Leasing and Letting AI Q's Flashcards
(21 cards)
What are the main objectives of the RICS Professional Standard: Code for Leasing Business Premises 2020?
To improve the quality and fairness of negotiations on lease terms and promote the use of comprehensive heads of terms for efficient legal drafting
What are the four main parts of the RICS Code for Leasing Business Premises?
- Introduction
- Mandatory requirements
- Lease negotiation best practice
- Appendices
What is a mandatory requirement regarding negotiation as per the code?
Negotiations must be approached in a constructive and collaborative manner
What must an unrepresented party be advised about during lease negotiations?
The existence of the code and to obtain professional advice
Fill in the blank: Agreement as to the terms of the lease on a vacant possession letting must be recorded in written _______.
HOTs
What key elements should be summarized in the written HOTs?
- Identity/extent of the premises
- Special rights to be granted
- Length of term, whether LTA 1954 applies
- Renewal options or break rights
- Guarantor/deposit requirements
- Rent amount, frequency of payment and whether exclusive of business rates
- Whether landlord intends to charge VAT on the rent
- Rent free periods or other incentives
- Rent reviews
- Liability to pay service charge and insurance premiums
- Repairing obligations
- Initial permitted use and whether change of use allowed
- Rights to make alterations and reinstatement obligations
- Initial alterations
- Conditions of the letting
What must HOTs comply with at lease renewal or extension?
They must comply with the existing lease subject to reasonable modernisation
What is the goal of negotiations according to the code?
To achieve a fair balance between the parties
What specific advice does the best practice section of the code include?
Advice on lease terms including rent deposits, rent reviews, service charges, repairs and alienation clauses
What is included in the appendices of the code?
- Model heads of terms
- Guide for landlords and tenants
- Detailed guidance for both parties on terms and issues
What is the importance of the tenant’s covenant in relation to property value?
There is an important relationship between the quality of the tenant’s covenant and the investment value of a property
What factors might affect the request for additional security like a rent deposit?
Market conditions and the strength of the tenant’s covenant
What are the requirements for a rent deposit?
- Personal to the tenant
- Legally documented in a rent deposit deed
- Money in a separate bank account
- Interest to tenant
- Agreed terms for the release of monies
- Can include a top-up mechanism for rent review uplifts
- Rent deposit deed attached to the lease
What usual requests are made for tenant selection?
- Bank, accountant and 2 trade references
- Previous/existing landlord’s reference
- 3 years audited accounts/business plan/credit rating
What is the profits test commonly used for tenant selection?
Net profit for proposed tenant business must be 3 times the rent for 3 consecutive years or net asset value of the business must be more than 5 times the rent
What major lease terms affect property value?
- Lease length/term certain
- Break clauses
- Alienation
- Repairing obligations
- User clauses
- Rent review pattern & basis of valuation
- Security of tenure provisions
- Impact of a restrictive lease clause upon value
- Check planning use
- Inside or outside the Act
- No mention of the act in the lease, then it is protected
What is the significance of break clauses in leases?
These clauses are time of the essence with a strict timetable for serving the notice
What conditions may affect a tenant’s right to break a lease?
- Compliance with tenants covenants
- Payment of all rent and other sums due
- Vacant possession
What are the advantages of pre-letting premises for occupiers?
Delivery of a bespoke building designed to suit their needs
What are the disadvantages of pre-letting premises?
Entering a lengthy and complex process and a level of risk if the developer or contractor does not perform
What documents must be attached to an Agreement to Lease?
- The lease
- Licence for alterations
- Specifications and plans of proposed scheme
- Developers guarantee/bond
- Warranties for any tenant taking an FRI lease
- A collateral warranty gives tenants a direct contract with construction team
