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 (Tenant has 7 days to pay the arrears)
6) Sale of goods at auction if arrears remain unpaid for 7 more days
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
- More aggressive than CRAR
- More expensive than CRAR - £1.5k
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 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?
S18 - Limits amount of damages landlord can recover for breach of tenants repairing covenant
S19 - Consent not to be unreasonably withheld
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 and chiller unit - 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 (£750 for commercial, £5000)
2) After this time landlord can present winding up petition to court
Aggressive, costly tactic - Not usually recommended
Can be for anything owed
£1.5k fee for solicitors
anyone can serve this
What are the timelines for CRAR?
1) Assess overdue rent - (7 days unpaid rent)
2) LL issues notice of enforcement - 7 days for the tenant to pay
3) Enforcement agent instructed to attend and take control of goods (Tenant may enter into controlled goods agreement ro retain possession whilst paying off arrears)
4) If arrears remain unpaid, goods can be sold at public auction after providing further notice
What goods can’t be seized under CRAR?
- Perishable goods
- Kit belonging to 3rd party
- Tools of the trade up to a value of £1,350 - If sole trader
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 lease 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 - Jervis v Harris
What must be included in notice to repair?
S146 of law and prop act 1925
- Details of repairing breach
- timescale allowed to remedy breach
- court of action proposed if T fails to remedy - Gives tenant 6 months to undertake repairs
How can a landlord forfeit a lease for failure to repair?
Must serve S146 notice on tenant (stating details, timescale and proposed course of action)
What is the leading case law for landlord right to re-enter property to undertake repairs?
Jervis v Harris
- Gives LL right to pursue remedy against defaulting tenant to ensure premises kept in good condition
In what circumstances can Jervis and Harris clause be used?
- Tenant is solvent
- Landlord wants to continue lease
- landlord wants to carry out repairs themselves
- threat of entry may mean tenant does works themselves
Please can you take me through how you instructed and got in place the PPM schedule at Ilford High Road?
New instruction noted no PPM in place
1) Made client aware - Requested that Workman BC attend site and draw up a quote
2) Client confirmed - I attended site with BC to assess these items
3) 10 year PPM drawn up (to be reviewed 5 yearly)- Confirmed items on a call with the client and that we would recover via the service charge
4) Received confirmation and budgeted for works in the upcoming year
What were the repair items that needed attending to at Ilford High Road under the PPM?
- Roof works (LL responsibility to repair) - Replacement
- Damaged brickwork and copings
- Road surface repair to the service yard
What are the aims of the RICS service charge professional standard?
- Improve best practice, fairness and transparency
- Ensure timely issue of SC budgets and YE certificates
- Reduce causes of disputes, and provide guidance on dispute resolution
What are the 9 mandatory requirements in Service Charges Professional standard?
- Recover expenditure in line with lease terms
- Recover no more than 100% of costs
- Annually provide budgets and explanatory notes
- Annually provide service charge accounts (showing actual figures)
- Annually provide service charge apportionment schedule
- Service charge money to be held in one or more discrete bank accounts
- Interest earned on SC account must be credited to the account
- When acting for tenant, advise that if disputing payment then withhold the amount in dispute
- When acting for a LL, following dispute resolution, any SC raised incorrectly is to be adjusted to reflect error without delay
What is the responsibility of the property manager when issuing service charges?
- Ensure value for money
- Ensure quality services that are regularly reviewed
- Ensure standard of services are monitored
What is a sinking fund?
A fund within the service charge set up for specific costs that occur occasionally e.g. roof repair, painting
What is a depreciation charge?
A fixed percentage of the original cost of a property that is charged off to expense in order to compensate for property depreciation
What are the 4 methods of service charge apportionment?
- Floor area
- Weighted floor area
- Floor percentage
- RV
What is a reserve fund?
A fund set aside to cover the cost of a major expenditure - useful for unexpected expenses
What are the different types of insolvency?
- Administration
- CVA
- Receivership
- Liquidation
What are the implications for the landlord when a tenant goes into administration?
- Landlord cant take any action against the company as it is protected
- If rent is being paid, the equivalent amount can be claimed from administrator
- Administrator may seek to assign the lease
What are the implications for the landlord when a tenant goes into liquidation?
- Landlord can deduct funds from RD
- Landlord can seek court order to terminate lease
- Landlord can forfeit lease
- Landlord can assign lease
