of a load-bearing wall
Licence to Alter, Hinckley - What did the lease say about structural alterations?
There was a qualified covenant, meaning landlord consent was required but was not to be unreasonably witheld or delayed.
This was to protect the structural nature of the premise.
Licence to Alter, Hinckley - Why did you advise the client to remove the kitchen? (Licence to Alter, Hinckley)
- The configuration of the unit was compromised by the kitchens poor layout, removing the kitchen inherently increased the usable space and therefore, marketability
- There was a communal kitchen provided already.
- The client wanted to retain the tenant relationship.
- A schedule of condition was provided, should the client want the tenant to reinstate the premise.
Licence to Alter, Hinckley - Why did you appoint a building surveyor and structural engineer? (Licence to Alter, Hinckley)
- The structural engineer was needed to create a structural integrity report, following the removal of a load-bearing wall
- The building surveyor was necessary to ensure the works carried out were CDM 2015 compliance.
Licence to Alter, Hinckley - What is a RAMS? (Licence to Alter, Hinckley)
- Risk Assessment and Method Statement
- Identify risks and circumvent them
- Help guide works in-line with Health and Safety at Work Act 1974
typically authorised by FM with appropriate H&S qualifications such as NEBOSH / IOSH
Licence to Alter, Hinckley - What is Public Liability Insurance? (Licence to Alter, Hinckley)
- Insurance for injuries or property damage suffered by 3rd parties, e.g. visitors
e.g. visitor slips or neighbouring tenant property is damaged.
Not a legal requirement but recommended by RICS
