Property Management - SOE Flashcards
How is the fee for managed properties agreed?
Agreed in PMA, usually fixed fee subject to RPI increase.
What options are available for dealing with non-payment of rent?
- Speak to the tenant to establish the issue.
- Notify the client.
- Negotiate a payment plan.
- Use rent deposit.
- Pursue AGA / previous tenant.
- CRARS.
- Court proceedings.
- Serve a statutory demand.
- Forfeiture.
- Any other mutually agreeable arrangement.
Is CRAR available if the tenant is occupying on a License?
No.
What are typical headings in an office budget?
Management fees, accounting fees (audit fees at YE), utilities (gas, electricity, water), soft services (security, FoH, cleaning), hard services (m&e fees, redecoration, lift fees), and any major project works.
What are the common methods of apportionment for service charges?
Floor Area basis, weighted floor area, percentage, or RV.
When should a service charge be reconciled according to RICS guidance?
After 4 months.
What does the lease say regarding RICS compliance?
The landlord may be in breach if RICS is not followed.
What are the consequences of delays in reconciliations?
Tenant can complain to RICS of persistent delays.
What alterations were noted at The Moorewood Centre?
Installing EV Chargers. Fee was £950 + VAT. Alterations required specialist sign off.
What is the difference between sub-letting and assignment?
Assignment transfers legal interest to the new tenant, forming a new relationship with the landlord; sub-letting forms a relationship between the sub-tenant and the original tenant, while the original tenant and landlord retain their relationship.
What are remedies for breach of repairing obligations?
Serve S146 under Law of Property Act 1925 if there is a forfeiture clause.
How long does a tenant have to comply with a S25 notice?
Depends on the notice, but usually 6 months.
What is the remedy for non-payment of rent if there is a forfeiture provision?
Usually a 21-day timeframe. The landlord can enter peacefully, change locks, and put a notice of forfeiture on the door.
What is the benefit of bringing in a PPM?
Better to work on a proactive rather than reactive basis.
What is included within a PPM?
Lift checks, M&E kit checks, repairs, roof checks.
Are PPMs service charge recoverable?
Yes, as long as no improvements are being made.
Do PPMs inflate the service charge budget?
No, they are planned over a 10-year period, so only the next year is included in the budget.
What are the key principles of the RICS Professional Statement on service charges?
Introduced 9 mandatory principles, including recovery as per lease terms and no more than 100% expenditure to be recovered.
How is a service charge calculated/apportioned?
Floor Area, Weighted Floor Area, RV, or percentage.
What is an AGA?
Authorised Guarantee Agreement.
What statute governs consents for Licence to Alter applications?
S1 of LL & T Act 1988, S19 of LL & T Act 1927.
Why was a building surveyor used for the EV Chargers application?
Risky new technology required insurers’ sign off.
How would you justify a management fee increase to a tenant?
Be transparent about services covered, ensure it is good value, benchmark against the market, and refer to lease terms.
What are your core property management duties?
GRA / FRA, Health and Safety, Site Staff Management, Liaison between landlord and tenant.
How do you manage Industrial vs Office properties?
More to manage at Office - bigger, site staff, contractors to manage.
What are common landlord and tenant covenants?
Landlord: Quiet enjoyment, approve applications from tenant within reasonable timescale, insure property. Tenant: Keep property in good condition, obtain consent where required.
What does RICS recommend for service charges in commercial property?
Honesty, best practice, and adherence to 9 mandatory principles.
What does the Workman manual state regarding tendering?
Minimum 3 quotes, SafeContractor accredited, on approved list.
How would you review a tender return?
Aim to meet value for money.
What options can be discussed with a tenant failing to pay rent for one quarter?
Email or phone to establish reason, visit the tenant to check if they are trading, try to arrange a payment plan, use rent deposit/check for guarantors/AGA or pursue former tenant if lease started before 1 Jan 1996.
What is the latest RICS regulation on Service Charge?
RICS Professional Statement – Service Charges in Commercial Property 2018, effective from 1 April 2019.
What are some mandatory requirements under the new service charge code?
All expenditure must be in accordance with lease terms, must seek to recover no more than 100% of actual cost, must ensure SC budgets are issued to tenants, must provide true accounts annually, must include apportionment matrix annually.
Who does the service charge money belong to?
Tenants, but it is kept in the service charge bank account.
How can apportionments within a service charge be calculated?
Four ways: Floor area, Rateable value, Fixed percentage or fixed amount, Weighted floor areas.
What is the most recent key legislation regarding lease assignment?
S1 LL+T Act 1988 – Consent not to be unreasonably delayed; S19 LL & T Act 1927 - consent not to be unreasonably withheld.
Who is responsible for obtaining an EPC for a property?
The landlord, for certification of building energy efficiency.
What new rule came into effect for commercial property with an F or G EPC rating?
Will be unable to let commercial property with an EPC rating lower than E without a legitimate reason.
What health and safety documents should be held for a property?
General Risk Assessment, Fire Risk Assessment, Water Risk Assessment, Asbestos Survey, Gas safe, Electrical fix wire testing.
What is your understanding of a CVA?
A company can enter a CVA if insolvent but believes it can continue to trade, agreeing to pay back a percentage of debt if at least 75% of creditors agree.
What documents guide property Management Principles?
- RICS Professional Statement: Real Estate Management (3rd Edition, 2016)
- RICS guidance Note: Commercial Property Management in England & Wales (2nd Edition, 2011)
What 12 principles are in RICS Professional Statement: Real Estate Management (3rd Edition, 2016)?
- Act in an honest, fair, transparent and professional manner.
- Carry out work with due skill, care and diligence and ensure all staff employed have the necessary skills to carry out their tasks.
- Ensure that clients are provided with terms of business that are fair and clear, with details of the firm’s complaints handling procedure.
- Do the utmost to avoid conflicts of interest and where they do arise, deal with them openly and fairly.
- Not to discriminate unfairly in any dealings.
- All communications with clients are fair, decent, clear, timely, and transparent.
- All advertising and marketing material is honest and truthful.
- Any client money is held separately and is covered by adequate insurance.
- Hold appropriate PII/errors or omissions insurance to ensure a customer does not suffer loss because of a negligent act.
- Make it clear the identity of your client and ensure all parties are clear of your obligations to each party.
- Give realistic assessments of selling prices/rents/financial costs having regard to market evidence and using best professional judgment.
- Ensure all meetings, inspections, and viewings are carried out in accordance with the client’s wishes, having due regard to security and personal safety.
What’s the purpose of RICS Professional Statement: Real Estate Management (3rd Edition, 2016)?
“New professional statement outlines the principles that share the culture of fairness and transparency that underpin the activities by real estate managers.”
What is an alienation clause?
A covenant in a lease determining whether the tenant can alienate the land, that is, whether there is any absolute prohibition or restriction against the tenant charging, assigning, underletting or parting with possession of the demised premises.
-Can be open (allowing alienation), Qualified (subject to some conditions), or absolute (not-allowing sub letting or assingment)
Why would a tenant want to sub-let rather than assign?
- For part of the demise and not the whole
- If the market rent is higher than the passing rent, then there is a profit rent
- If the tenant wants to re-occupy in the future
- The new party is a lesser covenant so assignment not available
What actions are undertaken when dealing with an application for consent to assign or sublet a lease?
- Read the lease.
- Will the tenant give an undertaking for the surveyor’s and legal costs?
- Is the proposed rent the market rent and/or the same as the passing rent?
- What will be the effect on the investment value of the property?
- What do the terms of the lease state regarding the grant of consent for assignment and sub-letting?
- Are there any reasonable grounds for withholding consent?
- What is the strength of covenant of the proposed new tenant? Are there accounts and references to consider?
- Has a rent deposit been agreed? Is there an AGA clause?
- The client will need to be provided with a report setting out the surveyor’s recommendations.
- Obtain the client’s approval to proceed.
- If consent is to be granted, a licence for assignment or sub-letting will be required.
What is the significance of the Landlord and tenant Act 1988?
Landlord & Tenant Act 1988:
- Aim of legislation to ensure that a statutory duty exists on the landlord to deal with consents (e.g. alienation) diligently and not be unreasonably withheld or delayed (i.e. within a reasonable time).
- Failure to do so can result in a successful claim for damages.
What legislation governs assignments of leases?
Landlord & Tenant (Covenants) Act 1995:
- Relates to the assignment of leases.
- Came into force on 1st January 1996 (called ‘new’ leases).
- The Act abolished privity of contract for new leases.
- It gave landlords more scope for setting conditions regarding the approval of an assignee.
- It introduced Authorised Guarantee Agreements (AGAs) for the most recent former tenant only to guarantee the lease obligations of the immediate assignee as a voluntary arrangement to be agreed between the landlord and tenant.
- A Section 17 Notice must be 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.
- There can only be one AGA in place at any time.
- The Code for Leasing Business Premises 2020 states that although AGAs are commonplace expectations by landlords, tenants should seek not to enter into an AGA if, for example, the new tenant is financially strong enough, pays an appropriate rent deposit and/or provides a suitable guarantor.
What is the significance of the Landlord and tenant Act 1927?
- If a lease prohibits improvements being made to a property without the landlords consent, Section 19 of the Act imposes a proviso that such consent cannot be unreasonably withheld
- If the Section 19 procedures have been followed, the landlord may be obliged to pay compensation for alterations that may constitute improvements
What is your understanding of alterations?
Alterations:
-Alterations are carried out by a tenant during the lease.
-They must usually 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 (RTL).
What is your understanding of licenses to Alter?
Licence for Alterations:
- To be completed before the works commence.
- Obtain an undertaking for costs at the commencement of the instruction.
- A Licence for Alterations has two useful functions: to protect the parties at rent review and dilapidations at the end of the lease.
- Most licences require the tenant to reinstate the works at the end of the lease.
What are dilapidations?
Dilapidations:
- Always Read the Lease (RTL)
- These negotiations take place at the lease expiry to bring the property back to its condition at the start of the lease, assuming there is a repairing liability.
- Check the lease terms to understand the repairing responsibilities of both parties and whether there is a schedule of condition.
- Also check to see if any licences for alteration were granted.
- The tenant is usually required to return the building to its original state, or otherwise as stated in the lease.
- Section 146 notice must be served in accordance with the 1925 Law of Property Act.
- Most schedules are served on a draft basis informally first.
- Claim is limited to either the cost of the works or, in accordance with Section 18 of the Landlord and Tenant Act 1927, the diminution in value of the reversionary interest – i.e., the difference in value of the property upon possession had the covenants to repair and decorate not been undertaken.
- If a landlord proposes to demolish or substantially refurbish, the value of the reversion could be nil.
What options does a tenant have in regard to repairs /dilapidations at a lease expiry date?
Two choices before the lease expiry date:
1. Tenant can do the agreed works, or
2. Tenant can pay a sum to the landlord to undertake the works; Breach + Loss + Evidence = Recovery
What types of dilapidation schedules are there?
Three forms of Schedules:
1. Interim Schedule – Served by the landlord or tenant during the lease, with at least 3 years remaining.
2. Terminal Schedule – Served normally in the last 3 years of the lease.
3. Final Schedule – Served at or after the lease expiry/break clause date when the tenant is out of occupation and the landlord wants to agree a claim for damages.
What are the two fundamental principles of rent collection?
Rent Collection - The two fundamental principles of rent collection are:
Accuracy of information
Timing
Outline some key things to bare in mind when collecting rent?
Rent is usually paid quarterly in advance on the usual English, Welsh, and Irish quarter days, which are:
25th March, 24th June, 29th September, and 25th December with the demand sent out in advance.
Scotland’s quarter days are now the 28th of February, May, August, and November (formerly they were 2nd February, 15th May, 1st August, and 11th November).
Remember: this is the client’s money.
Check terms of the lease for timing of payments and interest on arrears (usually at an agreed percentage over the Bank base rate).
Check whether VAT is to be levied.
These points also relate to service charge monies, which are usually reserved as rents in the lease.
The easiest collection method is by bank direct debit, which is usually reserved as rents in the lease.
A standing order arrangement can only take out a previously agreed amount of money from the account.
Client accounting procedures must comply with current RICS regulations.
Check systems in place to avoid circumstances when rent should not be collected – so as to avoid waiving rights of forfeiture.
Be careful about accepting rent from a tenant whose lease has expired and the lease was granted outside the 1954 Act, as this may create a new protected tenancy.
Know the difference between standing orders and direct debits.
What remedies are available for rent default?
Remedies for Rent Default:
- These will be influenced by the level of rent outstanding, the rent payment history, and the current financial position of the tenant. In the event of being unable to secure payment by amicable agreement, the following options may be appropriate to consider:
-Court proceedings
-Use a rent deposit
-Pursue former tenants and guarantors
-Serve a statutory demand
-Commercial rent arrears recovery scheme
-Forfeit the lease
-Negotiate a payment plan
-Agree another mutually acceptable arrangement
What is the timeline for the various conditions when undergoing CRAR for rent defaults?
Timeline for Rent Default Remedies:
- Minimum of 7 days unpaid rent
- Minimum of 7 clear days warning notice
- Enforcement agents visit
- 2 clear days to follow
- Re-entry by enforcement agent to seize goods
- Allow 7 clear days before the sale of goods
- Fees must be specified on the entry notice
What Act governs CRAR procedures?
Tribunals, Courts and Enforcement Act 2007
What do you understand about forfeiture clauses?
- A forfeiture clause in the lease allows the landlord to re-enter the property and gain possession for a breach of the lease (by peaceful re-entry or beginning court action), but procedures must be followed and relief offered to the tenant.
- Special procedures apply for a tenant in administration or receivership.
- There must be a forfeiture clause in the lease.
Rent must have been properly demanded, but in some cases, if rent has been accepted, this could acknowledge the continuance of the tenancy. A demand for rent or acceptance of rent after the breach, with knowledge that the breach has occurred, is the most patent form of waiver, and stop-rent safeguards must be built into rent collection procedures. - The lease is forfeited by the landlord re-entering the property, either by physical peaceable re-entry or by commencing County - Court proceedings to recover possession. The lease is then terminated immediately.
- The tenant has the right of relief from forfeiture from the court within 6 months. The tenant does not have to be warned that the lease is to be forfeited.
- Most leases do have a separate re-entry clause if the rent is unpaid after a certain period, so a formal forfeiture clause does not have to be used.
- If forfeiture is being sought for the breach of other lease terms (rather than non-payment of rent), the landlord is required to serve a - Section 146 Notice of the Law of Property Act 1925, providing details of the breach, how it is to be remedied, and how the landlord is to be compensated.
what is the definition of repair and what case law does it stem from?
Definition of Repair:
- The meaning of repair is found in case law. Key principles which have emerged from cases such as Ravensett Properties v Davstone (Holdings) Ltd (1978) are as follows:
- Liability cannot arise in the absence of repair.
- Repair is distinct from renewal – a tenant cannot be expected to hand back wholly different premises.
- Tenants may be responsible for inherent defects.
- Repair is not an improvement (P. Roberts, E.G. 2007).
- An effective FRI lease is when the landlord is responsible for repairs and recharges via the service charge.
What is the leading case is Jervis v Harris (1996) in respect of the landlord’s right to re-enter the property to undertake the repairs and what does it state?
Landlord’s Entry to Do the Works:
- The leading case is Jervis v Harris (1996) in respect of the landlord’s right to re-enter the property to undertake the repairs, and then claim to recover the cost of doing so from the tenant as a debt. In the event of the tenant not complying with the repairing covenant of their lease, the clause requiring the tenant to reimburse the landlord for the cost of undertaking repairs was a debt and not damages. It was a sum spent by the landlord.
- This case gives the landlord a right to pursue an effective remedy against defaulting tenants, to ensure that the premises are kept in good repair for the duration of the lease term.
A Jervis v Harris Clause Should Be Used in the Following Instances
- When Repairs Are Required:
- When the tenant is solvent.
- Where the landlord wants the lease and rent to continue.
- The landlord wants to retain control to carry out repair works.
- Where the threat of entry may compel the tenant to do the work.
What options are available to landlords to remedy a breach of repair?
Landlords’ Remedies for Breach of Repairs:
There are FOUR main options open to a landlord to consider to deal with a tenant who is not repairing their property:
1) Serve a repair notice
2) Forfeit the lease
3) Serve an interim schedule of dilapidations
4) Do the works and charge the tenant
What is a planned preventative maintenance programme?
Planned Maintenance Programme:
This is a planned maintenance activity supervised by a property manager or building surveyor. It can include three stages:
1) Cyclical maintenance – regular activities that are carried out irrespective of the condition of the building, such as servicing plant, health and safety-related maintenance, and redecoration.
2) Preventative maintenance – dependent on a condition survey prepared by a building surveyor, which forecasts future repair needs and plans the timetable for undertaking work. This could be for the replacement of single-glazed windows with double glazing, upgrading facilities, or services and refurbishment work.
3) Responsive maintenance – this is initiated by the building occupier, such as repairing a leak, unblocking drains, or undertaking some remedial works to the building.
What is a schedule of condition?
Schedules of Condition:
- These limit the tenant’s repairing obligation in respect of agreed items of disrepair for the duration of the lease.
- It is agreed by negotiation between the landlord and tenant prior to the commencement of the lease and attached to the lease.
- Reinstatement at the end of the lease by the tenant will be limited by the terms of the schedule of condition.
- Often used for new lettings where the landlord is not prepared to undertake repairs.
- Must be carefully recorded – often with a supporting photographic record and plans.
What are the usual arrangement for service charges?
The usual arrangements are:
- A service charge budget should be agreed with the tenant prior to the commencement of the service charge year.
- Quarterly billings are based on this estimate.
- Annual accounts are prepared at the year-end.
- Balancing payment is made at the end of the year upon the presentation of audited accounts.
- Use of a sweeping-up clause for unexpected costs.
- Service charge caps are increasingly common in a lease.
- Payments are usually reserved as rent in the lease.
What RICS documents guide service charges? What are the aims of this document?
RICS professional statement: Service Charges in Commercial Property (2018)
- This came into effect on 1st April 2019.
- The aims and objectives of this Professional Statement are to:
- Improve general standards and promote best practice, uniformity, fairness, and transparency in the management and administration of service charges in commercial property.
- Ensure 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 (RICS, 2018).
What are the 9 principles included in RICS professional statement: Service Charges in Commercial Property (2018)?
RICS Service Charge Principles (2018)
Professionals involved in the management of service charge accounts must act in accordance with the following 9 principles:
1) All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
2) Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services.
3) Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants.
4) Owners and managers must ensure that an approved set of service charge accounts showing a true and accurate record of the actual expenditure constituting the service charge are provided annually to all tenants.
5) Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all tenants.
6) Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
7) Interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made.
8) Where acting on behalf of a tenant, practitioners must advise their clients that if a dispute exists, any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
9) When acting on behalf of a landlord, practitioners must advise their clients that following resolution of a dispute, any service charge that has been raised incorrectly should be adjusted to reflect the error without undue delay (RICS, 2018).
