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(C) S2, 22 - RICSAPC Commercial Real Estate > Leasing and Letting > Flashcards

Leasing and Letting Flashcards

1
Q

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

A

RICS professional statement Code for leasing business premises, 2020

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2
Q

When does RICS Code for leasing business premises, 2020 become effective?

A

1st September 2020

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3
Q

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

A

The professional statement is mandatory and was created to:

improve the quality and fairness of negotiations on lease terms and encourage the use of the new HoT to make the legal drafting of leases more efficient.

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4
Q

What are the FOUR sections of the RICS Code for leasing business premises, 2020?

A

Part 1: Introduction
Part 2: Mandatory requirements (Negotiations and heads of terms)
Part 3: Lease negotiation best practice
Part 4: Appendices
(Appendix A - Template heads of terms and checklist; Appendix B - Guide for landlords and tenants)

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5
Q

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

A

H - heads of terms and must summarise the position on a number of aspects
U - unrepresented party must be advised about this code and must be recommended to obtain professional advice
L - letting terms that achieve a fair balance between the parties commercial interests
C - constructive and collaborative manner

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6
Q
A
  • Negotiations must be approached in a constructive and collaborative manner.
  • A party not represented by a RICS member or other property professional must be advised by another party of the existence of the code and must recommend professional advice.
  • HoTs must be ‘subject to contract’
    • Identity and extent of premises
    • Length of term
    • 1954 Act in/out
    • Break rights
    • Rent deposit and conditions for release
    • Repairing obligations
    • Rent free/incentive
    • Alienation rights
    • Any special rights to be granted (eg parking)
    • Conditions – survey, LL/TT board approval, planning permission, measurement
  • LL agent is responsible for ensuring HOTs comply with the Code.
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7
Q

What is contained within Appendix A of RICS Code for leasing business premises, 2020?

A

Template head of terms and a checklist, which can be used should the landlord wish to use their own form of heads of terms document

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8
Q

What is contained within Appendix B of RICS Code for leasing business premises, 2020?

A
  • Guide for landlords and tenants
  • Supplemental to the professional statement and does not hold mandatory status
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9
Q

What is a lease?

A

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

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10
Q

What do rental guarantees typically cover?

A

Usually make the guarantor liable for the rent and the tenant’s other obligations, including service charge payments and repairs.

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11
Q

Do tenants have to pay VAT on rental payments?

A

Depends if the property is ‘opted for VAT’ by the landlord.

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12
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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13
Q

What does it mean to ‘sublet’ a property?

A

The existing tenant continues to hold the lease and pay rent to the landlord but sublets the space to another party, from whom the tenant will, in turn, collect rent.

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14
Q

What is an AGA?

A
  • Authorised guarantee agreement.
  • Requires the tenant who assigns a lease to guarantee the performance of the lease obligations by the party to whom the lease is assigned.
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15
Q

What provisions can there be in the lease to mean that a tenant does not require an AGA to assign a property?

A
  • If the new tenant is financially strong enough
  • If the new tenant pays an appropriate rent deposit and/or provides a suitable guarantor
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16
Q

What is a ‘schedule of condition’?

A
  • Record 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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17
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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18
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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19
Q

What details with regards to the rent review should 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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20
Q

What details with regard to the service charge and insurance payments should the landlord provide an indication of, according to the RICS Code for leasing business premises, 2020?

A

Should provide an estimate of service charges and other insurance payments

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21
Q

What is said with regards to assignment in RICS Code for leasing business premises, 2020?

A

Leases should allow tenant to assign the whole of the premises with the landlord’s consent, which is not to be unreasonably withheld or delayed

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22
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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23
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
  • Guarantor/personal guarantee
  • Rent deposit
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24
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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25
Q

How would you go about assessing the covenant of a tenant?

A

I may also assess the previous three years of company accounts, which can be found on Companies House for UK registered businesses. I would advise my client that I am not a specialist in understanding company accounts and would therefore recommend seeking specialist advice on these matters. One could also seek a reference from a previous/existing landlord. Previous / existing landlords reference

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26
Q

What would you recommend if the proposed tenant had a poor covenant?

A

Depending on the circumstances, I would either recommend not progressing with that tenant or mitigating the risk of the poor/lack of covenant.

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27
Q

What obligations is a guarantor under?

A

As per the Code for Leasing Business premises (2020), the parties need to agree whether the guarantee will be of an unlimited amount or capped at a specified sum. It is to be decided between the parties if the guarantee is just for rent or inclusive of other obligations.

28
Q

What is a rent deposit?

A

A rent deposit is a sum of money that is provided by the tenant to the landlord as security for payment of the rent and other moneys per the covenants in the lease.

29
Q

What are the requirements for a rental deposit?

A

The deposit is personal to the tenant. The interest of money held by the landlord should be accrued to the tenant, the money must be held in a separate bank account and all the conditions, including conditions for release of monies, should be recorded in a detailed rent deposit deed.

30
Q

What must be included in a set of marketing particulars?

A

According to the RICS Professional Statement on UK Commercial Estate Agency (2016), marketing particulars should be prepared by someone who has personally inspected the property and must include:

  • Accommodation/sizes
  • Date
  • EPC rating
  • Accurate representation of price (if stated)
  • Confirmation of tenure
  • Reference to business rates
  • Disclaimer
31
Q

What is an Agreement for Lease?

A

Agreement for Lease is a binding agreement between a landlord and prospective tenant to grant or accept a lease in the future.

32
Q

What is ‘liquidation’?

A
  • Company is brought to an end, and the assets and property of the company redistributed
  • Aka winding up of company
  • Compulsory – creditors liquidation
  • Voluntary – tenant liquidation
  • Companies in administration cannot be forced into liquidation
33
Q

What is receivership?

A

Receivership is a situation in which a company is held by a receiver—a person “placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights”—especially in cases where a company cannot meet its financial obligations

34
Q

What are the main differences between a lease and a licence?

A
  • Lease is an interest in land, a licence makes legal what would otherwise be illegal
  • Term certain
  • Exclusive possession
  • Rent
  • Demise…specific
  • Street v Mountford and Clear Channel v Manchester City Council
  • Lease often assignable, licence personal
35
Q

When would you recommend an assignment and when a subletting?

A
  • Would depend on the client’s motivations
  • If they would like to keep their interest, may wish to reoccupy, wish to continue occupying part, would recommend subletting.
  • If they want no more involvement or struggle to pay the rent, recommend assignment.
  • They would need to consider obligations to previous assignees if pre-1996 lease and if post-1996 will need to consider if an AGA will be demanded by the Landlord.
36
Q

How does a turnover rent lease work?

A

Base rent of 80% (or equivalent) of full market value + top up with c.10% of turnover (gross but net of VAT) – advantages of landlord gaining access to turnover data, more mutually beneficial to work together, both LL and tenant invested in business success, sharing of upside etc

37
Q

What are the different types of agency you can agree?

A
  • Sole selling rights – one agent has complete control of the sale and is entitled to a fee however property is sold – 8% fee, 15% joint sole letting rights
  • Sole agency (joint) – fee to whoever introduced the purchaser within terms of instruction. No fee if L sells it himself.
  • Ready willing and able purchaser - If the client pulls the plug at the point of exchange. If the purchaser is ready willing and able you should get a fee. Can also
    include abortive fees if the client pulls out.
38
Q

SDLT also payable on the grant of new leases and premiums payable (as above). Calculated on NPV for the lifetime of lease discounted at RPI at the following rates:

A

It is calculated by taking the NPV of the lease, and applying the following bands:

Up to £150,000 ——— 0%

£150,001 - £5,000,000 ——— 1%

Over £5,000,000 ——— 2%

39
Q

What Came into Effect in 2015, and what impact does it have of property agency work?

A

The Consumer Rights Act 2015. As of October 2015, Letting Agents had to publish all of their fees online and in their offices clearly. If a firm handles clients’ money they have to say if they are signed up to a Client Money Handling Scheme and name which one.

[policed by local authority]

40
Q

GLUMMEST CD

You mentioned the RICS UK commercial real estate agency (1st edition, October 2016); what legal documents would you have regard to?

A

Estate Agents Act 1979

Misrepresentations Act 1967

Consumer Protections Regulations 2008

GDPR 2016

Data Protection Act 2018

Land Registration Act 2002

Town and Planning (Control of Advertisement) (England) Regulations, 2007 as amended

Money Laundering Regulations 2007

Supply of Goods and Services Act 1982

Unfair Contract Terms Act 1977

41
Q

What is in your companies disclaimer within marketing particulars?

A

Notes that the company are not authorised to make or give any representations or warranties in relation to the property. These particulars do not form part of any offer or contract and must not be relied upon as statements or representations of fact. Measurements/distances are provided as guidance and should be checked

42
Q

What is the main RICS regulation to be aware of when undertaking a leasing instruction?

A

RICS Professional Statement – Code for Leasing Business Premises, 2020

RICS Professional Statement UK Commercial Real Estate Agency, 2016

43
Q

What is RICS UK Commercial Real Estate Agency Professional Statement, 2016?

A

Mandatory statement provides standards for RICS members with (12) core principles, including:

  • Act in an honest, fair, transparent manner
  • Ensure the client is in receipt of terms of business that are fair
  • Carry out work with due skill
  • Not to discriminate unfairly in any dealings
  • Hold appropriate PII

Also provides advice on key areas of the agency.

44
Q

Mentioned in submission

What is the purpose of the Estate Agents Act 1979?

A

The Estate Agents Act 1979 regulates work as an estate agent. Its purpose is to make sure that an agent works in the best interests of your clients, and that both buyers and sellers are treated honestly, fairly and promptly.

Why this information is important

  • If you don’t comply with the law, you could be banned from working as an estate agent
  • If you ignore a ban, you could be prosecuted and fined
45
Q

Mentioned in submission

Can you give me an example of the effect of the Estates Agents Act 1979?

A

Specifies information agent must give to the prospective client before entering into an agency contract – in writing

  • When the client will become liable to pay remuneration.
  • Amount of agent’s remuneration.
  • Particulars which don’t form part of agent’s remuneration e.g. marketing exp.
  • Nature of instruction (eg sole)
46
Q

Mentioned in submission

What is the purpose of the Consumer Protection from Unfair Trading Regulations 2008

A

They protect consumers from unfair or misleading trading practices and ban misleading omissions and aggressive sales tactics

47
Q

Mentioned in submission

What is the purpose of the Consumer Protection from Unfair Trading Regulations 2008

A

They protect consumers from unfair or misleading trading practices and ban misleading omissions and aggressive sales tactics

48
Q

Mentioned in submission

What is the purpose of the Business Protection from Misleading Marketing Regulations 2008?

A

prohibit misleading business-to-business advertising and impose further restrictions on how businesses compare their products to rival products from other companies.

49
Q

Mentioned in submission

How would you satisfy your obligations under the:

Consumer Protection from Unfair Trading Regulations 2008?

What is the purpose of the Business Protection from Misleading Marketing Regulations 2008?

A

To satisfy your obligations under the CPRs and BPRs, you need to treat consumers, business customers and competitors fairly. It will help if you can show that you act diligently, in keeping with any professional standards and taking reasonable steps to avoid committing a breach

50
Q

Mentioned in submission

What is a Statutory Declaration?

A

A statutory declaration is a formal statement made affirming that something is true to the best knowledge of the person making the declaration.

It has to be signed in the presence of a solicitor, commissioner for oaths or notary public.

51
Q

Mentioned in submission

What is the contracting out procedure?

A
  1. The landlord serves a warning notice on the tenant, with specified content, explaining that the tenant’s rights are being waived.
  2. The tenant makes either a simple or statutory declaration to acknowledge that it understands the consequences of contracting out. A simple declaration can only be made if the tenant has received the warning notice at least 14 days before the grant of the lease.
  3. The lease includes an endorsement referring to the landlord’s notice and the tenant’s declaration and the parties’ agreement that the relevant provisions of the 1954 Act are to be excluded from the lease.
52
Q

Mentioned in submission

What is a licence of alterations? What does it include?

A

Often in Commercial Property, a tenant may require certain alterations to the property they occupy under a lease.

To carry out these alterations, the tenant will likely need the consent of the landlord.

This consent will come in the form of a document called a ‘Licence for Alterations’.

53
Q

Mentioned in submission

What are the effects of London College of Business Ltd v Tareem Ltd 2018?

A

The effect of a parties’ arrangement in practice was more important than any labels attached to it by the parties.

54
Q

Mentioned in submission

Under the Estates Agent Act 1979 who is an estate agent?

A

By law, you are an estate agent if:

  • You deal with people who want to buy or sell freehold or leasehold property
  • You do this as part of a business
  • You act on instructions from a client.
55
Q

Under the Estates Agent Act 1979 when will you be, or likely to be, engaging in estate agency work:

A
  • Sending out property particulars and arranging viewings
  • Offering personal advice to potential sellers or buyers
  • Receiving and fielding queries from potential sellers or buyers and passing on details to your clients
  • Providing an energy performance certificate or arranging for it to be provided
  • Providing clients with a ‘For Sale’ board and/or putting it up outside their property where the board contains your contact details and you deal with potential buyers on behalf of the seller.
56
Q

When will you be misleading clients in relation to the Estates Agent Act 1979

A

You will be misleading consumers if you state that you are not doing estate agency work when you are.

If you are acting as an estate agent, you must comply with your legal duties such as providing your clients with information on their prospective liabilities (e.g. be clear and upfront about charges) and declare to buyers and sellers any personal interest that you or a connected person (such as a business associate or a relative) may have in any properties detailed on your website.

57
Q

Under the Estates Agent Act 1979 what information must you give to clients?

A
  • Fees and charges
  • Services to potential buyers
  • Your terms of business.
  • Declare a personal interest
58
Q

When handling negotiations what should you do under the Estates Agents Act 1979?

A

Under the Estate Agents Act 1979, you must make sure that everyone is treated equally, fairly and promptly when:

  • Informing clients about offers
  • Informing clients about your services to buyers

You must not:

  • Make misleading statements
  • Falsely describe a property
  • Show bias against potential buyers

You must give your clients written details of all offers received from potential buyers

59
Q

What is the timeline for a letting?

A
  • Receive instructions from the client
  • Check competence / independence / conflicts of interest / money laundering
  • Issue Terms of Engagement to the client and request confirmation in writing
  • Inspect in accordance with the RICS Guide to Surveying Safely (guidance note). There are 4 stages of inspection
  • Measure in accordance with IPMS / the Code of Measuring Practice (NIA / GIA)
  • Note agents boards and get comparable evidence
  • Market Rental Valuation (NOT Red Book as this is for Agency purposes)
  • Report to the client and put together draft letting particulars in accordance with legislation
  • Carry out viewings and deal with enquiries
  • Receive offers and advise clients accordingly
  • Bear in mind rent, lease length, covenant strength
  • Draft heads of terms and circulate
  • Assist client’s solicitor on pre-contract enquiries
60
Q

What are the standard assumption in a rent review?

A
  • Property fit for letting
  • Open market
  • Willing landlord and tenant
  • Tenant is using for demised purpose and is following lease covenants
  • Vacant possession
61
Q

What are the standard disregards in a rent review?

A
  • Tenants alcohol licence
  • Tenants improvements under the lease
  • Any goodwill
  • tenants previous occupation
62
Q

How big can commercial letting boards be?

A

For commercial premises, which are obviously going to require a larger sign, signs can be up to 2 sq. m, or in the case of two joined boards, 2.3 square metres in total.

63
Q

What are the main sections of the Estates Agents act 1979?

A

Section 18

Section 21

64
Q

What is section 18 of the estates agents act 1979?

A

Information to clients of prospective liabilities.

Section 18 requires estate agents to give clients information before entering into a contract for estate agency work including strict details of commission, other remuneration and fees for services other than estate agency work.

The court felt that this included the requirement to tell clients about liability to pay contractual damages for breach of contract.

65
Q

What is section 21 of the estates agents act 1979?

A

Transactions in which an estate agent has a personal interest.

A person who is engaged in estate agency work and has a personal interest in any land shall not enter into negotiations with any person with respect to the acquisition or disposal by that person of any interest in that land until the estate agent has disclosed to that person the nature and extent of his personal interest in it.

(C) S2, 22 - RICSAPC Commercial Real Estate (21 decks)

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