Property Management - Summary of Experience Flashcards
What is an assignment?
The tenant transfers the legal interest in the lease to another tenant - The incoming tenant takes over all lease obligations
What is a sub-letting?
New party leases the property from the current tenant rather than landlord - Old tenant maintains relationship with the landlord
What is the difference between an assignment and a sub-letting?
Assignment = old tenant no longer liable to landlord
Sublet = old tenant still has legal obligation to landlord but just has another relationship with sub-tenant
Why would you sublet instead of assign?
- May want to reoccupy in future
- Not allowed to assign under lease
- New party lower covenant strength
Why would you assign rather than sublet?
- No plans to occupy in the future
- Rent too high for you
- No longer need unit
What asset classes have you managed?
- Retail
- Industrial
- Office
Can you tell me about the RICS guidance note Commercial Property Management 2011?
Give guidance on:
- Acting as an agent of the landlord
- Managing third party suppliers
- Duty of care
- Tenant management
- Building management
- Financial management
How do you manage/balance expectations from landlord and tenants?
- Clear communication
- Set realistic expectations
- Ensure timely maintenance/repair
- Act as a mediator to disputes
Can you talk me through the CRAR process?
1) Assessing rent is overdue
2) Notice of enforcement - 7 days to pay
3) Enforcement agent instructed to take control of goods
4) Controlled goods agreement - retain possession of goods while paying off arrears
6) Sale of goods at auction if arrears remain unpaid
When would the CRAR process not be an acceptable option?
For anything other than rental arrears and for rent that is shorter than 7 days outstanding
What is a typical alienation clause?
Permit to assign/sub-let whole but not part, with landlord consent not to be unreasonably delayed
What is a statutory demand?
a formal written notice or demand for payment of a debt served by a creditor
- This will state that if debt is not paid within 21 days, creditor can apply for bankruptcy
Can you tell me about a few different clauses within lease agreements?
- Option to determine
- Rent review
- Rent
- Service charge
What is a management fee?
Fee charged by the property manager that is included within the service charge budget. Not calculated on % basis
What is a service charge cap and how are they calculated?
A limit set on the amount that landlords can charge tenants for maintenance and services in a property
- Usually calculated based on RPI but also CPI
What is obligatory/mandatory under service charges in commercial property?
- All expenditure sought must be in accordance with lease terms
- SC budget/recs must be issued annually with explanatory comments
- Must ensure SC apportionment matrix sent annually
- SC monies must be held in one or more discrete bank accounts
What is a 7 day letter?
Stating that CRAR action will be commenced and goods seized if the tenant doesn’t pay within 7 days
What should PM do when they receive an application to assign or sub-let?
1) Review lease
2) Request undertaking of surveyor and legal costs
3) Check if proposed market rent is same as passing
4) Check effect on investment value of prop
5) Check if incoming tenant will pay rent deposit
6) Provide recommendation to client (approval)
7) Documented by solicitors
What is the aim of the Landlord and Tenant Act 1988?
S1 - States consent must be provided within a reasonable timeframe
What is the aim of the Landlord and Tenant Act 1927?
S19 - Consent not to be unreasonably withheld
S18 - Limits amount of damages landlord can recover for breach of tenants repairing covenant
What is the use of a licence for alterations?
Protects landlord - requires tenant to reinstate unit at end of lease back to original letting
Protects tenant - prevents landlord from rentalising alterations/improvements at rent review
Tell me about RICS service charges in commercial property
RICS Professional Standard: Service Charges in Commercial Property, 1st Edition, September 2018
- Supersedes previous 3 editions published as codes of practice on April 2019
Can you talk me through the process of completing an LTA application as the one undertaken at Wooburn Industrial Estate?
1) Received T application by email - checked lease provisions and requested undertaking of costs
2) Considered application and requested further input from BS due to technical aspects of warehouse racking system - Reconfirm on costs to T
3) Provide client recommendation
4) Document LTA
How can consent be granted to make alterations?
- Automatically by lease terms (no consent necessary)
- Formal licence - Big changes
- Simple letter - less complex - no solicitor needed
Why should inspection be carried out after completion of tenant works?
- To check surveyor is satisfied with the works completed
- To see if there are any snags that require rectification
What is a property managers responsibility when managing a vacant building?
- Insurance
- Repairs
- EPC
- Inspections - insurance purposes
- Inform council - rates
- Security
- Maintain landscaping / asbestos
What is the tax on insurance on premiums?
Insurance Premium Tax
What are the two fundamental principles of rent collection?
- Accuracy of information provided
- Timing of when demands are sent out / rent is collected by
What is the difference between a standing order and a direct debit?
Standing order = regular payment set up by payer and payer has control
Direct debit = payer authorises payee to take payments (set up by bank)
How can you pre-empt tenant being in rent arrears?
Consistent late payments and bounced cheques
What are typical lease terms regarding interest on late rent?
2-4% above base rate and 14 days after due date
What is the first step to assessing if rent arrears can be recovered?
Check the lease obligations - READ LEASE (see what procedures are in place)
What are the different remedies for rent default?
- Negotiate payment plan
- Draw down rent deposit
- Pursue guarantor
- CRAR
What is to be considered before drawing down on a rent deposit ?
Tenant covenant strength - can they top back up?
Future debt - If tenant struggling may be best to keep for future debt e.g. dilaps
Does the landlord need to give T notice before drawing down on rent deposit?
Depends on what the deed says
Does the landlord have to use rent deposit for arrears?
No - At their discretion
How can the court be used to recover tenant arrears?
landlord can obtain a court judgement
- High court enforcement officer may enforce this and will need to pay court fees
- similar to CRAR
- Slow process and expensive
When can a former tenant be pursued for arrears?
If lease started before 01/01/1996
- This is due to abolishing of privity of contract - before this any tenant original tenant under lease was responsible even if lease had been transferred
What is the process of serving a statutory demand?
1) Notice served - T has 21 days to pay/propose plan
2) After this time landlord can present winding up petition to court
What are the timelines for CRAR?
- 7 days unpaid rent
- 7 days rent
HERE ENFORCEMENT AGENT ATTENDS - 7 further days before goods seized
What goods can’t be seized under CRAR?
- Perishable goods
- Work tools
- Kit belonging to 3rd party
What are tenants rights under CRAR?
Can apply to court for order that no further steps can be taken without permissions from court
What is forfeiture?
Lease clause allowing landlord to regain possession of a lease by peaceful re-entry or court action
When can forfeiture be used?
if forfeiture clause in lease
What are tenants rights under forfeiture?
- Have right to apply for relief to the court
- If granted, lease is restored
How can landlords right to forfeit be waved?
- If there is a payment plan agreed
- If CRAR is exercised
- If S.25 notice served
How can a least be terminated by forfeiture?
- Peacefully re-enter and change locks
- Court proceedings to recover possession
What is the landlord and tenants covenant act 1995?
Act that abolished privity of contract and introduced authorised guarantee agreements (outgoing tenant acts as a guarantor for party who assigns lease)
- Have to serve a S.17 notice to guarantor within 6 months of tenant not complying with their contractual obligations
According to RICS Code of Leasing Business Premises, when should AGAs be used?
If assignee has weak covenant strength, no guarantor and no rent deposit
What is key consideration when reviewing rent arrears recovery methods?
- Chance of reletting property
- Vacant possession value and void costs VS value being let now
Four main options for landlord when tenant not fulfilling their repairing obligations?
- Serve notice of repair - S146 of law and prop act 1925
- Forfeit lease
- Serve interim/terminal schedule of dilaps
- do works themselves and recharge T