Leasing and Letting

Question 1

What is the RICS Professional Statement Code for Leasing Business Premises 2020?

Answer 1

Mandatory professional statement that seeks to improve the quality and fairness of negotiations on lease terms and promote use of a new set of comprehensive heads of terms to make lease drafting more efficient.
It also includes lease negotiation best practice advice and an appendices with a guide for LL+Tenants and HOTs template

Question 2

What are some mandatory elements of the Code for Leasing Business Premises 2020 and what must be included in HOTs?

Answer 2

Negotiations must be approached in a constructive and collaborative manner
Negotiations should aim to produce letting terms that achieve a fair balance between parties.
Written HOTs must include:
Extent and identity of the premises
Length of term
L&T 1954 apply or not
Options for renewal or break
Amount and frequency of rent
Rights to assign or sublet
Permitted use

Question 3

What Lease Negotiation best practice advice is given in the Code for Leasing Business Premises 2020?

Answer 3

Includes specific advice on lease terms included in the HOTs such as rent reviews, repairs and alienation clauses.

Question 4

What is included in the appendices of the Code for Leasing Business Premises?

Answer 4

Model HOTs
Guide for Landlords and tenants on a range of lease terms and letting issues.

Question 5

What is tenant covenant and how can it be strengthened?

Answer 5

It is an assessment of the ability of a tenant to comply with the terms of lease.
It is usually whether the tenant can pay the rent.
It can be strengthened with additional security like guarantors or deposits.

Question 6

How must rental deposits be used?

Answer 6

Personal to the tenant
Must be legally deposited and held in separate bank account
Any interest accrued is tenants
Agree terms for release of monies
Can included a top up mechanism for rent review uplifts

Question 7

What is information is usually requested from a new tenant?

Answer 7

Bank, accountant and 2 trade references
Previous/existing landlord reference
3 years audited accounts/business plan/credit rating

Question 8

What test is commonly used to assess tenant covenant?

Answer 8

Profits test which is the net profit of the proposed tenant must be 3x the rent for 3 consecutive years.
or the net asset value of the business must be more than 5 times the rent.

Question 9

What might you consider when choosing a tenant and assessing their covenant?

Answer 9

Market conditions and demand for the property. Can choose a tenant with a stronger covenant if there is high demand.

Question 10

What are some major lease terms that effect the value?

Answer 10

Lease length
Break clauses
Alienation
Repair obligations
User clauses
Rent review pattern
Security of tenure
Any restrictive lease clauses

Question 11

What are some issues to consider with break clauses?

Answer 11

Is it mutual or one party?
What is the notice period
Is their penalty rent or rent to be reimbursed
Are there any pre-conditions for the option, e.g full payment of rent, returning premises in order
Tenant right to break usually conditional on payment of all rent, vacant possession and compliance with tenant covenants

Question 12

What are some typical conditions for tenant to exercise right to break?

Answer 12

Compliance with tenant covenants
Payment of all rent
Vacant possession

Question 13

When might occupiers consider pre-lettings?

Answer 13

If there is a market shortage
They require specific facilities
Allows the delivery of a bespoke building designed to their needs

Question 14

What are the disadvantages of pre-letting?

Answer 14

Lengthy and complex process
Risk of the developer or contractor not delivering as promised.

Question 15

What does the legal framework require to be attached to an agreement for lease?

Answer 15

The lease
Licence for alterations
Specs and plans for scheme
Developer guarantee if weak covenant
Warranties - from contractor

Question 16

What is a collateral warranty?

Answer 16

Gives tenants a direct contract with the construction team

Question 17

What is 3rd party rights?

Answer 17

Increasingly popular as cheaper, quicker and more certain that collateral warranty.

Question 18

What are some core principles in the Commercial Estate Agency Professional Statement 2016?

Answer 18

Act in a honest, fair and transparent manner
Do utmost to avoid conflicts of interest, deal with them openly and fairly when they do arise
Not to discriminate
Carry out work with skill, care and diligence
All communications fair, clear and timely
Be clear of obligations to the client

Question 19

What other advice does the Commercial Estate Agency professional Statement 2016 contain?

Answer 19

Provides guidance on
Acting ethically
securing instructions
Marketing property
Implementing the disposal
Acquisition of property

Question 20

What is included in the RICS Residential Real Estate Agency Professional Statement 2017 (Blue Book)

Answer 20

Contains guidance on
Relevant estate agency legislation
Standards and ethics
Securing instructions
Property marketing
Acting for the vendor, purchaser or landlord
Ending the instruction

Question 21

When is the Estate Agents Act 1979 applied?

Answer 21

Disposal or acquisition of land
Freehold property
Leasehold property with a capital value
Land and buildings

Question 22

What are the principles of the Estate Agency Act 1979?

Answer 22

Clarity
Honesty and accuracy
Agreement and liability for costs
Openness regarding personal interests
Absence of discrimination
Legal obligation to tell the client about offers received
Keep clients money separate.

Question 23

What are you required to do under the Estate Agents Act 1979?

Answer 23

Specify all costs and fees in advance
Specify nature of agency and selling rights to be agreed
Itemise all payments
Disclose personal interests
Cannot misrepresent offers received

Question 24

What are penalties for violating Estate Agents Act 1979?

Answer 24

Negative licencing - right to be estate agent taken away
Prohibition order to stop agent practising
Warning order not to undertake action again
Can be against individual or practices

Question 25

What is the cooling off period?

Answer 25

14 days for client to change their mind on instructing agent.

Question 26

What is the Consumer Protection from Unfair Trading Regulations 2008?

Answer 26

Prohibits unfair business to consumer commercial practices. Duty owed to not just clients but potential clients, viewers, buyers. Unfair practices can include false or misleading information, omitting information, exerting undue pressure on consumers or failing to show professional diligence All agency processes/systems must be demonstrated with due diligence audit trail

Question 27

What is the penalty for breach of Consumer Protection from Unfair Trading Regulations 2008?

Answer 27

Unlimited fine and/or prohibition order. Compensation up to £25,000

Question 28

What is Caveat Emptor?

Answer 28

"Let the Buyer Beware" Common law principle means that buyer should satisfy itself on all matters relating to the property.

Question 29

What are the key points in the Consumer Rights Act 2015?

Answer 29

Letting agents must clearly display a summary of their charges in office and online for letting and managing property Info must be provided based on calculation of charges and who is responsible for payment. If an agent holds any money then the firm is required to publish a statement as to whether they are a member of a client money scheme.

Question 30

What are the key points in the Misrepresentation Act 1967?

Answer 30

Related to a misrepresentation or false statement of fact which has an effect of inducing the other party to purchase. Agent has duty of care to check that advice, info or opinion is reliable. Misrepresentation can be fraudulent, negligent or innocent. Vendor/agent can be sued for damages.

Question 31

What is the test of reasonableness to decide agents liability for negligent statements?

Answer 31

3 tests to decide agents liability. Foreseeability (damage reasonably foreseeable) Proximity (of the relationship) Fairness (fair just and reasonable duty of care)

Question 32

What is the difference between Misrepresentation Act 1967 and Consumer Protection Act 2008?

Answer 32

Consumer Protection Act is broader, covers exerting undue pressure. Also broader in defining duty of care to cover relationships to all interested parties not just the buyer. Applies during whole sales and letting process, not just during pre-contract enquiries. Harsher punishments - imprisonment and unlimited fine.

Question 33

What is the Tenant Fees Act 2019?

Answer 33

Aims to improve transparency and affordability in residential lettings market. Bans various fees for new lettings Caps deposits at 5 weeks, or 6 weeks if annual rent is above £50k

Question 34

What does the Regulation of Property Agents Propose?

Answer 34

Independent regulation of all property agents Mandatory qualifications for agents Code of practice Agencies need to be licenced Prioritises transparency of charges, disclosing conflict of interest and administration of service charges

Question 35

What are some rules for marketing signage

Answer 35

Planning consent required for larger than 0.3m boards, illuminated boards, remote boards, boards on listed buildings and in conservation areas Must be removed 14 days after completion of transaction

Question 36

What are the rules for VAT in Estate Agency?

Answer 36

Specialist advice recommended Some occupiers cannot register for VAT like charities and medical practitioners A landlord can choose to elect a property to charge VAT to recover VAT on costs expended so rent is subject to VAT.

Question 37

What are capital allowances?

Answer 37

They are a form of tax relief upon the capital expenditure for the construction or purchase of a commercial property or business asset.

Question 38

What different forms of taxation are related to estate agency work?

Answer 38

Capital gains Inheritance Stamp Duty Business Rates VAT

Question 39

What is the Land Registration Act 2002

Answer 39

Allow formal documents to be executed electronically. All freeholds and new leases for terms over 7 years must be registered with Land registry with compliant lease plan. Adverse possession requires 10 years proof of use.

Question 40

What must a Land Registry compliant plan have?

Answer 40

Drawn to a metric scale Scale measurement bar Scale noted 1:1250 scale Full address North point Demise outlined in red

Question 41

What is an authorised guarantee agreement? AGA?

Answer 41

It is used when a lease is assigned, the outgoing tenant guarantee's the performance of the incoming tenant to meet the lease obligations. They act as a guarantor and will be responsible for the payment of rent and other obligations if the new tenant fails to do so.

Question 42

What are average rents in Manchester for different uses?

Question 43

What are the holding costs for vacant buildings?

Answer 43

Depends on the type of property but could be Insurance, service charge, business rates, council tax, security costs.

Question 44

How are agent fees calculated?

Answer 44

Often a percentage of the agreed rent 5-20% depending on the property. Can be pre agreed based on time spent or fixed.

Question 45

When is VAT payable?

Answer 45

Landlord can choose whether to opt to tax and recover costs on their own VAT. However, would always advise to speak to a specialist.

Question 46

How can you avoid having claims against for the misrepresentation act?

Answer 46

Include a disclaimer of liability in particulars

Question 47

What type of crimes are Misrepresentation Act and Consumer Protection Act?

Answer 47

Misrepresentation Civil Law CPA Criminal law

Question 48

What is the difference between a short and long term leasehold interest?

Answer 48

A short term lease, typically 80 years or less offers less security and can be more challenging to sell or refinance. A long term lease has security and easier to sell or get financing. Closer to a FH interest. What is agreed is often based on requirements of leaseholder and their lenders.

Question 49

What financial checks do you undertake in a new letting?

Answer 49

AML and identity checks. Customer DD and Enhanced DD if required.

Question 50

What are the key points from Code for Leasing Business Premises?

Answer 50

Outlines key areas like lease duration, security of tenure, rent reviews and service charges. Aiming for balance between landlord and tenant interests. Also provides guidance for more through HOTs to make lease drafting more efficient and guides for tenants and landlords.