Case Study Questions

Question 1

Can you talk me through the building construction please

Answer 1

• 1960’s cross wall construction
• 2 stories of residential uppers
• Ground floor retail units - concrete shell with solid dividing walls

Question 2

You mention a “VLP”, could you tell me what this is please and its significance

Answer 2

• Vacant liability provision, held by the Client’s finance team
• Captures all property costs over the course of the lease which is PV’d to give a provision held
• This is measured by a release when a deal is completed e.g. surrender, sub-let, assignment etc
• It is how a deal’s success is measured as the amount held on the VLP is what the business has to hold for redundant assets
• The release is released back into the business’s accounts

Question 3

You mention the property was measured “NIA”, can you tell me what this means please

Answer 3

• NIA - Net Internal Area
• Retail premises should be measured in NIA for the purposes of zoning under the Code of Measuring Practice

Question 4

Can you tell me what Zoning is please

Answer 4

• A method of valuation for retail property
• Measured NIA and zoned in 6.1m increments
• Each zone is halved back meaning it has less value the further back it goes
• This is added together to give an ITZA
• Quantum’s can be allowed for depending on the nature of the property such as hard frontage, return frontage, size, configuration

Question 5

You mention you heard locally about the interest, can you explain what you mean by that

Answer 5

• The prospective tenant was a current occupier next door to the client’s Ladbrokes
• They had heard from the shop staff that the shop was closing

Question 6

You mention Landlord’s demanding high surrender premiums, why do you think this is?

Answer 6

• Covenant strength of my client
• Obsolescence of retail space
• Larger void period in certain locations
• Forgo a dilapidations claim if not included
• No obligation to accept a surrender

Question 7

What was your reasoning for recommending additional works?

Answer 7

• Repair obligations under the lease - repaired Landlord’s Fixtures and Fittings (boiler) -
• Lettability - to attract a prospective tenant, if the interested party did not proceed
• Yield up clause - adhering to the yield up clause in the lease such as removing tenant fittings, signage
• MEES - the property fell below the minimum energy efficiency standards

Question 8

Can you tell me about your clients strip-out strategy and why it is appropriate?

Answer 8

• To remove all fit out, signage, safes as part of the closure process
• Adhering to the yield up clause in the lease
• Adhering to our insurance requirements for the Landlord such as covering up the windows, alarming the property
• Attracting perspective tenant’s if being marketed
• Reducing our dilapidations exposure

Question 9

Can you tell me how you calibrated your distometer before measuring

Answer 9

• Measured against a known measurement
• Carried out a software update

Question 10

You mention the pieces of evidence you obtained, can you tell me why you disregarded these?

Answer 10

• After discussions with the tenant, I learn they were all inclusive agreements
• Not comparable leases therefore holding little weight
• The evidence from Co-Star was outdated
• This was not a lease renewal, my primary focus was disposing of my client’s property in the most cost effective manner
• There were no comparables on file from the last lease renewal

Question 11

How would you go about obtaining evidence when there are no directly comparable properties?

Answer 11

• Expand the search radius
• Check other local parades
• Compare other retail areas and adjust based on comparison to subject property
• Other sources would also be EGI, previous comps on file, agents opinion of value

Question 12

You mentioned the prospective tenant provided details on their financial standing, can you tell me what they provided

Answer 12

• Basic P&L account
• Showed operating profit, rent, utilities, wages, turnover
• £100k turnover a year
• £20k profit

Question 13

How do you determine investment value

Answer 13

• Determined through an all risks yield
• It would take into account the strength of tenant, unexpired term, lease terms, location, obsolescence, liquidity of sale
• Yield capitalised by the ERV of the property to give FH value

Question 14

You mentioned Landlord breaks, are there any considerations you would need to make when inserting Landlord breaks?

Answer 14

• If contacted in, these are open to S30 grounds
• Stat comp payable for Landlord breaks unless expressly excluded in the lease
• The letting agreed was to be outside of the Act

Question 15

What were the break conditions of your clients lease?

Answer 15

• VP
• 6 months notice

Question 16

Are you aware of any recent changes to EPC’s?

Answer 16

• EPC’s are uploaded straight to the register from September 2020
• A link is provided to the Government portal for the EPC, to be published on marketing material

Question 17

You mention MEES, can you tell me what these are and their significance

Answer 17

• Minimum Energy Efficiency Standards, 2015
• Minimum requirement of an E to let a building from 1st April 2018
• All existing leases will need a rating of at least an E from 1st April 2023
• For non compliance, the penalties are:
  
  • For less than 3 months up to £5,000 or 10% of the RV with a max of £50,000
  • For more than 3 months up to £10,000 or 20% of the RV with a max of £150,000
• Policed by the Local Authority

Question 18

Can you tell me some of the exemptions for MEES?

Answer 18

• Places of worship
• If a building doesn’t need an EPC
• Industrial units with a low energy demand
• A tenancy of less than 6 months or more than 99 years
• When all possible improvements with a payback of 7 years have been made
• Where improvements would result in a devaluation of more than 5%
• Exemptions must be re-registered every 5 years

Question 19

Can you tell me about any recent changes to planning?

Answer 19

• New Class E came into effect from September 2020
• Replaces the A class
• Retail, financial services, offices, cafe, restaurant to go into Class E
• Pubs, takeaways to go into Sui Generis

Question 20

You mention the property was surrendered back to the Landlord, how did this come about?

Answer 20

• The Landlord permission was required for under-letting
• I offered a premium for a surrender in conjunction with granting a new lease for the tenant, HoT’s of which were already drafted
• This would provide the Landlord with a tenant, a premium for the loss of our covenant and full and final settlement for the client
• Terms was agreed on a £20,000 surrender premium with mutual completion of the new lease

Question 21

Why do you feel the Landlord would struggle to find a tenant of similar financial standing?

Answer 21

• Location of the parade
• Covenant strength in surrounding parades
• Lack of demand from other multiples with this property type
• No interest from business to business mailing list

Question 22

You mention the additional works of removing redundant items, why was this recommended?

Answer 22

• The boiler was a landlord’s fixture
• The outside toilet was dilapidated and redundant, the space would be more fitting as a store room

Question 23

What were the repairing obligations under the terms of the lease?

Answer 23

• GF shop and garage, internal repairing and shop front
• To keep in good and substantial repair and condition
• All internal surfaces including non-structural partions, columns, floor screed of both garage and shop. Includes full repair of the flat roof extension as this exclusively serves the premises

Question 24

Can you tell me how you demonstrated client care

Answer 24

• Keeping the VLP in mind
• Providing details on all possible disposal methods and my recommendation on which would be most beneficial to the business
• Providing regular updates to the client on progress
• Providing a breakdown of provision release, cost of the deal including legal fees