Summary of Experience Flashcards
How do you ensure a valuation is RICS Red Book compliant?
- Client Instructions: Agree on terms, purpose, and scope in writing.
- Basis of Value: Use the correct basis (e.g., Market Value).
- Due Diligence: Gather all relevant property details.
- Inspection: Inspect if required.
- Valuation Method: Apply an appropriate method (comparison, income, or cost).
- ESG Consideration: Factor in sustainability if relevant.
- Documentation: Record assumptions and calculations.
- Compliant Report: Include basis, scope, methodology, dates, and compliance statement.
- Review: Have it checked by a senior colleague.
- Sign Compliance Statement: Confirm adherence to the Red Book.
L2 Vals, Industrial, Wickford - Can you walk us through your process for using the comparable method to assess Market Rent?
I gathered comparable data on similar properties in the area
- Ranked by relevance in a hierarchy of evidence, considering size, location, and lease terms
- Adjusted headline rents to net effective rents to ensure comparability
L2 Vals, Industrial, Wickford - How did you determine the hierarchy of evidence, and what adjustments were made?
Had regard to RICS Professional Standard, Comparable Evidence in Real Estate Valuation and the different categories of evidence.
Evidence analysed fell into Cat A
- Prioritized comparables by proximity, lease start date, and building specifications.
- Adjustments accounted for variations in condition of comparables and location
L3 PM, Rent Arrears, Wickford - What are the various options for recovery of rent arrears that you made your client aware of?
- Drawing down on the rent deposit (must top up)
- Pursuing any former tenant or guarantor
- Forfeiture
- Statutory demand
- CRAR
- Payment plan
L3, PM, Rent Arrears, Wickford - Why did you recommend the payment plan? Did you assess the tenant’s current financial standing?
- I recommended the payment plan after reviewing the tenant’s financial standing, including their most recent audited accounts and a business plan with forecasts.
- The tenant was in temporary financial difficulty and the payment plan was deemed a reasonable method of recovery that would allow the landlord to recover the full amount over time
- This option was also preferable over forfeiting the lease due to its rack-rented status and situated on a quiet parade where there could be a long void period.
L3, PM, Rent Arrears, Wickford - How would you advice (payment plan) change if the tenant continued to miss the new payments?
I would advise moving to a stronger arrear recovery method such as:
- CRAR: Enforcing rent arrears through the seizure of goods
- Guarantor: If applicable, requesting payment from the guarantor.
- If these methods proved ineffective, I would advise on court proceedings or forfeiture
L3, PM, Rent Arrears, Wickford - How did you document the payment plan agreement?
- In a side letter, which was drafted by a lawyer.
- Side letter outlined the terms of repayment
- Personal to the tenant
L2, PM, Service Charge, Industrial Estate - What are the relevant timings for reviewing the actual expenditure and providing the explanatory notes to the tenant?
Service charge reconciliation must be issued within 4 months of the service charge year-end.
This includes:
- Reviewing the actual expenditure
- Providing explanatory notes and a breakdown of the costs to the tenants
L2, PM, Service Charge, Industrial Estate - Were the actual costs higher or lower than the budget in this example?
- Actual costs were higher than the budget
- A balancing charge was required, meaning additional payment requests were issued to the tenants to cover the shortfall in service charge funds
- If the the expenditure was less than predicted in the service charge budget, any excess, known as a surplus, will be credited against future service charges or returned to the leaseholders, depending upon the wording of the lease.
L2, PM, Service Charge, Industrial Estate - Did you manage to recover all the costs? What would have happened if you didn’t?
- In this case, my client successfully recovered all the costs through the balancing charge.
- If they had not been able to recover the full amount, the landlord may have been responsible for covering the shortfall, as shortfalls are ultimately the landlord’s responsibility unless otherwise agreed
Service charges - what are the options for dispute resolution?
As per the RICS Professional Standard Service Charges in Commercial Property, ADR mechanisms including mediation and independent experts are recommended rather than court proceedings which are lengthy and costly
- RICS Dispute Resolution Services: Service Charges
L3, Leasing & Letting, Agreement for Lease, Whitmore Way - Why did you recommend this in this case? What is an agreement for lease?
- An AfL is a contract between two or more parties to enter into a lease.
- Property had sat disused for a significant period and required extensive works with no real expression of interest in the unit.
- One tenant approached, expressing an interest and required a rent-free incentive
- Advised on an AfL and a rent-free period to allow the tenant to carry out the refurbishment works and would take a lease once these works were completed to the landlord’s satisfaction.
- Landlords will not want to incur the expense of carrying out the works without a contractual obligation from the tenant to enter into the lease once the works have been completed. Without such an agreement, the tenant may simply walk away at any point and the landlord would be left bearing the cost of the works without the benefit of a tenant paying rent once they are complete.
- For tenants, they may need to carry out works to the premises but may not wish to have to pay rent whilst the works are being carried out. It could enter into the lease immediately and agree to a rent-free period together with formal consent from the landlord to carry out the alterations. Most rent-free periods are for a set timeframe (such as three months) and, the tenant will then have to start paying rent, even if the premises is not yet ready for the tenant’s use. It may be more appropriate to enter into an agreement for lease where the landlord allows the tenant access to the premises to carry out the works and oblige both parties to complete the lease once the works are complete. A landlord may insist that the tenant pays a percentage of the rent, or the insurance and service charge contributions (if any) whilst it is carrying out the works, on the basis that it is occupying the premises, but this would be down to negotiation between the parties.
L3, Leasing & Letting, Agreement for Lease, Whitmore Way - What is the difference between a lease an an agreement for lease?
Agreement for Lease:
- Is a preliminary agreement that outlines the intention to enter into a lease agreement in the future.
- A precursor to the actual lease agreement
- Outlines conditions that are to be met before a formal lease agreement is executed
The key takeaway from this is that the agreement for lease is a contract, between the tenant and the landlord, where the landlord agrees (or contracts) to grant a lease to the potential tenant at a future date. The lease, on the other hand, is a deed which creates an interest in land, enabling possession and occupation of the premises. The agreement for lease provides no such rights of occupation, and typically if a tenant wants to commence work on or enter the property in question, the landlord will grant a licence to allow for the same.
L3, Leasing & Letting, Agreement for Lease, Whitmore Way - Was the agreement for lease in this case subject to planning? What else was it conditional on?
Yes, conditional on planning permission and:
- Building regulations
- Consent from the landlord
- Satisfactory completion of the works
L3, Leasing & Letting, Agreement for Lease, Whitmore Way - What did you include in the agreement for lease?
- Names and contact details of the landlord and tenant
- Property to be leased
- Intended use of the property
- Term of the proposed lease
- Rent and rent-related provisions (service charges, rent reviews)
- Obligations (rights and restrictions - repair and maintenance, assignment or subletting
- Circumstances in which the agreement for lease may be terminated
- Specific conditions that need to be met in order to grant the formal lease (including expected timelines)
L3, Valuation, Kidderminster - How did you run a sensitivity analysis, and why is this important?
- I tested key variables such as build costs and sales rates, adjusting them to understand potential impact on residual value.
- Sensitivity analysis is important for identifying risk tolerance, helping clients anticipate how changes in key assumptions affect land value
L3, Valuation, Kidderminster - What are common variables to test in a sensitivity analysis?
- Build costs
- Sales/rental values
- Finance rates
L3, Valuation, Kidderminster - How did the lack of planning consent impact your valuation?
- By extending the pre-construction period
- Increasing the level of profit
L3, Valuation, Kidderminster - What planning policy did you review to support this advice?
I consulted local planning frameworks and housing demand policies, which helped confirm the site’s potential for residential development, subject to future planning approval
L2, L&L, Wickford - What was your general marketing advice to your client?
- Understanding of their goals which included:
- Highest rent
- Strongest covenant
- Longest lease
What is Zoning?
A valuation technique used for the comparison of retail buildings to create a unit or comparison for different sized shops
