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APC Commercial Real Estate 2021 - Core > Revision Day - Commercial Real Estate and Valuation > Flashcards

Revision Day - Commercial Real Estate and Valuation Flashcards

1
Q

What is the name of the current Red Book (s) and when did it/ they become effective?

A
  • The RICS VBaluation - Global Standards
  • issued November 2019 and effective from 31st January 2020
  • Replaced the 2017 Global Standards
  • Applies to all valuations after 31st January 2020.
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2
Q

What is the purpose of the Red Book?

A
  1. It establishes a framework for uniformity and best practice i.e to undertake a Red Book Valuaiton the valuer must:
  • ​be competent to undertake the valuation
  • must not have any conflicts of interest
  • agree the mandatory Terms of Engagement
  • undertake adequate Inspection and Investigation
  • apply the mandatory Bases of Value
  • meet the mandatory Reporting requirements
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3
Q

What is the purpose fo the UK National Supplement?

A
  • It sets out specific requriements and guidance for valuations in the UK
  • content is supplemental to the Red Book Global Ediditon and not substitution for it.
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4
Q

Does the Red Book instruct/advise on how to value?

A

NO

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5
Q

To what valuations doe the Red Book Apply?

A
  • To all written valuations carried out by RICS members (who must be Registered Valuers) all over the world.
  • The Red Book also states that teh valuer must meet the same requiremetns if giving oral valuations.
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6
Q

What valuations doe the Red Book not apply/ what valuations are exceptions to the Red Book?

A
  • Agency or Brokerage work for disposal and acquisition
  • As an expert witness
  • Performing statutory funcitons
  • For internal purposes
  • Preparation for or during negitiations or litigation
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7
Q

Can you give some examples of valautions for a statutory function?

A
  • Rating
  • CPO - Compulsory Purchase
  • Leasehold Enfranchisment
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8
Q

Is a drive-by, desk-top or pavement valuaiton a Red Book valution?

A
  • Yes - the Red Book applies to all written valuaiotns unless it is specifically stated as an exception.
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9
Q

Is it acceptable to RICS to carry out drive-by, desk-top or pavement valuations?

A
  • Yes, providing that a valuation tha tis adequate for its purpsoe can be produced, i.e. that valuer must have enough knowledge of the property and/ or enough information.
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10
Q

What information must you have to carry out a desk top valuation of a let property that you have had no prior involvment with?

A
  1. At the minimum the lease and a scaled floor plans and / or schedule of floor areas.
  2. If available any previous valuation report, building survey, environmental report, asbestos register, planning permisison etc.
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11
Q

How is competency difined for a Red Book Valuation?

A

A Red Book valaution can only be undertaken by a RICS Registered Valuer who must have the necessary skills and the market knowledge.

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12
Q

What are the main concepts of the Terms of Engagement?

A
  1. Clients Name & Address
  2. Property
  3. Valuers Name
  4. Purpose of the valuation
  5. Basis of Value
  6. Valuation Date
  7. Extent and limitations of inspection and investigations
  8. Assumptions
  9. Special Assumptions
  10. Agree Fee and Payment Date
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13
Q

What are the Global Bases of Value?

A
  1. Market Vlaue
  2. Market Rent
  3. Fair Value
  4. Investment Value (or Worth)
  5. Synergistic Value/Marriage Value
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14
Q

What is synergisitc Value?

A
  • Anothe rname for marriage Value whihc arises when the value of the merged interest is greater than the sum of value of the individual interests.
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15
Q

Can you explain Market Value in your own words?

A
  • The estimated amount for whihc an assett or liability should exchange on the valuatioin date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
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16
Q

When would Fair Value be used?

A
  • For valuations for company account and other financiall statements (Asset Valuations)
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17
Q

What is an assumption?

A

A fact, condiiton or situation that is taken to be true without verification.

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18
Q

Can you name some assumptions that are usually made in valuations?

A
  1. Good Title
  2. Condition of buildings
  3. Services
  4. Planning (Zoning)
  5. Contamination adn hazardous substances
  6. Environmentl matters
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19
Q

What is a special assumption?

A
  • It is an assumption that assumes facts that are different to those exisitng at the valuation date.
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20
Q

Can you give some examples of special assumptions?

A
  • Planning consent has or will be granted.
  • Proposed development has been completed in accordance with the defined plan and specification.
  • The property has been changed in defined way.
  • The property is vacant (when occupied at the valuation date)
  • The property is let on defined terms (when vacant at the valuaiton date).
  • That synergistic value is created where one or more parties has a special interest.
  • that the property is subject to a defined constraint
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21
Q

What are the main contents of a Valuation Report?

A
  1. The same as the Terms of Engagement except for the fee but including the valuation figure.
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22
Q

When can uncertainty arise in valuations?

A
  1. an unusual or even unique property
  2. limited or restricted information
  3. disrupte markets - covid/brexit
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23
Q

Name the conventional methods of valuation?

A
  1. Comparative
  2. Investments
  3. Redsidual
  4. Profits/Accounts
  5. Contractor’s/Depreciated Replacement Cost
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24
Q

What are the contemporary valuation methods?

A
  • Discounted Cash Flows (DCF)
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25
Q

When should the comparative method be used?

A
  • Capital and rental valuation of residential property
  • The rental valuation of retail, office and industrial premises
  • The capital value of ower-occupied retail, office and industrial premises
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26
Q

What makes a property transaction comparable to the property being valued?

A
  • Physical characteristics
  • Location
  • Use
  • Tenure (and lease terms if appropriate)
  • Time scale of the transaction
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27
Q

How many comparables are needed to produce a valuation?

A
  • ALL OF THEM OR AT LEAST ENOUGH TO ESTABLISH A TONE OF VALUES
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28
Q

What is the longest time period before a valuation date that a transaction could be accepted as being comparable?

A
  • It is dependent upon the property and market conditions
  • So in a rising or falling market maybe only a few months.
  • In a static market it could be a few years.
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29
Q

What do you understand by the expression hierarchy of evidence for rental transactions?

A
  1. The weight is ranked in order of transaction type.
  2. Open market lettings
  3. Lease renewals
  4. Rent reviews
  5. Independent exper’s determination
  6. Arbitration awards
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30
Q

Should only completed transactions be used as comparable evidence or can properties on the market also be used?

A
  • In a static and falling market properties that are for sale or to let can carry more weigth than past completed transactions.
  • In rising markets asking prices and rents should be treated with caution.
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31
Q

What is the purpose of zoning?

A

Zoning is used to compare retail units having different frontage to depth ratios.

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32
Q

What is the standard zone depth?

A
  • 6.10 m (20 ft)
  • In London 9.14m (30 ft) is used.
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33
Q

How many zones should be used before the remainder?

A
  • This is dependent upon the depth.
  • Some use 2 with remainder and others 3 with remainder.
  • In Oxford street 5 zones and a remainder is common.
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34
Q

How should the first floor of retail premises be valued?

A
  • If used for retail: A 10th is common.
  • If used for storage a rate independant of x.
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35
Q

Should a 3 month rent free period be treated as an incentive and writtern off?

A
  • UKGN 6 states in para 4.1.3 that a 3 month rent free for fitting out is not usually treated as an incentive if it is granted as standard
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36
Q

A 12 month rent ffree period has been granted in a 10 year lease with a rent review after 5 years. Should this be written off over 5 years or 10 years?

A
  • If the rent free period was granted because the tenant entered into a 10 year leaase then it should be written off over teh full lease term.
  • If there is a tenants break after 5 years then it should be written off over 5 years.

Note: the agreed rnet is the headline rent and writing off the incentive produces the effective rent.

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37
Q

When is the investment method used?

A
  • To value shops, offices, industrial and warehouse units that are
  • Let as investments
  • Owner occupied
  • Vacant

The majority of camparables are:

  • rents (lettings, rent review, lease renewals), and
  • Investment transactions
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38
Q

How would you value a property let on internal repairing terms?

A
  • Assuming let at Market Rent you would deduct Landlords outgoings:
  • Repair
  • Insurance
  • Management Fees

The capitalise the net income at the all risks yield.

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39
Q

Why is the capitalisation rate also called the all risks yield and what does it incorporate?

A
  • The all risks yield taked into account all the risks of the investment which are:
  1. ​the property
  2. the quality of the tenant covenant
  3. the amount of rent (at market rent, over-rented or under -rented)
  4. the unexpired lease term
  5. the other lease terms
  6. anticipated rental growth (location)
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40
Q

How is growth taken into accountt in a conventional investment valuation?

A
  • Rental and capital growth are NOT MADE EXPLICIT in the valuation but ARE IMPLICIT in the CAPITALISATION RATE.
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41
Q

What is a gross yield and what is a net yield?

A
  1. A gross yield is the RENT expressed as a PERCENTAGE of the PURCHASE PRICE
  2. A NET yield is the RENT expressed as a PERCENTAGE of the GROSS COST of AQUISITION i.e. the purchase price plus purchaser’s costs
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42
Q

What costs must a purchaser incur when buying a commercial property?

A
  • Stamp Duty Land Tax
  • Acuisition Agents Fees @ 1%
  • Legal Fees @ 0.5
  • Non recoverable VAT @ 20% of the fees = 0.30%
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43
Q

What are the current Stamp Duty Land Tax rates for commercial property?

A
  1. 0% on the first £150,000
  2. 2% on the next £100,000
  3. 5% on all above £250,000
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44
Q

How is a property investment valued using a NET YIELD?

A
  • Market Rent
  • Multiplied by YP per @ NMet yield x%
  • = Gross Ascusition Cost

Less

  • Agents and Legal Fees & VAT @ 1.8%
  • Less Stamp Duty Land Tax
  • =
  • Market Value
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45
Q

When is the residual method used?

A
  • On Land and properties with development/re-development and refurbishment potential when it is not possible to vcalue by comparison.
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46
Q

Explain the basic approach to residual valuation?

A
  • GDV
  • Less Developnment Costs
  • Less Developers Profit
  • = Land Value
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47
Q

What are the development costs?

A
  1. Demolition/Site clean up
  2. Construction Costs
  3. Construction Fees
  4. Cost of Finance
  5. Contingency
  6. Agents/Lega Fees on disposal
  7. Acquisition Costs
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48
Q

Where did you/would you get your construction cost?

A
  1. Building Cost Inforamtion Service (BCIS)
  2. A quantity Surveyor
  3. or The Developer themselves as they may state Xm2 for a specific fit out
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49
Q

How did you/would you calculate developers profit?

A
  • Either a percentage of GDV or a percentage of Developers Profit
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50
Q

How do you dee-risk a development?

A
  • By a pre-let or forward sale.
  • I.e. By letting/selling off plan
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51
Q

When is the profits method used?

A

It is used to value property that is specialised for its use and includes:

  1. Amusement arcades
  2. Amusement and theme parks
  3. Bingo Halls
  4. Bowlikng Centres
  5. Caravan adn Chalet parks
  6. Cinemas
  7. Gold Course
  8. Heath treatment centres
  9. Hotels and motels
  10. Ice rinks and roller rinks
  11. Marinas and moorings
  12. Public houses
  13. Squash and tennis clubs
  14. Theatres
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52
Q

Explain the basic approach to a profit’s valuation?

A

It is a residual which can be expresses simply as:

  • TURNOVER (net of VAT)
  • Less - Costs of generating the Turnover
  • = Net operating Profit
  • Which is capitalised
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53
Q

When is the contractors’ method used?

A
  • It is the method of last resort and used when it is not possible to value by one of the other 4 methods.
  • It is used on specialist properties which do no usually change hands on the market except as part of a slae of the business (Specialist Properties)
  • Inclusion in Company Accounts and other financial statemnts (Assett Valuations)
  • Compulsory Purchase (Rule 5)
  • Rating
  • Non-Specialised properties when ther is no direct/inconclusive comparabe evidence
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54
Q

Explaikn the basic approach to a contractor’s/DRC valuations:

A
  • Gross Replacement Cost
  1. Cost of Modern Building
  2. Less Depreciation
  3. Net Repalcement COst
  4. Plus Site Value
  5. = Value as Existing
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55
Q

What does Reinstatemnt/Replacement Costt Assessment for Insurance Purposes comprise?

A
  • Demolition
  • Shoring up and weather-protection of adjoining buildings
  • Rebuilding in accordance with current Building Regulations
  • Professional Fees
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56
Q

What is a reversionary freehold investment?

A
  • It is an investment tthat is let at a rent other than the Market Rent
  1. ​Traditionally under-rented
  2. But can be over-rented
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57
Q

What techniques/approaches can be used to value an under-rented reversionary investment?

A
  • There are two approaches being:
  1. ​Term and Reversion
  2. Hardcore/Layer
58
Q

Explain the process of the term and reversion technique?

A
  • Term
  • The rent passing is capitalised for the term of x years until review or reversion at a reduced ARY rate to reflect the reduced risk.
  • Reversion
  • The Market rent at review/reversion is capitalised into perpetuity at a higher ARY to reflect the certainty of the rent being agreed and then deferred/discounted the term.
59
Q

Explain the process of the hardcore/layer technique?

A
  • Bottom Slice
  • The rent passing is capitalised into perpetuity at a reduced ARY to reflect reduced risk.
  • Top Slice
  • The top slice/marginal income is capitalised into perpetuity at an increased ARY to reflect increased risk and then deferred/discounted for the term.
60
Q

What techniques/approaches can be used to value an over-rented reversionary investment?

A

The techniques/approaches are the same as for an under-rented investment but tend to be called

  • Block income
  • Core Income
61
Q

Explain the process of the block income technique to value an over-rented investment?

A
  • The rent passing is capitalised for the term of years until review or reversion at an increased ARY to reflect increased risk.
  • The market rent at review/reversion is capitalised into perpetuity att teh ARY and then deferred/discounted the term.
62
Q

Explain the process of the core income technique to value an over-rented investment?

A
  • Core income
  • The Market Rent is capitalised into perpetuity at the ARY
  • Top Slice
  • The overage/frotth is capitttalised for the term of years until review/reversion at an increased ARY rate to reflect increased risk.
63
Q

What is an initial yield?

A
  • The net income at the date of purchase expressed as a percentage of the purchase price.
64
Q

What is a running yield?

A
  • The present income from a property expressed as a percentage of teh Market Value
65
Q

What is a reversionary yield?

A
  • The Market Rent expressed as a percentage of teh Purchase Price of Market Value
66
Q

What is an equivalent yield?

A
  • The weighted average of the Initial Yiield/Running Yield and the Reversionary Yield/ the internal rate of retturn from an investment disregarding any rental or capital growth.
67
Q

What is a true equivalent yield (TEY)?

A
  • It is the yield considering that rent is received quarterley in advance
68
Q

How would you value a leasehhold interest / asccertain if a premium can be charged for the assignement of a lease?

A
  • A leasehold interest is valued by capittalising the Profit Rent by either
  • the YP dual rate
  • the YP dual rate, tex adjusted, or
  • tthe YP singel rate
69
Q

What is profit Rent?

A
  • It is the market rent less the rent paid (top slice income)
70
Q

What are the names oof the two rates in the YP dual rate?

A
  • the remunerative rate and the accumultive rate
71
Q

Whiich one of teh two rates in the YP dual rates is the sinking fund?

A
  • the accumalative rate.
72
Q

What is top slice income and how is it valued?

A
  • There are three circumstances where top slice income arises
  1. ​the additional rent to be received at review or reversikon when a property is under rented (rent increas)
  2. the overage/froth when a property is under-rented
  3. a leasehold profitt rent
  • Top slice income is valued at a higher rate than bottome slice income to reflect increase risk
73
Q

What is the fundamental difference between conventional investment valuation techniques and discounted cash flow techniques?

A
  1. In a conventional investment valuation rental and capital growth are NOT MADE EXPLICIT in the valuation but are IMPLICIT IN THE CAPITALISATION rate.
  2. Inn a discounted cash flow rental and capital growth are MADE EXPLICIT but are DISCOUNTED at The Investors Target Rate of return, not at the all risks yield.
74
Q

How does an investor arrive at a target rate?

A
  • A Risk Free Rate and adding a Risk Premium
75
Q

Whnat is a risk free rate?

A
  • the yield on UK gilts (governemnt stock)
76
Q

What is the risk premium?

A
  • A risk premium comprises
  1. ​MArket Risks
  2. Speciific Risks
77
Q

Will the investor achieve this target rate if he holds the investment for 5 years and over this period capitalisationn rates remain the same i.e. 4%?

A
  • Yes tthe Net Present Value is positive
78
Q

What is worth to the investor i.e. how much could hhe pay to achieve his target rate?

A

Thhe worth to the investor is the Gross Present Value i.e. £1,034,772. (from the working example)

79
Q

If the investor buys the property for £1,000,000 what internal rate of return (IRR) will he achieve?

A
  • 6.78% it is the rate at which the Net Present Value is zero
80
Q

What is the name for the internal rate of return with growth?

A
  • The Equated Yield
81
Q

What is the difference between a lease and licence?

A
  • Lease
  • a lease can be a fixed term or periodic
  • gives a Tenant an exlusive right of possession
  • all third partties including Landlrod can be excluded
  • rent or periodic payment is made in return for possession
  • Licence
  • Gives permission to do somethin on tteh owners land or in a building that would otherwise constitue a trespass e.g. grazing of horses
82
Q

What is the leading case in the matter of lease or licence?

A
  • Street v Mounntford (1985)
83
Q

Please give some examples of when a licence iis appropriate?

A
  1. tables and chairs in shopping malls outside restaurants
  2. car-parking
  3. telecome equipment on rooftops
  4. ice cream and hot food vans
  5. container storage
  6. horse grazing in a farmers field
84
Q

What is tthe difference between a Lease Renewal and a Rent Review?

A
  1. A lease renewal is a statutory procedure laid down by the Landlord & Tenant Act 1954 Part II (as amended)
    * ​In the event of a non-agreemetn, the matter is setttled by the Court or by PACT if both parties agree
  2. ​A rent review is a contractual procedure contaiined within a lease
  • ​In the event of a non-agreement, the matter shall be settled in accordance with the review clasue which usually states that the rent shall be determined by an Independent Expert or Arbitrator
  • the matter can be referred tto Court on a point of law
85
Q

What does the 1954 Act do?

A
  • It gives security of tenure to occupying businesss Tenants (Section 23 & 24)
86
Q

What leases are not covered by the 1954 Act?

A
  • Section 43
  1. ​Agricultural holdings
  2. Mining leases
  3. Residential
  4. Tenancies granted as a condition of employment
  5. Tenancies not exceeding 6 months unless tttthere is a provision for extension or, T has been in occupation for more than 12 months
87
Q

What is a section 25 Notice?

A
  • It is served by Landlord on Tenant in the window of 12 months to 6 months before tthe expiry of the lease, or any time thereafter, giving a minimum of 6 months and a maximum of 122 montths to terminate tthe lease with a view to either:
  1. ​Offering a new lease or
  2. Obtaining possession
88
Q

What is a Secttion 26 Notice?

A
  • It is served by Tenant on Landlord in the window fo 12 - 6 montths before expiry of the lease, or on any time tthereafter giving a miniimum of 6 monttths and a masx 12 montths tto request a new lease
89
Q

Are there any counter-nottices to the Section 25 or 26 Notices?

A
  • No, but a T receiving a Sec 25 notice muust make a Court application before the expiry of the notice or will lose security of tenure: SECTION 29

NB: L can also apply to Court to determine the tterms of a new lease.

  • L receiving a Sec 26 has 2 months in which to object to the T being granted a new tenancy: Section 26(6)
90
Q

What must a Teantn do if he wishes to vacate?

A
  • During the lease term could serve notice under Section 27 giving at least 3 months’ notice to expire on the last day of tthe term

Or

  • Could just vacate on the last day
  • If a Tenant is holding over under Section 24 then must give at leastt 3 months’ notice to expire at any time.
91
Q

Is it necessary for the parties to serve either a Sec 25 or Sec 26 notice?

A
  • No, if an agreement for a new lease is reached then, under Seec 28, tthe current lease ceases to be protected.
92
Q

If the expiry of the Section 25 or 26 notice is near, is there any alternative to either party making a Court application?

A
  • Yes, tthen can agree to extend the time-period within which either can make a Court application: Section 29B(1). Unlimited susequent extensions can be agreed: Section 29B(2).
93
Q

What are the grounds upon which a Landlord can obtain possession?

A
  • There are 7 grounds under Section 30(1)
  1. ​T has failed to carry out repairs
  2. Tenant has persistently delayed paying rent
  3. Teantn is in substantial breach of some otehr covenant
  4. Landlord offers suitable alternative acocmmodation
  5. wheree the tenancy was created by a sub-tenancy and the building let as a whole would produce a higher rent than from separate lettings
  6. Landlord intends to redevelop
  7. Landlrod intends to occupy the premises for his own purpose (Landlord must have been L for at lease 5 years: Section 30(2)
94
Q

Is Tenants entitled to any compensation if Landlord obtains possession?

A
  • If L obtains possession onn grounds (e), (f), (g) and no toher ghround (No-fault grounds) then TT is entitled to compensation in tthe form of a Rateable Value Multiplier: Section 37
  1. ​2 x RV for occupation of 14 years or more
  2. 1 x RV for occupation of less than 14 years
95
Q

What terms can the Court determine for the new lease?

A
  • The court can determine:
  1. ​tthe property comprised: Secttion 32
  2. the length of lease: Section 33 - a maximum of 15 years
  3. the rent: Section 34
  4. the other terms: Section 35
  5. an interim rent: Section 24A
96
Q

What is a Section 34 rent?

A
  • The rent the property might reasonably be expected to let at in the opoen market by a willing lessor, disregarding:
  1. ​Ts previous occupation
  2. any goodwill
  3. certain Tenants improvemennts
  4. any licence to sell liquor if the licence belongs to Tenant
97
Q

When are Tenants improvements disregarded at lease renewal?

A
  • If they were carried out by T othher than as a lease obligation and with L’s consent
  1. ​during the old tenancy, or
  2. less than 21 years before the application for the new teanncy was made
98
Q

Can either party change the terms of the new lease at renewal?

A
  • Yes - But if a party resists, they must satisfy the 4 tests of the O’May case [1982]
99
Q

What is an interim rent?

A
  • A court can only grant a new lease to start after the hearing and where Landlord and Tenant have extended the time period within which either can apply to the Court the period between the expiry of Section 25 or 26 notice could be lengthy. The interim rent is for this period should it exist.
100
Q

How is the interim rent assessed?

A
  • It is the rent under the new lease unless either party can show otherwise.
101
Q

How can Landlord and Tenant contract out of Section 24 to 28?

A
  • Section 28(4) (a) allows this.
  • Lanldord must serve a notice on Tenant under the Regulatory Reform (Business Tenancies)(England and Wales) Order 2003
  • If notice is served at lease 14 days before the lease starts: Tenant must sign a simple declaration.
  • If lease is to start within 14 days of the notice: Teants must sign a statutory declaration before a Solicitor
102
Q

How can Landlord get details of sub-ttenancies or Tenant get details of superior Landlords?

A

Either can serve notice under Section 40 within the last 2 years of the terms and the other party must respond within one month.

103
Q

What should a rennt review clause contain?

A
  1. The machinery for effecting the rent review (time table of who does what and when)
  2. The basis of valuation
  3. The means of settling disputes where the parties cannot agree on the revised rent
104
Q

What does time of the essence mean?

A

That the time scales set out in the rent review machinery must be strictly adhered to.

105
Q

Why is it then, that despite a lease having a clear time table for LAndlord & Tenant to adhere to, that generally time is not of the essence?

A
  • Case law: The Burnley and the Cheapside cases [1977]
106
Q

If time is not of the essence what then, is the essence?

A
  • The essence of the contract betweenn Landlord and Tenant is that the rent reviewed from the specified date(s).
107
Q

When is time of the essence?

A
  • Time is of the essence when:
  1. ​the lease says so
  2. the lease makes if clear that time limits are strict (e.g. linked to T’s option to break)
  3. there are deeming provisions: Starmark Enterprises case [2001]
  4. Tenant serves notice making time of the essence: Barclays Bank Case [2002]
108
Q

What lease terms affect the rent at review?

A
  1. The most significant term is the Rent at Review Clause
  • ​the definition of Rent
  • the Assumptions
  • the Disregards
  • The other lease terms affecting the rent at review are:
  • Rent review Frrequency
  • Repairing liability
  • Insurance liability
  • Alienation
  • User clauses
109
Q

What is the hypotherical term?

A
  • The definition of rent will usually state that the propertty is vacant and to let for a terms of years:
  1. ​the actual unexpired lease terms at the review date, Or
  2. that the unexpired lease term at thhe review is the same as at the start of tthe lease i.e. it is hypothetical
110
Q

What assumptions are commonly made in rent review clauses?

A
  1. the premises are fit for immediate occupation and use
  2. the market rent will be that payable after the expiry of any rent-free period for T’s fitting out works
  3. no work has been carried out by Tenant has reduced the rental value
  4. If the premises have been destroyed or damaged, they have been reinstated
  5. Tenant has complied with its covenants in the existing lease
111
Q

What matters are usually disregarded at rent review?

A
  • When assessing the rent the matters in Section 34 L&T Act 1954 should be disregarded:
  1. Tenants previous occupation
  2. any goodwill
  3. certain improvements
  4. any licence to sell intoxicating liquor if it appears that the licence belongs to Tennant commonly referred toas the usual disregards
112
Q

Can Landlord charge rent on tenants improvement if the lease is silent on them being disregarded at review?

A
  • Yes, Ponsford case [1977]
113
Q

What is the difference between Arbitrator and an Independent Expert?

A
  1. Abitrator
  • ​Acts only in evidence and arguments submitted but can draw parties’ attention to matters. Award must lie between the extremes of the parties.
  • Cannot decide without receiving evidence (can receive evidence from one of the parties only)
  • Procedure regulatedby Arbitration Act 1996.
  • A party can (through the courts) compel disclosure of documents or the attendannce of witnesses.
  • May not delegate any duties.
  • Can determine the fees and costs and can order one party to pay all or part.
  • Arbitrator’s fees can be determined by the Court.
  • Some right of appeal onn a point of law.
  • Not liable for negligence.
  1. Expert
  • ​Has duty of investigation but may receive evidence from the parties.
  • Bases decision on own knowledge and investigations. However, may be required under the lease to receive evidence.
  • No legislation governing procedure.
  • No such powers.
  • May seek assistance.
  • No power to make any orders as to fees.
  • No procedure.
  • No right of appeal but a Court might set it aside.
  • Liable for damages through negligence.
114
Q

What is a Calderbank offer/letter?

A
  • The name is from a matrimonial divorce case of Calderbank v Calderbank.
    1. It is an unconditional offer to settle but is used as a tactic to protect against costs being awarded to the other party.
115
Q

What must a Calderbank offer/letter contain?

A
  1. ​an unconditional written offer to settle the rent review
  2. a reasonable proposal regarding costs incurred up to the date of the offer (usual to propose that each party bears thheir own costs plus 50% of the arbitrator’s fee)
  3. a time within which the other party may accept the offer (usually 21 days)
  4. a statement that it is made without prejudice save as to costs
116
Q

Tenant has entered into a full repairing and insuring lease of a property in disrepair. Landlord now requires the tenant to remedy this disrepair. What advise would you give to hthis tenant?

A
  • Tenant who agrees to keep in repair must put in repair, butt the contentious issue is that standard of repair.
117
Q

What action can landlords take when teants are inbreach of repairing covenant?

A
  • ​Landlord can pursue:
  1. ​Forfeiture and damages
  2. Specific Performance
  3. Excercise Right of Entry to Repair
118
Q

How are damages for dilapidatiions assessed?

A
  • Lanldord & Tenant Act 1927 Section 18 (1): Damages limited to teh diminution in value to Landlrods reversion casued by Tenants breach.
119
Q

In waht circumstances can the diminution in value be less than the cost of works?

A
  • Where Landlord intends to redevelop or refurbish the items of disrepair will be superseded by the works.
120
Q

After lease expiry can Lanldor insist that Tenant carries out repairs?

A
  • No, the only remedy to Landlord is damages
121
Q

How are damages assessed where landlord carries out repairs to re-let the property?

A
  • In additon to the cost of works, landlrod can claim for;
  1. ​loss of rent
  2. service charges
  3. void rates
  4. professional fees
122
Q

What is Jervis v Harris clause?

A
  • This is the clause in the lkease giving Landlord the right to re-enter tthe property to carry out repairs and recover the cost from the tenant.
  1. ​recovery of cost of works being way of claim for a debt rather than damages
  2. Avoids Leasehold Property Repairs Act 1938
  3. avoids Section 18(1) of Landlord and Tenant Act 1927
123
Q

Explaikn the difference between a Schedule of Condition and a Schedule of dilapidations?

A
  1. A schedule of condition is a statment describing the physical sttate of the building that is usually prepared by Tenantsd surveyor to limit repairing liability and is attacehd to the lease.
  2. A schedule of dilapidations is a recod of alleged breaches of repairing covenant usually prepared by Landlords surveyor
124
Q

What is a Scott Schedule?

A
  • A Scotts Schedule is the form in which a schedule of dilapidations shouldd be presented as recommended in the RICS Guidance Note: Dilpaidations in England and Wales 7th Edition 2016.
125
Q

What is the difference between an alteration and an improvement?

A
  1. An alteration is making physical changes to a proeprty.
  2. An improvement is an alteration that ADDS VALUE
126
Q

Has Landlrod got to be reasonable in giving consent to alterations and improvements?

A
  • If the lease is absolute that Tenant cannot make any alterations or improvments, then he can’t.
  • If without the prior consent in writing of the klandlord is added, then Section 19(2) of the L&T Act 1927 implies that such consent shall not be unreasonably witheld.
127
Q

Can Tenant register improvements for compensation upon leaving the property?

A
  • Yes, but the procedure in the 1927 Act must be followed:
  1. ​Tenant must serve notice on Landlord before works start with details and plans.
  2. Landlord has three months to object or offer to do the works himself in return for a reasonable increased rent.
  3. If Landlord does not object or offer to the the works himslef, Tenant can proceed and must complete the works within an agreed time period.
  4. If the Landlord objects to the proposed improvements the matter can be determined by the court.
  5. The Court must be satisfied tthat the improvment adds to the letting value of the property at the termination of the tenancy and
  6. is reasonable and suitable
128
Q

How is compensation for Tenants improvements assessed?

A
  • It is the smaller of:
  1. ​the additionn to the value OR
  2. tthe cost of carrying out the improvement at the end of the lease
129
Q

Has Landlord got to be reasonable in giving consent to assignement and sub-letting?

A
  • If the lease is absolute that Tenant cannot assign or sublet, then he can’t.
  • If without the prior consent in writing of the landlord is added, Section 19(1)(a) of the L&T Act 1927 implies that such consent cannot be unreasonably witheld.
130
Q

Has a Landlord got to give consent within a reasonable time period?

A
  • Yes, the Landlord and Tenant Act 1988 requires this.
131
Q

What is an Authorised Guarantee Agreement (AGA)?

A
  • The Landlord and Tenant (Covenants) Act 1995
  1. ​came into force on 1st January 1996
  2. assignor of the whole premises is released from Tenants covenants under Section 5.
  3. however, Section 16 entitles Landlord to require an assignor to guarantee the performance of the covenants by the assignee Tenant
  4. called Authorised Guarantee Agreeement (AGA’s)
  5. the issignor is released upon lease expiry or a further assignment
132
Q

What are reasonable grounds for witholding consent to assign?

A
  • the character of the proposed assignee, or
  • the effect on rental or capital values
133
Q

What is the profits test?

A
  • Landlords usually look for Tenants profits to exceed 3 x the annual renat and other payments due under the lease.
134
Q

Would a Court find in favour of Landlords refusing to give consent to awssignee if Tenant die not meet the profits test?

A
  • Not necessarily. The Court would have regard to Tenants business plan and any detrimental effect of refusing consent.
135
Q

When is it appropriate to have tight restrictive user clauses in leases?

A
  • ​To prtect the value e.g. in shopping parades or centres to prevent duplication of uses that could lease to price competition and a Tenant going out of business.

Note: Martin Retial Group Ltd v Crawley Borough Council [2014]

  1. an unopposed lease renewal where existing lease permitted use as newsagents but prohibited the sale of alcohhol, groceries and convenience foods
  2. County Court held that this restriction was in breach of anti-competition law
136
Q

Does the Landlord & Tenant Act 1927 impose reasonableness on Landlord in giving change of use subject to consent?

A
  • No, but Section 19(3) of the 1927 Act prevents Landlord from taking a fine or premium for granting consent
137
Q

What conditions can be attached to break clauses?

A
  • Break clauses can be unconditional but are usually conditional on Tenants meeting the lease obligations up to the expiry of the break notice and somettimes also having to pay a fine or premium
138
Q

What is the situation if Tenant continues to carry out repairs after the expiry of a break notice accepted by the Landlord as bbeing valid?

A
  • It would invalidate the break. NYK Logistics Case [2011]
139
Q

If tenant serves a break notice to expire mid-way between the quarterly in advance rent payment dates, is he entitled tto be refunded rent paid from the expiry of the break to the end of the quarter?

A
  • No, unless the lease makes provision for this. Marks & Spencer Case [2015].
140
Q

Where the land value is known, the calculation of development profit is known as?

A
  • A development appraisal.
141
Q

Development appraisals are also used to calculate?

A
  1. Profit erosion
  2. Maximum build/development cost

APC Commercial Real Estate 2021 - Core (17 decks)

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