Leasing and Letting Flashcards
What constitutes a lease?
· Exclusive occupation
· Defined demise / property
· Defined term
· Rent
What are the main principles of the RICS UK Commercial Estate Agency Professional Statement, 2016?
- Be fair, honest and transparent
- Due skill, care and diligence
- Terms of engagement
- Avoid conflicts
- Don’t discriminate
- Communicate in timely and fair manner
- Advertising honestly and accurately
- Hold client money separately and insured
- PII cover
- Ensure all parties are aware of your obligations
- Provide realistic assessments of value
- Act as per client’s wishes
What is included within the RICS Professional Statement – Code for Leasing Business Premises, 2020?
· Negotiations should be constructive and in good faith
· Unrepresented parties should be made aware of the Code and advised to seek expert advice
· Comprehensive HoTs must be agreed before solicitors instructed (16 main points)
What is included in ToEs for agency work?
- Agency rights (sole, joint, multiple)
- Client care/main contacts/person dealing
- Where disposal – address of property
- Scope of work – to dispose of X property, to acquire new premises
- Fee basis
- Professional Indemnity details
- Marketing costs and disbursements
- Terms of contract and termination options
- Complaints Handling Procedures/terms of business
- Anti-Money Laundering Regulation Requirements
- Remuneration (timescale)
- Confirmation of no conflicts
What are the different types of agency?
- sole agency – only one agent
- joint agency – two or more agents sharing a fee on a pre-agreed basis
- multiple agency – any number of agents but only the successful agent gets a fee
What would you include in a property marketing report to a client?
- Details of the subject property
- Current market commentary/conditions/demand
- Local area competition
- Comparable rental evidence/relevant transactions
- Recommended marketing materials and associated costs – brochure, photography, boards etc.
- Achievable terms/costs
- Comments on condition/specification of property and any recommendations prior to marketing – redecorate etc.
- Proposed fee basis of agency
What is the difference between a lease and a licence?
lease:
ability to pass or sublet
automatically runs for another year (tacit)
rent must be received
exclusive occupation
specified term
terms: landlord and tenant
license:
personal right (cannot be passed)
no tacit relocation
terms: licensor and licensee
What things do you consider when assessing the strength of a tenant’s covenant? *
- Usually request the past 3 years’ audited accounts
- Bank account information and trade references
- Previous landlord’s reference where applicable
- Credit check
What do you use to check credit of a tenant? *
- My firm primarily use Dunn and Broadstreet software which assesses a potential tenant’s, accounts and assigns a financial strength rating 5A, 4A, 3A, 2A, 1A, A, B ,C , D,E , F, G , H.
- It also assigns a risk rating between 1 and 4 with 1 being the lowest (minimal risk) and 4 (significant level of risk).
What do you look for when reviewing a prospective tenant’s accounts?
- Use the profits tests:
o Net profit of the business is 3 times the annual rent for 3 consecutive years
o Net asset value of the business is more than 5 times the value of the rent
If a tenant does not meet the profits test/has a weaker covenant, what devices would you consider? *
- Rental deposit
- Guarantee
- Sureties
What does the Estate Agents Act 1979 cover?
- Applies to individuals and firms, governed by the Trading Standard Offices of the local authority:
o Clarity – as to the terms of agency (section 18)
o Honesty and accuracy
o Agreement and liability for costs
o Openness – regarding personal interest (section 21)
o Absence of discrimination
o Legal obligation to tell client about offers received
o Keep client’s money separate - HA – Honesty and Accuracy
- T – Clarity on Terms of agency – s18 – specify all costs
- D – Absence of Discrimination
- O – Tell clients all Offers
- M – Keep clients’ Money separate
- A – Agreement and liability for costs – costs have to be itemised
P – Openness for Personal Interests – s21 - Section 18 – Terms of engagement, specify all costs/fees, itemise all payments – no global budget allowed – section 18 governs ToE for leasing and letting instructions
- Section 21 – disclosure of personal interests
Cooling off period = 14 days – clients can change mind
Personal interest should be stated on particulars and HOTs.
Specify nature of agency and selling rights to be agreed
Policed by Trading Standards Office for LA:
* Prohibition order – stop agent practicing
Warning order – written order telling the agent not to do it again – and/or fine
What are Heads of Terms?
- A document outlining the key points of a lease to be negotiated or agreed between a landlord and prospective tenant prior to agreement of any formal legal missives and signing of a lease
- HoTs are not legally binding
- Contents are important as they shall dictate the provisions within the lease
What might be included in a typical set of Heads of Terms for a lease?
- Landlord entity
- Proposed Tenant
- Solicitor’s details for both parties
- Agent’s details for both parties where applicable
- The subject property/demise
- Size of property – if this is accepted or to be verified via measurement/joint
measurement - Rent
- Incentive
- Deposits
- Service Charge
- Insurance
- LBTT & Registration fees
- Business rates
- Any additions such as parking or storage
- Alienation
- Alteration
- Permitted use
- Date of Entry
- Legal Costs
- Any necessary approvals (LL board approval)
- Writing (Scotland) Act 1995 – rules about which rights may be constituted orally and which require writing
Is there any caveat that you would include within Heads of Terms?
- In accordance with the Writing (Scotland) Act 1995, this letter is neither intended to create or to be relied upon as creating ay contractual relationship or commitment
What things do you consider when assessing the strength of a tenant’s covenant?
- Usually request the past 3 years’ audited accounts
- Bank account information and trade references
- Previous landlord’s reference where applicable
- Credit check
What is a salient lease clause
Salient lease clauses are the critical or most important clauses in a lease contract. These are the ones that have substantial impact on either the landlord or the tenant, or both. In other words, they define key terms of the agreement that are crucial for all parties involved to be aware of and understand
example of salient lease clause
- term of the lease,
- rent and rent review clauses,
- repair obligations, insurance and
- service charge provisions,
- any restrictive covenants,
- break clauses,
- options for renewal, and assignments and subletting rights.
- These clauses lay down the fundamental rights and responsibilities of both the landlord and the tenant.
Explain a break clause
Time of the essence, notice period typically 3-6m (depends on size)
Conditions:
* Up to date payment of rent and S/C
* Compliance with covenants
Vacant possession
What is a Calderbank letter?
- Based on the case of Calderbank v Calderbank (1975)
- It is a letter or offer used to achieve an early resolution of a dispute to prevent costs escalating
- The letter must be marketed ‘without prejudice save as to costs’
- It can be a tool for influencing costs as the losing party will have to pay for the other sides recoverable costs – it can avoid the equal awarding of cists
- The letter must set out the terms to settle the dispute and a time limit from which the other party must accept – this is usually 21 days
- It must be a genuine offer to settle
- The arbitrator is obliged to make an award for costs
What is included in Particulars
- Address
- Description
- Accommodation
- Parking and local amenities
- Registered title use class
- Service and utilities
- Measurement, floor plans and photos
- EPC Details
- Price or Rent
- Contact Information
If there is an error in Particulars, what could happen.
Misrepresentation Act 1967 – applies to mis-statements/ false/fraudulent statement or misrepresentations made during pre-contractual enquiries by the vendor or their agent to the proposed purchaser.
What is the Misrepresentation Act 1967
- The Misrepresentation Act 1967
o Relates to the misrepresentation or false statement of fact made by a party during pre-contractual enquiries
o The vendor and/or agent can be sued for damages and contract rescinded
o It is a civil office – actionable as tort
o Misrepresentation can be fraudulent, innocent or negligent
o Agent has a duty of care to check advice, information and opinion is reliable
o Exclusion/disclaimer may protect vendor and their agent if fair and reasonable
o Hedley Byrne Co Ltd v Heller Partners (1964) created THREE tests to decide an agent’s liability for negligent claims:
1. Forseeability – the damage was reasonable foreseeable
2. Proximity – relationship can be characterised in law as being sufficiently proximate
3. Fairness – it is regarded as fair, just and reasonable for such a duty of care to arise
ME Disclaimer – Misrepresentation Act
- Particulars are a guideline only
- All information is given in good faith and subject to change
- Purchasers/tenants must investigate and satisfy themselves information is correct
Areas and measurements are approximate and for identification only
