Leasing and Letting Flashcards
(104 cards)
1
Q
What does the RICS Professional Standard: Code for leasing business premises, 2020 state?
A
- Improve the quality and fairness of negotiations on lease terms and promote the use of a new set of comprehensive heads of terms to make legal drafting of leases more efficient
- A second edition of the Code is currently being considered by RICS
2
Q
RICS Professional Standard: Code for leasing business premises, 2020
What does Part 2: Mandatory requirements of the Code include?
A
- Negotiations over the lease must be approached in a constructive and collaborative manner
- A party that is not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of this Code and its supplemental guide and must be recommended to obtain professional advice
- Negotiations should aim to produce letting terms that achieve a fair balance betweent the parties having regard to their respective commercial interests
3
Q
RICS Professional Standard: Code for leasing business premises, 2020
What does Part 3: Lease negotiation best practice advice state?
A
Includes specific advice on lease terms to include rent deposits, rent reviews, service charges, repairs and alienation clauses
4
Q
What is an EPC?
A
- Energy Performance Certificates (EPCs) are used to assess the energy efficiency of a building
- These are required by law in the course of a sale or letting and are developing an increased level of importance due to the introduction of Minimum Energy Efficiency Standards in April 2018
- These prohibit the letting of properties with EPC ratings lower than E
5
Q
What is a lease?
A
- A lease is a legally binding agreement between a landlord and tenant
- It grants the tenant the right to exclusive possession and occupation of the property for a specific duration
- It can be assigned
6
Q
What is the definition of a landlord?
A
The person or company who will grant the lease and who may be a freeholder or leaseholder
7
Q
Definition of a Tenant?
A
The person or company who will rent the property from the landlord
8
Q
What is a guarantor?
A
A person or company who will guarantee to the landlord the obligations of the tenant
9
Q
What are Heads of Terms?
A
- A summary of the agreement between the parties, used to instruct lawyers to produce the actual lease
- Once the lease has been signed the heads of terms fall away
- Not legally binding
10
Q
What is a break clause?
A
- It gives the right for one party, or either party, to end the lease sooner by giving a notice either at any time or on specified dates
- Legal advice should be obtained in order to correctly serve the break notice
11
Q
What does it mean when a lease is contracted Inside the 1954 act?
A
- At the end of the lease term the tenant, if still using the property to carry on business, will be entitled to claim a new lease, on terms that the parties agree or that a court will decide if they cannot
- There are only limited groundst on which landlords can oppose a tenant’s claim for renewal, such as where the landlord intends to redevelop the property or offers the tenant suitable alternative accommodation or where the tenant has been persistently late in paying rent
12
Q
With rental deposits, what happens to the interest?
A
- Interest on the deposit should normally accrue to the tenant and be at a normal rate for
money on deposit - Deposits should be held in separate bank accounts and the bank accounts should be designated as tenants’ deposits to protect the funds in case the landlord becomes insolvent
13
Q
What is a rent deposit deed?
A
The agreed arrangements for landlords refunding any deposit based on certain conditions
14
Q
When is rent typically paid?
A
- Quarterly or monthly
- Leases normally impose a charge of interest where rent is not paid on its due date
15
Q
What is an open market rent review?
A
- It is a mechanism for periodically adjusting the rent of a property to reflect its current market value
- The formula for assessing the rent should disregard any added value from improvements the tenant makes
16
Q
What are indexed rents?
A
More appropriate for short term leases and do not normally involve incurring significant costs at each review
17
Q
What is an ‘Upwards Only’ rent review provision?
A
- Allow the rent to be increased but never decreased
- The rent will not reduce even if there is a fall in the market rent or inflation index by the review date
18
Q
What is a rent-free period?
A
This is often intended to cover the period during which the tenant is fitting-out the property, so the tenant is not paying rent before it is able to trade
19
Q
What are business rates?
A
It is a tax that is payable for the occupation of non-domestic property in the UK
20
Q
What is Stamp Duty Land Tax?
A
- The tenant may have to pay SDLT on the lease, depending on the amount of rent and the duration of the lease term
- Any such payment will be due within 14 days on completion of the lease
21
Q
What is a FRI lease?
A
Tenant reponsible for all external and internal repairs and maintenance of the property
22
Q
What is an IRI lease?
A
Tenant is responsible for repairing the internal non-structural parts of the area within their demise with the tenant contributing to communal repairs through service charge
23
Q
What are ‘Yield up’ provisionings?
A
Many leases contain a provision for the tenant to ‘yield up’ the premises at the end of the term in the state and condition required by the tenant’s repair obligations, although that obligation may exist even if not expressly stated
24
Q
What are alterations provisioning within leases?
A
Where part of a building is being let, it is common to prohibit the tenant from making structural and external alterations but to allow internal non-structural alterations with some degree of control by the landlord
25
What is a 'Licence to alter'?
A tenant wishes to make alterations that need the landlord’s consent must expect the landlord to seek the right to require the tenant to remove the alterations and restore the premises at the end of the lease, particularly where the landlord thinks that the alterations may detract from the value of the building
26
What does the Landlord and Tenant Act 1927 state regarding consent for alterations?
* If the landlord receives a proposal for alterations that includes a specification and plan, and the landlord fails to object to the proposal within 3 months, the Landlord and Tenant Act 1927 may make the landlord lose the right to object to the alterations
27
What are dilapidations?
* The term ‘dilapidations’ is used to cover defects and disrepair that the tenant will be required to deal with or pay to have remedied when the tenant vacates the premises at the end of the lease
* Landlords cannot generally make dilapidations claims earlier than 3 years before the end of the lease
28
What may the Landlord request if additional security is needed from the tenant?
Rent deposit or guarantee (depend upon market conditions and the strength of the tenant's covenant)
29
When using a rental deposit, what things do you need to consider?
* Must be legally documented in a rent deposit deed & money held in a separate bank account
* Agreed terms for the release of the monies
* Details of the release mechanism to be stated in the deed
* It is attached to the lease as it is a separate deed, personal to the tenant
30
What do Landlord's request regarding testing tenants covenant strength?
* 3 years audited accounts / credit rating (such as from CreditSafe)
* Profits tests commonly used - where the net profit of the tenant's business must be 3x the rent for 3 consecutive years
31
What major lease terms affect value?
* Lease length / term certain
* Break clauses
* Alienation
* Repairing obligations
* User clauses
* Rent review pattern & basis of valuation
* Impact of a restrictive lease clause
* Inside or outside the Act? If there is no mention then it is protected
32
If there is an option to terminate within the lease, what things do you need to check?
* Is it mutual?
* Do you need to serve a notice if the lease is granted inside the 1954 Act?
* What is the notice period?
* Is there a penalty rent to be paid, if the lease is terminated?
* Are there any pre-conditions for the option or is it an open break clause?
33
A tenant's right to break is often conditional upon having complied with certain lease obligations. What are these typical conditions?
* Compliance with the tenant's covenants
* Payment of all rent and other sums due
* Vacant possession
34
What is an advantage of a pre-let?
Delivery of a bespoke building designed to suit the tenant's needs
35
What is a disadvantage of a pre-let?
Entering a lengthy and complex process and a level of risk in the event of the developer or contractor not performing
36
What documents are required to be attached to an Agreement to Lease?
* The Lease - in a pre-agreed form, which shall be executed once the developer has fulfilled its obligations under the AtL, usually at practical completion of the work
* Licence for Alterations - to allow the tenant to undertake fitting out works
* Specification and plans of the proposed scheme
* Warranties - any tenant taking an FRI lease will want collateral warranties from the professional team, main contractor and any sub-contractors with any design input
* Most developers are unwilling or unable to give guarantees for latent defects and may put decennial insurance in place to cover this risk
37
What is a collateral warranty?
It gives tenants a direct contract with the construction team (privity of contract)
38
What is the RICS Professional Standard: Property Agency and Management Principles 2024?
* Global RICS document and not UK specific
* Effective from 1st Jan 2025
* 2 elements of the document: Working with clients & Managing businesses and staff
39
# RICS Professional Standard: Property Agency and Management Principles 20
What does the Working with clients section state?
* Do not seek business by methods that are dishonest or involve misrepresentation
* Clearly communicate to clients how their fees will be calculated and provide clear Terms of Business
* Provide suitable, accurate and unbiased advice
* Only provide advice on an appropriate price
40
# RICS Professional Standard: Property Agency and Management Principles 20
What does the Managing business and staff section state?
* How to manage businesses and staff effectively
* Take reasonable steps to ensure that all business and marketing materials are honest and accurately reflect the services that are provided
* Ensure all advertisements meet the requirements of any relevant local legislation
* Protect confidential information
* Firms must have appropriate cyber security in place to protect theirs and their client's data
41
What must you do when understanding a tenant's alienation rights?
* Always Read the Lease
* Understand the differences between an assignment and a sub-letting
42
What is an assignment?
The new tenant has a direct relationship with the landlord
43
What is a sub-letting?
The new sub-tenant has a direct relationship with the tenant and pays them the rent, who then pays rent to the landlord
44
What are the different alienation clauses within leases?
* Open - allowing alienation
* Qualified - subject to some conditions
* Absolute - not alloing a sub-letting or assignment
## Footnote
The usual clause is that landlord's consent is not to be unreasonably witheld or delayed
45
What are the reasons to sub-let, rather than assign?
* Requirement of the lease
* For part of the demise and not the whole
* If the market rent is higher than the passing rent then there is a profit rent
* If the tenant wants to re-occupy in the future
* The new party is of a lesser covenant strength
46
What does the Landlord & Tenant Act 1995?
* Relates to the assignment of leases
* It introduced Authorised Guarantee Agreements (AGA's)
47
What is an AGA?
* It is a guarantee provided by the assignor to the landlord, ensuring that the assignee will fulfill all obligations under the lease
* It's a way for landlords to have some level of security after a lease is assigned, particularly if the assignee's covenant strength is weak
48
What does the RICS Professional Standard: Code for leasing business premises 2020 state?
* Improve quality/fairness of negotiations, promote new HoT to make legal drafting more efficient
* Allow tenants to assign whole of premises with Landlord consent - landlords may set out cirumstances for refusal
* Requirement for AGAs to be clearly stated in the lease
* Subleases should be required to be on terms consistent with the tenant's own lease
49
When dealing with an application for consent for alterations, what actions do you need to undertake?
* Read the Lease
* Plans and spec
* Document alterations
* Check long term impact of property
* Consider reinstatement costs
* Planning required?
* Check Equality Act 2010?
* Provide report to client and obtain instructions
* Instruct clients lawyers to prepare license for alterations
* Inspect completed works as agreed
50
What are two choices tenants can make re. dilaps before the lease expiry date?
1. Tenant can do the agreed works
2. Tenant can pay a sum to the landlord to undertake the works
51
What are some reasons why a dilaps settlement is not needed?
1. When the lease is not on full repairing terms
2. Reinstatement not required by the landlord
3. If the building is to be demolished or substantially refurbished after the lease expiry
4. Tenant has gone into administration
52
What insurance provisioning is there within the lease?
* Usually the responsibility of the landlord to arrange and re-charge the tenant
* Cover for reinstatement of the building for a range of insurance perils (such as fire, storm, flood etc.)
* The usual basis of measurement for building reinstatement valuations is to use GIA
* Insurance Act 2016 is the key law which introduced more accountability for insurers
* RICS became a Designated Professional Body for insurance matters in 2005
53
If you have an empty building, what are some actions that need to be undertaken?
* Building insurance - tell the insurers it is empty
* Obain an EPC and consider MEES
* Undertake inspections
* Undertake health& safety risk assessment
* Inform the local rating authority for the payment of empty rates
* Arrange security and decommission services and isolate power supplies
* Agreement of disposal strategy and marketing initiatives
54
What is an effective FRI lease?
When the landlord is responsible for repairs & re-charges via the service charge
55
What are the 4 main options open to a landlord to deal with a tenant who is not repairing their property?
1. Serve a repair notice
2. Forfeit the lease
3. Serve an interim schedule of dilapidations
4. Do the works and charge the tenant
56
What does the Leasehold Property (Repairs) Act 1938 state?
* Act applies to leases granted for a term of 7 years or more and has at least 3 years until the lease expiry
* Aims to protect tenants against onerous interim schedules of dilapidations
* Act requires landlords to serve a repair notice on the tenant
57
What is a Planned Maintenance Programme?
A programme stating the planned maintenance activities for a building includes items such as servicing the plant, future repairs and undertaking any remedial works to the building
58
What is a schedule of condition?
* Limits a tenant's repairing obligation in respect of agreeing items of disrepair for the duration of the lease
* It is agreed by negotiation between the landlord and tenant prior to the commencement of the lease and attached to the lease
* Reinstatement at the end of the lease will be limited by the terms of the schedule of condition
* It is carefully recorded - often with a supporting photographic records and plans
59
What is a service charge?
These are charges to tenants of multi-tenanted properties of costs incurred by a landlord to maintain and manage a property
60
What are user clauses?
* Relate to the planning use of the property or how the property can be used
* Two types of clauses - refer to planning use and specific uses
* Change of use typically subject to landlord's consent not to be unreasonably withheld
* A restrictive user clause can depress market rent - e.g. restriction on hours of working for offices
61
When drafting your terms of engagement, what do you need to consider?
* That you are competent
* There is no personal interest or conflict of interest
* You refer to your standard Terms of Business that will apply alongside the ToE
62
What actions are required when you have a new instruction?
* Undertake a conflict of interest and competency check
* Agree terms of engagement with the client
* Obtain an understanding of your client's objectives
63
What does 'without prejudice' and subject to contract mean?
During the period of negotiations, the opposing party cannot subsequently rely upon any document or discussions held which are labelled 'Without Prejudice'
64
What are the 4 requirements of a lease?
1. Exclusive occupation
2. Payment of rent
3. Duration for a specified term
4. If more than for 3 years, the terms must be in writing, signed as a deed
65
What are the differences between a lease and a licence?
- A lease can be assigned - a licence is normally a personal right that cannot be assigned
- A lease cannot be terminated until it expires (unless there is a break clause) - a licence can usually be revoked at any time
- A lease grants exclusion possession to a tenant for the duration of the term, whereas a licence is a right to enter a property and does not grant exclusive possession
66
What is a tenancy at will?
* Form of licence created by written agreement for an unspecified time in which the landlord may evict the tenant at any time
* Used for allowing a tenant early entry for fit out works
67
What is a wayleave?
This is a temporary right and receives an annual payment - such as it provides a right for an electricity company to install and retain their apparatus
68
What is an easement?
* This is a permanent right and receives a capital payment
* It is capable of being registered at the Land Registry
* It is a right that allows one landowner to use another person's land for a specific purpose
69
What is a prescriptive right of way?
Can be obtained because of continuous and uninterrupted use being proven over a period of not less than 20 years
70
What is a permissive right?
* Can be granted by a landowner to allow access over the land
* They are not public rights of way and the public do not have a right to use them
* Usually signage in place to confirm
71
What is adverse possession?
The process by which a person who is not the legal owner of the land can become the legal owner through possession of the land for a specified period of time, without the owner's permission
72
What are headline rent review clauses?
* A headline rent ignores all incentives/concessions granted on a letting
* Headline rent review clauses are rare in modern commercial leases
73
What is the Hierarchy of Evidence 2019?
| OLRIASSR
* Open market lettings
* Lease renewals
* Rent reviews
* Independent expert determinations
* Arbitrator awards
* Sale & leasebacks
* Surrender & renewals
* Inter-company arrangements
74
When leases are contracted outside of the Act what section sets out the procedure to follow?
* Section 38A of the Act sets out the procedure which must be followed to contract outside the Act
* When the lease comes to an end the tenant has no statutory right to remain in occupation
* No compensation is payable at the end of the lease
75
What are some reasons why a letting may be contracted outside the security of tenure provisions of the L&T Act?
* A requirement of the head lease to grant any subletting outside the Act
* The landlord will want to re-occupy the property in due course
* The landlord wishes to redevelop the property at lease end
* The rent may be lower
* The landlord wants future flexibility
76
What procedures need to be undertaked when contracting a lease outside of the Act?
* Landlord is required to serve a notice on the prospective tenant, warning that the proposed lease will not be protected
* The proposed tenant must confirm that they have received the notice and accepts its terms
* This procedure must be completed before the lease is signed
77
What are the two types of declaration?
1. Simple declaration (at least 14 days to commit)
2. Statutory declaration (less than 14 days to commit)
78
What are the various ways to terminate a lease?
* Forfeiture
* Surrender and negotiation
* Merger
* Disclaimer (due to insolvency)
* Break clauses
* Lease expiry and service of notices under the L&T Act 1954
79
Who policies the Estate Agents Act 1979?
Trading Standards Office
80
When does the Misrepresentation Act 1967 apply?
* Mis-statements/false statements or misrepresetnations made during the pre-contractual enquiries by the vendor or their agent to the proposed purchaser
* Freehold and lease transactions
81
What is the offence of the Mispresentation Act 1967?
* Civil offence
* Action can be limited by an effective disclaimer (exclusion) clause
82
What is the offence for non compliance with the Mispresentation Act 1967?
Prohibition or warning order
83
When does the Estate Agents Act 1979 apply?
* During the sale or purchase of freehold or leasehold properties with a capital value
* S18 - Terms of business
* S21 - Declaration of personal interests
84
What is the offence for non compliance with the Estate Agents Act 1979?
* Acting dishonestly
* Not providing clarity to the terms of engagement or disclosing a personal interest
* Not telling the client about offers received
85
What are the penalties for non-compliance with the Estate Agents Act 1979?
Warning order or Prohibition order and/or fine
86
When does the Consumer Protection Regulations 2008 apply?
During the entire agency sales and lettings process
87
What is the offence for non compliance with the Consumer Protection Regulations 2008?
* Criminal offence
* Not treating 'customers' fairly and/or providing misleading marketing information
88
What are the penalties for non compliance with the Consumer Protection Regulations 2008?
Unlimited fine, prohibition order and prison up to 2 years
89
What does the Town & Country Planning (Control of Advertisements) Regulations 2007 state?
* Planning consent is required for commercial boards over 2 sqm (flat) and 2.3 sqm (v board) - only one board per building
* Boards must be removed 14 days after completion of transaction
* Policed by the LPA
90
If a Landlord chooses to elect a property to charge VAT, what happens?
* When this happens any rent and SC is charged subject to VAT
* However, some occupiers cannot be VAT registered such as financial institutions, charities and medical practitioners
* Specialist advice is always recommended
91
What are the Estate Agents Act 1979 7 key principles?
| CHOALAK
1. Clarity as to the terms of the agency
2. Honesty and accuracy
3. Openness regarding personal interests
3. Agreement and liability for costs
4. Legal obligation to tell the client about offers received
5. Absence of discrimination
7. Keep clients' money separate
92
How do you determine if a lease is inside or outside the act?
You would look for provisioning wording stating the lease is contracted outside the act, If there is no mention then you assume it is protected & inside the act
93
What RICS Professional Standard relates to service charges?
* RICS Professional Standard: Service charges in commercial property, 2018
* Improves general standards and promote best practice and reduces the causes of disputes
94
What is empty rates relief?
Do not have to pay business rates on your empty property for 3 months
95
What documents does the RICS Property Agency & Management Principles 2024 consolidate?
Consolidates 5 documents including RICS Professional Statement: UK Commercial Estate Agency 2016
96
Describe a letting process
1. Run conflict of interest check on both the client & asset
2. Consider AML checks
3. If there are no red flags or conflicts - proceed to draft TofE
4. Inspect & measure the asset - considering factors affecting marketability
5. Draft marketing particulars for client approval
6. Upload marketing materials & marketing board
7. Conduct inspections & report all offers recevied to the client alongwith counter response recommendations
97
What legislation guides marketing boards?
Town & Country Planning Regulations 2007
97
What has to be included on a brochure by law?
EPC & disclaimer highlighting the Misrepresentation Act 1967
Highlighting that info accuracy cannot be guaranteed
98
What would typically be included in a service charge?
- Building and structural maintenance
- Cleaning in common areas
- Utilities for common areas
- Security
99
What is excluded from a service charge?
Tenant demise cleaning, repairs & maintenance
100
What else could you negotiate when looking to limit a client's liability on SC?
Whether there is a sinking fund
101
What is a sinking fund in terms of SC?
It is a part of a service charge to accumulate funds for future, large-scale repairs or replacements of communal areas
102
How would you estimate your business rates?
- On the government website it provides the business rates multipliers
- Standard multiplier is 54.6
- Small business multiplier is 49.9
103
What are your typical fees for a joint agency basis?
7.5%
