Case Study Flashcards
(60 cards)
What is a Property Management Agreement?
Is a document between the property owner and manager of a commercial property. It includes the scope of the property managers duties such as rent collection, maintain the condition, liability or liability caps, company’s complaints handling procedure, and how we handle client’s money.
What was within your companies Property Management Agreement?
In our PMA with Schroders’ we had the standard things included in a PMA like rent collection, maintaining property, CHP, etc.
Specific to this client we had to collect 75% of the rent within the first week and at least 90% in the second. We were also instructed to do quarterly inspections.
How does your PMA measure KPI’s?
Rent collection efficiency by hitting our targets of 75% rent paid first week and 90% in second week we can track how we are doing. We can also measure the tenant’s satisfaction with the property and how it’s being managed by enganging with them.
How could you tell that the tenant was located in a prominent central location?
By inspecting the property and getting a feel of the locality it sits. Visual inspections to better understand where the main footfall is.
How long have the tenant been in the property? What are the lease terms?
The tenant has been in the property since 2013. Their first lease was for 5 years and expired on 2018. They then took on a 10 year lease from 2018 to 2028. An 8 year reversionary lease will start from 2028 to 2036.
Why was the rent lowered? What is a lease regear?
The rent was lowered from from £105,000 exclusive of VAT to £83,333 due to a lease regear/engineering.
Lease regear is the renegotiation of lease terms before expiry. My client did this to maintain the tenant and investment value. Lowering the rent gave the tenant space to repay arrears.
What is VAT? Why is it included in rent?
A landlord can opt to tax commercial rent they do this to recover VAT they pay on property related expenses like maintenance. If they don’t charge VAT they can’t reclaim VAT making costs higher.
What is the difference between gross rent and net rent?
Gross is inclusive of VAT, net is exclusive.
How can a rent deposit be used?
If there is a rent deposit deed that outlines what the rent deposit can be used for, for example to cover arrears. In the case I dealt with there was no rent deposit. If the landlord was to use the rent deposit then the tenant has to top it up.
If there is a rent review and the rent increases then the tenant has to top it up too.
Why is the risk of vacancy a key issue?
My client would lose rental income, they would be liable for paying business rates and insurance. They would also have to pay for marketing and letting fees. The vacancy period in Exeter at the time was 9-12 months.
What is the vacancy rate in Exeter?
In Q4 2023 the Exeter retail market had a vacancy rate of 2.98%
Why did you conduct market research?
For the purpose of potentially reletting the premises if the tenant would have vacated.
Why did you look at rents on a sqft basis instead of zoning?
The agents I spoke to valued the rents on a sqft basis. I went with information provided by them. When comparing I only used sqft basis and not zoned properties.
I’m aware that zoning is a valuation technique used for retail properties. It is done by dividing the property into zones and halving back each based on its proximity to the shop front.
How would you value the storage space upstairs?
A/10 or speak to agents and see how they valued it.
What is the Commercial Rent (Coronavirus) Act 2022?
Act was introduced to help tenant’s that weren’t trading well during covid.
It introduced a moratorium period where a landlord will not be able to use the following remedies on protected rent debt:
A debt claim;
CRAR;
Forfeiture or exercising a right of re-entry;
Draw-down on a tenant’s deposit.
Were there other options for recovery of the arrears other than those listed?
Yes on the lease there was a personal Guarantor listed, which is good because it allows for my client to go after them personally. So, their homes, cars, other businesses etc.
What attempts made to contact the tenant - are there any obligations on you?
I made attempts through telephone and email. There is an obligation on me in the Property Management Agreement to collect rent from the tenants. The RICS Professional Standard: Commercial Property Management in England and Wales 2011 also states that the duty of care is to my client the landlord.
Original arrears of £332k - How was this made up?
The arrears were just solely made up of rent as the tenant pays no service charge. Rent was not being charged during this period and went up to over 300k.
Was interest charged on the late payments as per the terms of the lease?
Yes the lease mentioned that we can charge 3% interest above the base rate on late rent. During this period the base rate was 5.25%. Currently the base rate is at 4.5%
What was the outstanding arrears at the point CRAR was instructed?
CRAR was initiated 7 days after no payment of rent. The outstanding payment was 10k rent and 2.5k quarterly arrears payment.
Did you check or review their payment history and companies house to check surety of company?
Yes their payment history would have been considered when my client was in negotiations with the tenant. I also looked at their payment history to spot for any future concerns, because the tenant does trade well during summer and nearer winter, it was important for me to keep an eye on them outside these times.
What was contained with the Credit safe report?
Net worth, liabilities, assets. There was no information on turnover which I was looking for to see how they were trading.
Did you check the financial stability of the guarantors?
Yes I did but the guarantor is the managing director of the firm so they had a direct relationship with the company and all of their finances are tied to the business.
Guarantor in place - Did this continue under the reversionary lease?
Yes this continued under the reversionary lease. The gurantor is the managing director of the firm. We can go after him as another option of rent collection.
