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Mick's APC > Subs: Leasing & Letting > Flashcards

Subs: Leasing & Letting Flashcards

1
Q

What is the key RICS Professional Statement on leasing/letting practices?

A

RICS Code for leasing business premises, 2020

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2
Q

What is the aim of RICS Code for leasing business premises, 2020?

A
  • Improve the quality and fairness of negotiations on lease terms
  • Promote the issue of comprehensive heads of terms to make the legal drafting process more efficient
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3
Q

What does the RICS Code for leasing business premises, 2020 say with regards to the negotiations of heads of terms?

A
  • Must be approached in a constructive and collaborative manner
  • An unrepresented party must be advised about this code and must be recommended to obtain professional advice
  • The agreed terms of a lease must be recorded in written heads of terms and must summarise the position on a number of aspects
  • Negotiations should produce letting terms that achieve a fair balance between the parties commercial interests
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4
Q

What items must be addressed in the heads of terms according to the RICS Code for leasing business premises, 2020?

A
  • Identity and extent of the premises
  • Length of term and whether it is outside or inside the Landlord and - Tenant Act 1954
  • Options for renewal or break rights
  • Requirements for a guarantor and/or rent deposit
  • Amount of rent, frequency of payment and whether exclusive of business rates
  • Whether the landlord intends to charge VAT on the rent
  • Any rent-free period or other incentive
  • Any rent reviews including frequency and basis of review
  • Liability to pay service charge and/or insurance premiums
  • Right to assign, sublet, charge or share the premises
  • Repairing obligation
  • Initial permitted use and whether any changes of use will be allowed
  • Rights to make alterations and any particular reinstatement obligations
  • Any initial alterations or fit-out (if known)
  • Any condition of the letting, such as subject to surveys, boards approvals or planning permission
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5
Q

What is a lease?

A

A binding contract in law that sets out the terms and conditions of the tenancy between parties and their defined rights and obligations

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6
Q

What does it mean to ‘assign’ a lease?

A

Transfer the lease to another party who takes over occupation and responsibility for the lease obligations

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7
Q

What is a ‘schedule of condition’?

A
  • Record of the condition of the property
  • Written description of the property or a set of photographs or both
  • Referred to in the lease and attached to it or kept with it
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8
Q

What should be the only condition on a tenant being able to exercise a break option, according to the RICS Code for leasing business premises, 2020?

A

Should only be conditional on the rent having been paid

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9
Q

What details with regards to the rent deposit should be included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Amount (including whether it will include VAT)
  • Time it will be held
  • Whether it will be security for only the rent or all the tenant’s obligations under the lease
  • Circumstances under which the deposit will be returned to the tenant with any accrued interest
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10
Q

What details with regards to the rent review should be included in the lease, according to the RICS Code for leasing business premises, 2020?

A
  • Proposed frequency of rent review
  • Method of rent review
  • Definitions of market rent should not result in a “headline rent” being adopted
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11
Q

If a tenant’s repairing obligation are to be limited to the initial condition of the premises, what is required according to the RICS Code for leasing business premises, 2020?

A

Schedule of condition

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12
Q

Depending on the prevailing market conditions and strength of the tenant covenant, what can the landlord request for additional security if there is a tenant with a weak covenant strength?

A

Rent deposit
Guarantor/personal guarantee

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13
Q

What should the landlord do when holding a rent deposit?

A
  • Personal to the tenant and attached to the lease as a separate deed
  • Legally documented in a rent deposit deed
  • Money held in a separate bank account
  • Interest retained by the tenant
  • Agreed terms for the release of the monies
  • Details of the release mechanism to be stated in the deed
  • Can include top up mechanisms for rent review uplift
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14
Q

What information would you typically request from a tenant when looking to assess their suitability?

A
  • Bank, accountant and two trade references
  • Previous/existing landlord’s reference
  • 3 years audited accounts
  • Business plan
  • Credit rating
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15
Q

What test can you use to assess the financial suitability of a tenant?

A

Profits test: net profit for the proposed tenant’s business must be 3 times the rent for 3 consecutive years

(or the net asset value of the business must be more than 5 times the rent)

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16
Q

What are the main lease terms that impact on the value of a property?

A

Lease length / term certain
Break clauses
Alienation
Repairing obligations
User clauses
Rent review pattern and mechanism
Security of tenure provisions (whether lease is inside or outside the Landlord and Tenant Act 1954)
Restrictive lease clauses
Planning use

17
Q

What are the key things to consider when it comes to break clauses in a lease?

A
  • Whether it is mutual or in favour of one party
  • Whether time is of the essence
  • What the required notice period is
  • Whether there is a penalty to be paid if the lease is terminated
  • Whether the right to break the lease is dependent on preconditions being met
18
Q

If a landlord is seeking to limit a tenant making changes to the property, what will they typically require?

A

Licence to Alter

19
Q

On what grounds can a landlord reasonably refuse permission for a tenant to sublet or assign their interest?

A
  • Landlord must be satisfied that the assignee is able to pay the rent and comply with the lease covenants in the case of an assignment
  • Where a landlord owns numerous units, they are entitled to consider the type of business of the proposed tenant and whether it complies with their tenant mix policy
  • A landlord can refuse consent if the tenant will adversely affect the landlords existing rights and interest in the property
20
Q

What is an engrossment?

A

An engrossment is the final printed version of a lease that is then executed by the parties

21
Q

Do alterations always need landlord consent?

A

No.

  • Alterations are usually approved in writing by the landlord prior to undertaking the works.
  • They are usually subject to reinstatement at the end of the lease.
  • Works such as demountable partitioning or other non-structural works may not require landlord’s former consent so always READ THE LEASE (RTL)
22
Q

When do dilapidations negotiations take place?

A
  • These negotiations take place at the lease expiry to bring the property back to its condition at the start of the lease assuming there is a repairing liability
  • Check the lease terms to understand the repairing responsibilities of both parties and whether there is a schedule of condition
  • Also check if any licenses to alter were granted
23
Q

What is the difference between a license and a lease?

What is the key case law on this?

A

A lease grants exclusive possession of the property whereas a license does not.

Street vs. Mountford [1985] - In Street v Mountford the Court described this as follows: “The tenant possessing exclusive possession is able to exercise the rights of an owner of land, which is in the real sense his land albeit temporarily and subject to certain restrictions.

24
Q

What must be included for an agreement to be a lease? (4)

A
  • Whether it grants exclusive possession.
  • Specified term
  • if the term is over 3 years, it will need to be in writing.
  • Payment of rent.
25
Q

What are some of the different ways a lease can be ended?

A
  • On expiry
  • Break clause
  • Forfeiture
  • Surrender
  • Breach of covenants
  • Negotiation
26
Q

What guidance and legislative framework surrounding
the letting process are you aware of?

A
  • RICS - UK Commercial Real Estate Agency 2016
  • RICS - Real Estate Agency and Brokerage 2016
  • Code for Leasing Business Premises 2020; and
  • The Misrepresentation Act 196
27
Q

What is the punishment for misrepresentation under the act?

A

A fraud by false representation case is heard at a Crown Court. If you are found guilty and convicted, you may be given up to ten years imprisonment, given a fine or even receive both.

Mick's APC (17 decks)

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