Simple questions Flashcards
Why was the unit(s) measured under a GIA basis, should you not use NIA or IPMS?
- I measured the unit on this basis in line with other units on the site
- I also knew that I had potential comparables
Are the business rates payable by your client straight after the property becomes vacant?
For industrial buildings such as this one, there is a 6 months rates relief period. This is noted
What was your conclusion of market rent for property? What lease terms would this market rental lease include?
I concluded the market rent to be around £17 psf based on my comparables.
Lease terms
- 5 year lease
- 3 month rent free
- IRI lease (SC common areas)
Would produce a net effective rent of £16.20
What were your key achievements?
- Ensuring all arrears were paid
- Reduced void liability for my client
- Ensured a good landlord and tenant relationship, especially as there were no prior issues with the tenant
What is a TORT notice? What are the timescales?
Legal document alerting the owner of the items that have been left on private land or property
- Time limit for seizing goods from service notice is 12 months
- Goods can only be seized between 6am and 9pm
- Goods seized must be valued and not sold for 7 days
What is an FRI?
Full Repairing and Insurance
What is an IRI?
Internal Repairing and Insurance
What are the main lease terms for the tenant?
- 5 year lease
- No break
- No SC cap
- No rent free
What is a B1 user class?
Relates to offices, research and development and light industry. This has consolidated into class E
Have the user classes not changed since these lettings have happened?
B1 user class is now incorporated into class E as of the Business and Planning Act 2020
What is the effect of a tenant being on an FRI lease compared to an IRI?
It would likely increase the rent as the tenant has more contractual obligations under the lease to repair and insure the property
What is a B8 user class?
Warehousing and open air storage or as a distribution centre
When did user classes change?
Amendments to the user classes were made under the Town and Country Planning Regulations 2020 (User class order 2020)
What are the results of the user classes change?
Those previously labelled as A1, A2, A3, B1, B2, D1 and D2 brought together under new use class E
What other uses fall under class B?
B class - Businesses that serve people either as factories or storage
B2 - Use for carrying on of an industrial process under class E
B8 - Use as storage or distribution centre
Can you explain to me the service charge of the site and the current budget?
- Service charge of the site split into 20 schedules
- Budget is £5,500,000 (includes office)
What are the other vacant industrial units you mention?
These units are of a much larger size, and are also permitted for use under the same user class(es)
What is the situation with the vacant office units at the site?
- Number of vacant office units on site - Ranging sizes
- Out of London office market is currently struggling, although Croxley Park is an attractive location with the services that are offered
What if the unit was vacant for 9 months?
- Void liability for rates would be 3 months = £16,789.50
What was the rateable value for the unit? and multiplier?
- RV = CIRCA £130K
- Multiplier = standard multiplier of 51.2p for the year (2022/2023)
What is the service charge for the unit? And what kind of services do you provide to the common areas?
Service charge year ran from June 2023 to June 2024 at £3.41 psf (Circa £27k)
Services include:
- Grounds maintenance
- Security systems
- Building fabric repairs - Roof, cladding
- Car parking and road surface maintenance
- bus service
Is the lease inside or outside the act?
The lease is outside the act
Were your comparables inside or outside the act?
All of my comparable properties were outside the act
What would have been different if they were inside the act?
The tenant would have had security of tenure under sections 24-28 of the L and T act 1954
How long does the tenant have to dispute forfeiture and what do they need to do?
Have to apply for relief within 6 months of the landlord re-entering the premises
Did you consider dilapidations in the cost of forfeiture?
This wasn’t a discussion that was had. However, based on other properties at the site I would expect the claim to arise in the form of circa £120k
Did you consider dilapidations in the cost of moving the tenant to another unit on the site?
This wasn’t considered as there was no option to move them to a smaller unit on the site.
What is the current situation with the tenant?
They have continued paying on the usual payment dates
What would the sq foot of the property be in IPMS?
The unit wasn’t measured under this basis. All units industrial units on the site are measured under GIA
What was the rent deposit that your client held?
£37,500
Why did you advise against CRAR?
Client aim of fostering strong relationships
- Although it could have been used as an action to recover rental arrears
- Service charge sums would still remain outstanding - As you can’t recover SC through CRAR action
- Stock inventory not of high resell value according to my own judgement and the auctin house confirmation
What is the process of serving CRAR?
Introduced in April 2014 under Tribunals, Court and Enforcement Act 2007
- Minimum unpaid 7 days rent
- 7 days notice to be served
- If no response, enforcement agent can re-attend and take control of goods
- If another 7 days passes, enforcement agent can dispose of goods
What is the process of forfeiture? Are there any deadlines?
Least must have a forfeiture clause
- 21 days of no payment whether formally demanded or not - Landlord can then change locks and gain possession
What are the different types of industrial unit on the site? Are they all the same?
Mainly B1/B2 or B8 user classes
What is the current standard RV multiplier?
54.6p as of April 2024
What was the £X increase in tenants costs made up of?
- Rents signed under new lease
- Service charge increases
- Utilities increases - Although utility costs have since reduced and the market has become less volatile
What is IPMS?
International Property Measurement Standards
What is GIA?
Gross Internal Area
- Area of the building measured to the internal face of the perimeter wall at each floor level
What are the differences between GIA / NIA (Why didn’t you measure on NIA?)
GIA = Includes total internal floor area within the internal walls of a building (excludes external elements such as balconies and external walls)
NIA = Refers to usable floor area within the internal walls of a property (excludes common areas and structural elements)
GIA includes all internal areas within external walls, NIA excludes non-usable spaces, focusing on functional, usable areas
Does the tenant insure the property directly?
Landlord insures the property directly and recharges the tenants. As per IRI, tenants insure their belongings
How did you undertake the profits test?
Helps efficiently evaluate financial performance of business
1) Collected last 3 years of audited accounts
2) Assessed if net profit for business 3 times the rent for the 3 years
3) Although profit was high by YE2020, by YE2022 this had reduced significantly and they had been struggling to generate profit. This can also be seen by their dwindling cash reserves and plateauing revenues
(This is net profit after tax is taken away - more accurate figure)
What does a balance sheet show you?
- Assets
- Liabilities
- Shareholders equity
You determined the market rent by comparison, what makes a property transaction comparable with the property you are valuing?
- Physical condition
- Location
- Use
- Tenure
- Timescale
Your comparable table doesn’t tell me repairing liability?
All units are Internal Repairing and Insurance (IRI)
Looking at your market demand and market rent, you say to determine market rent you obtained comparable evidence. How would you define market rent?
Market rent is the estimated amount for which an interest in the property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
You refer to the landlord and tenants covenants act 1995, what did that replace?
Privity of Contract
What does section 17 say in terms of timescales of pursuing a guarantor?
Have to pursue within 6 months of the debt falling due
If you had pursued the guarantor and they had cleared the arrears, what right would it have given the guarantor in respect of this property?
Overriding lease
In forfeiture can you use the proceeds of the goods to pay back the arrears?
No - Distress of rent
- Serve a TORTs notice giving tenant 14 days to recover belongings
What did the independent financial expert confirm that you couldn’t?
Due to my lack of competency the expert verified and clarified my original results from the property test and analysis of financial figures.
Could you give me your measurement in square metres?
7.960 / 10.764 = 739.50 sq m
How did you measure the ancillary office space at Unit 5, Woodshots Meadow?
It was measured on an GIA basis alongside the rest of the unit in line with RICS Code of Measuring Practice 6th Edition 2015
How did you adhere to RICS surveying safely when you attended the site?
I ensured to adhere by RICS surveying safely by:
- Carried out RA prior to attendance
- Planned site visit - diarise, charge phone, wore necessary PPE, let colleagues know (as per lone working)
- Took photos of any defects (were none noted)
Who measured the other units on the site and when were they measured on GIA?
A measured survey was undertaken in 2020 by an external land surveyor
How would an IRI lease affect the properties value?
Decreases the property’s value as the landlord has to take on structural repairing obligations (INCREASES MARKET RENT)
What are the common areas?
As leases are IRI, common areas relate mainly to the car parking areas and also areas of the management suite, grass areas, outdoor gym
What is the effect of the lease being contracted out of the L and T act 1954
LL / T doesn’t have security of tenure
- Lease ends on expiry date
You mention my client holds the rent deposit? Would the managing agent not hold it?
That is correct, my firms accountants held the deposit in a protected separate account
Why did the rent deposit value not increase when the tenants new lease was signed?
It was subject to interest increases. A new deposit deed wasn’t signed.
What do you include in your chasing email to tenants?
- What the outstanding amount is and what it relates to
- Timelines for payment
- Who the payment should be made to (bank details)
What is the difference between company accounts and management accounts?
Company accounts = provide an overview of the company’s financial actions
Management accounts = look at these financial actions in more detail and are entirely for internal purposes
Why would you audit accounts?
- Provides credibility for the financial statements and that gives confidence that the accounts are true and fair
Why would the landlord not want a void liability?
Already high voids at the park due to office voids
- High costs
- Sols fees of getting a new tenant in - More admin
How did you assess the market rental value of the property?
Comparable method of valuation - High strength of comparables as they are all at the same property
What other debt recovery options were available to you?
- Rent deposit draw down
- CRAR
- COULD MENTION - Litigation (court action) this would have been costly
Why didn’t you formalise your payment plan?
- This was directly agreed with the client. No need to directly formalise due to strong history with tenant
- Me and my client believed not necessary to escalate at that stage. Quick and easy
- Made sure to note that it was without prejudice
- Costs - Would be sols fees
How did you prepare for your inspection of Unit 5, Woodshots Meadow?
- Liaise with the tenant to arrange access
- Undertook pre inspection risk assessment
- Understand if any PPE necessary
- Review tenants lease - TS, service charge
- Inform colleagues as per lone working policy
What key things did you look out for in your inspection?
External - Defects, repair, condition and age of building
Internal - Lease compliance, repairs, defect
What did you include in your GIA measurement?
- Areas with headroom less than 1.5 metres
- Areas occupied by internal walls
- Mezzanines with permanent access
- Columns/stairwells etc
What did you exclude from your measurement?
- Canopies
- Perimeter wall thickness
- Open vehicle parking
What was the size of the estate?
circa 700k sq ft
What rents did you use for your comparables?
Headline rents
Why did you recommend a payment plan to your client?
- To aid the tenants cash flow in a time when their performance has taken a downturn.
- Month by month basis allows them to minimise the impact of their recent losses and focus on their business activity.
- Tenant was responsive - Allowed income stream for my client and allowed tenant to continue operating.
You noted the tenant had sufficient cash to pay off their arrears, why didn’t you decline the offer completely?
Due to my landlord aims and objectives and tenants previous occupation
- Tenant had shown a large downturn in performance as cash outflows had risen vastly over the period
How did you contract the lease outside of the act?
Under section 38(a) of the L and T Act 1954
- LL served notice to tenant advising them of intentions
- T signed a statutory declaration (Under 14 days before lease commencement
- Witnessed by sols
You said you requested tenants financial accounts, what did you obtain?
- Financial statements
- Management accounts
- Bank statements
- Last three years audited accounts (Only available up until 30th June 2022)
You haven’t mentioned if you undertook a credits test, why not?
A credit check was undertaken through D&B
- They issued an A2 lower than average risk rating with credit recommended to £56,000
What was the value of the rent deposit when the issue arose?
£45,181
You mention one of the aims and objectives was to minimise void costs, what sort of void cost would you expect in a unit like this and are there any other initiatives that could be considered to reduce void costs?
Void costs expected:
- Service charge
- Utilities (gas/elec/water - standing charges)
- Business rates (after 6 months empty relief)
- Any necessary internal upkeep repairs
- Insurance
What is the rateable value of the building? Has it changed so much?
Rateable Value of circa £130k from 01/04/2023
- Up until this date it was £65,000
How did you gain access to the unit for the inspection?
- Emailed the tenant confirming access would be required for an inspection - Made sure to provide enough notice for access
- Made sure to receive confirmation
- Contacted tenant when I arrived and I entered the property
Why was it important to maintain positive landlord and tenant relationship?
- Timely payment of arrears
- Position as a Council means that they are seen as where the tenant may turn to if they need support - Don’t want to turn this relationship bad
- Council want a good reputation and to attract varying tenants to the property
- Tenant more likely to keep the property in good condition
Did you document the payment plan?
No this payment plan was informal - Why?
- This was directly agreed with the client. No need to directly formalise due to strong history with tenant
- Me and my client believed not necessary to escalate at that stage. Quick and easy
- Made sure to note that it was without prejudice
How was the tenants rent deposit held?
As I am not a competent accountant, I haven’t set one up myself, but you would:
- Setup a separate, interest bearing account
- Check rent deposit deed
- Establish amount to be held (what it says on deed)
- Establish is VAT is to be demanded on top
Can you talk me through the comparable valuation you undertook?
1) Inspected subject unit and measured in line with GIA
2) Selected comparable evidence (from the property)
3) Assembled comparables
4) Adjust comparables using hierarchy of evidence
5) Analysed comparables to form an opinion of value
6) Reported to my client that the tenant was currently being charged market rent
Can you take me through the steps you undertook to measure the unit?
1) TOE, COI, Competency
2) Review lease - Gathered existing floor plan (arranged access and diarised visit with my manager as per LWP)
3) Confirmed measurement basis what is included/excluded + Undertake risk assessment
3) Conduct and record measurements
4) Complete measurement report
What are the traditional AND modern quarter days?
Traditional
- 25th March
- 24th June
- 29th September
- 25th December
Modern
- 1st Jan
- 1st April
- 1st July
- 1st October
How did the tenants business recover so quickly from the issues it was experiencing?
Through aiding their cash flow and allowing them to focus on their business
What was the EPC of the unit?
C72
Difference between headline and net effective rent
Headline = Rent payable after any concessions or inducement has expired
Net effective = rent payable when incentives such as rent free are taken into account
What was the tenant’s annual rent
£135,800. This is the headline figure after the rent free period etc has been accounted for.
What H&S concerns were there with the unit being vacant
- Risk of illegal occupation such as squatting
- Fire Risk
if there had been a guarantor, how would you have pursued this
In accordance with the Landlord and Tenants covenants act 1995
S.17 within 6 months of the debt arising
What is a S146 Notice
Section 146 of the Law and Property Act 1925
- Notice of intent to forfeit the lease for a breach of covenant
How are comparables changed if they are outside the act?
Would be less weighting to them due to them being less comparable to the subject property
How do you know the construction date of the building
- Clients as built drawings
- Triennial report
- Online planning register
What goods can be seized in CRAR
- Goods owned by the tenant (not let machinery)
- Tools of trade
- Goods within demised premises
- Non-perishable goods
What advice would you give if you were on the tenant’s side
- Reiterate financial position and how it would be a detriment to continue paying rent at the same level with other rising costs
Reviewing tenants accounts, what would you have been looking at to determine the covenant strength of the tenant?
- Income statement
- Balance sheet
- Profits test
Did the tribunals, courts and enforcement act 2007 not come into effect in 2007?
Yes, this came into force in 2007. The government introduced reforms to the bailiff industry in 2014, including the introduction of the CRAR process.
- The CRAR process replaced the process. This is called the Taking Control of Goods Regulations 2014
Tell me about the tribunals, court and enforcement act 2007
- Unified tribunal system - streamline cases and appeals
- Judicial oversight - established role of senior president of tribunals
- Allowed enforcement agents to seize goods through warrant
- Introduced stricter rules for regulating bailiffs
Can you describe the building (Unit 5)?
7,960 sq ft GIA
- Multi-let middle of terrace warehouse of steel framed construction
- Aluminium roof sheeting
- Ancillary 2 floor office space - Measured under GIA
- 7m eaves height
- Roller shutter 5.5m
How did you arrive at the market rent?
Using recent lettings from the property
- Table of comparable evidence allowed me to compare different property characteristics
Unit 2 Millfield closest comparable
- Break option, shorter lease but same property conditions. Minimal weight given to property layout
Unit 10, Woodshots Meadow
- Break option at 2 years and 6 months rent free - Less comparable but slightly more expensive rent due to this so is similar and cancels down on a net effective basis
- Was also more than a year ago? So potentially less comparable
What is a hierarchy of evidence?
Attaching weightings to comparables in the following order:
1) Open market lettings
2) Lease renewals
3) Rent Reviews
4) Independent Expert
5) Arbitration
6) Court Determinations
Can you take me through the process of surrendering a lease?
1) Agreement between LL and T to release T
2) Can be no premium
3) LL must be confident of reletting or wants to develop
4) Lease surrender deed agreed and signed by both parties - May be in a later date to make repairs/prepare for exit
What are the fees for CRAR?
- £75 + VAT for 7 day letter
When disposing - Arrears under £1.5k = £235
- Arrears over £1.5k = £235 + 7.5% of arrears less first £1.5k
What is the difference between surrender and forfeiture?
Surrender = done by operation of the law (i.e. giving keys back) or by deed - Gives a clean title
Forfeiture = allows for tenant to go to court and claim relief
What is the difference between management and financial accounts?
Management accounts are internal, Financial accounts are required by law and must follow format (year end)
What is a financial account?
Financial accounts required by law and must follow format (year end). These are audited to ensure that they are correct and comply with law
Who regulates financial accounts in the UK?
The financial conduct authority
You mention concrete and steel frames, what are some key differences with these?
Concrete frame = Comprises a network of columns and connecting beams constructed on a concrete foundation
Steel frame = Horizontal steel beams and vertical columns used to form a skeleton of a building
Concrete is more applicable for office buildings and is less flexible in its construction. Steel is more lightweight and resilient than concrete
What is the modern construction make up of an industrial building?
- Eaves height - 8-12 metres
- Steel portal frame, metal sheet cladding and pitched roof
- 40kn/m2 floor loading
- Loading bays/dock levellers etc
- 10% office fit out
- 30-40% site coverage
Could you talk me through the payment plan, was it documented at all?
This was not documented
- Diarised payments
Was there any recourse if the tenant didn’t meet the PP?
Not within the informal payment plan - Didn’t expect this to happen due to previous relationship, whilst the rent deposit did provide security if they didn’t meet the PP
Could you talk me through the profits test you undertook, what did you analyse and what was the conclusion?
Ascertained their profit from the company accounts
- Noted that their profits from the last 3 years didn’t equal the 3X rent which is necessary
- Therefore position was weak, although their covenant remained strong as per the D&B assessment undertaken
You mention the rent deposit, if the tenant was revealed to have strong cash reserves, could you not have drawn down and topped up?
No - Cash position could have continued to weaken. It had already decreased a large amount within a short period of time.
Where were the rent deposit monies held?
By the managing agent in a separate account.
- Protected in case of client entering financial difficulty
- Also made the monies easily identifiable for my client myself
- Interest bearing account
You say that since 2022, the tenants rent, sc and utilities liability increased by nearly £100k – why is this the case? What was the increase down to?
Mainly due to rates, which doubled in the past 2 years
You mention forfeiture, what would you need to check if you did want to take this forward and what’s the process if your client did want to pursue?
Check the forfeiture clause
- Enter via peaceable reentry after 21 days - Take an inventory of stock
- Notice placed on door notifying tenant of forfeiture
- T has 6 months to apply for relief from the courts
You say that CRAR would have resulted in seizing goods that they use to undertake their business activities – are you sure they are allowed to take these goods? Is there an exception limit?
- Only allowed to take work tools up to a value of £1,350 (If they are a sole trader)
- Cannot take perishable goods
- Cannot take goods owned by 3rd parties
Where did you find out the tenant’s cash reserves?
They were shown under assets/equities on their balance sheet
How comes they gave you a cash reserve figure in December 2023?
The tenant issues a quarterly report of their financial activities
What did you use to measure the unit?
Laser measure - Ensured this had been recently calibrated with the manufacturer
What hazards might be present in a building constructed in 1990s?
- Could contain asbestos - Outlawed 1999
- Leaking roofs - water ingress
- Structural instability
- Structural instability
Can you explain your understanding of internal repairing and insuring lease?
Tenant to undertake repairs internal within their demise, landlord undertakes repairs externally. The tenant also has a responsibility to insure these internal areas.
One of your main client aims is to minimise void liability. Can you tell me how many vacant units you have at this site?
In total there are 23 units which are vacant
What does the credit score produced mean?
The A2 credit score limited their credit to £56,000. They were issued a lower than average risk rating
Why did you not measure in IPMS?
Even though it is not mandatory to measure under IPMS for industrial. I also took measurements under IPMS2 as dual reporting is mandatory. - Not specifically true… don’t need to dual report
When was the B8 user class introduced?
Use Class Order 1987 - Use as storage or a distribution centre, including open air storage.
Was your unit not an effective-FRI?
Under the lease it states the unit is an IRI, however, due to the service charge payable, this can amount to an effective FRI.
How would it differ if your lease was inside the act?
No specific change - Unless it was between 12-6 months before lease expiry, which it wasn’t
Who is the owner of the property?
Freeholder is Goldman Sachs, WBC took on a 40 year lease in 2019 and after this they can purchase it for £1
How did you find out the year of construction for the property?
From the sale in 2019, a number of documents were sent over
Would your client qualify for any other rates mitigation relief (not the transitional relief)?
They wouldn’t move forward with any other rates mitigation schemes as they would be taking their own money
Is £3.41 not high for service charge?
This may seem to be high but:
- Services offered such as events, gym etc qualify this high service charge and ensure value for money
- Croxley Park not just about occupying but also there is a social aspect that creates value for the landlord and the occupiers
What is the standard industrial service charge psf?
Likely to be closer to £1-£2
Were your comparable examples on net effective or headline rent?
Headline rent, which provided easier comparison to the subject property
How is S/C apportioned across the estate?
Apportioned via floor area. There are schedules for different buildings, whilst schedule 1 relates to the estate (whole)
Are you qualified to assess the value of the tenant’s goods?
I took an initial look, however, this was confirmed through an auctioneer I had consulted
What is the user class of the gym and cafe?
Class E
- Updated in 2020 as per the user class order 1987 update
Why do you exclude VAT on a rent deposit?
The deed stated amount equivalent to VAT, is to be added on top
Who pays for the placemaking strategies?
Tenants and client through service charge alongside LL contributions - Schedule 1
- Helps to improve the wellbeing and happiness of the tenants by providing public spaces that provide nature and activities
Who is liable for VAT on CRAR?
Landlord is liable for VAT. No VAT should be charged to the tenant on the fees.
Why did you say without prejudice in your communications?
Enabled me on behalf of my client to put forward an offer to settle without compromising their position if the matter ended up in court
Did you use headline or net effective rent in your valuations?
I used Headline rent
- Due to most of the comparables having small or no rent free periods, it is more of a like for like comparison between all comparables and the subject
- Little to no difference between figures
What subset of class E does this unit come under?
E subset G (i,ii,iii)
Offices and industrial processes
How did you arrive at your comparable valuation figure?
Weighted and ranked the different types of evidence, and interpolated the data between these figures
Where does the profits test come from?
Financial conduct authority tests
Does the rent deposit need to be topped up? What does the lease say?
Under clause 7 of the RD deed, the tenant is to at all times pay the landlord such sums necessary to maintain the deposit balance at a level no less than the required deposit level (£37,650)
You have used headline rent, but why may it be more beneficial to use NEF?
Takes into account any incentives and provides an overview of the rent throughout the whole term, rather than what is payable after the incentives have expired.
How do you calculate NEF?
Adding up gross rent for whole lease term MULTIPLYING by the number of months where rent is payable and then DIVING by no. of months of term
Why did you omit the tenant’s name from the case study?
I did this to ensure compliance with the Data Protection Act as it included sensitive nature about the company, alongside ensuring data minimisation alongside purpose limitation to ensure data is only being used for specified purposes
What were the total void costs of the property?
Around £1.5m for the year
How much had the service charge increased for the property on the prior year?
£6,000-£7,000
What was the rent under their original lease?
(Up till end of 2021) £81,500 - Therefore £90k increases since 2022 include this rent increase
Is there any air con or heating within the building?
There is a VAV (Variable Air Volume) system
- Type of HVAC system that regulated the flow to a zone in relationship to demand of the temp sensor
What are the industrial yields in Watford?
Around 5.1-5.2% currently - This has increased
What are office yields in Watford?
Around about 6.5%
How many industrial units are currently vacant on the site?
4 units
Would you offer a potential rent free to a tenant?
Yes, this could be applied (usual of 3 months) - This would provide a net effective rent of £16.20 (based on this period for a fit out)
- Would then interpolate between Unit 10 Woodshots (1) and Unit 2 Millfield - These are £15.50 and £16.98 net effective
- Unit 3, Blackmoor Lane - Also £16.20 net effective
How does a HVAC system work like you mentioned?
An HVAC system regulates indoor climate by drawing air, cooling or heating it through coils and blowers, filtering it, and distributing it via ducts or vents.
