Leasing and Letting (general questions) Flashcards
(40 cards)
What is the RICS Professional Statement for leasing and letting?
The RICS Professional Statement: Code for Leasing Business Premises, 2020
What is the purpose of the Code for Leasing Premises 2020 / why did it replace the old one?
This is to 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 the legal drafting process more efficient.
What is the Structure of the Code for Leasing Premises 2020?
- Part one: introduction
- Part two: Mandatory requirements
- Part Three: lease negotiation best practice
- Part four: Appendices
Can you talk me through some of the Mandatory requirements of the Code?
- Negotiations 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 the code
- Provide a minimum in regard to the position the HoT’s which are:
o The identity and extent of the premises
o The length of the term
o Whether 54 act is included or excluded
o Options for renewal or break options
o Any requirements for a rent deposit or guarantor
o Amount of rent and frequency of payment
o Whether the landlord intends to charge VAT on the rent
o Rent free or any other incentive
o Rent reviews including the frequency and the basis
o Rights in relation to alienation
o Repairing obligations
o Initial permitted use
o Rights to alteration
what does part 3, state about lease negotiation best practice?
This provides specific advice on lease terms to include rent deposits, rent reviews, service charges, repairs and alienation clauses
What is included in the appendices?
- It provides a model heads of terms for members to use as a reference
- A HoT’s checklist
- A guide for landlords and tenants (this is a supplement to the code and is no mandatory)
Why is tenant selection important for landlords?
- To ensure that they have a tenant who will be able to meet their lease obligations in relation to paying rent. If there is finance in place at a property, the repayments can be reliant on receiving rent.
- Furthermore if a landlord wanted to sell an asset, the strength of the tenant covenant could significantly impact the sale price. A property with a weak tenant in place creates higher risk and therefore the price paid reflects this due to the increased likelihood of tenant default and void periods etc..
what are the requirements for a lease deposit?
- It must be personal to the tenant
- Must be legally documented in a rent deposit deed & money held in a separate bank account
- Interest goes to the tenant
- Agreed terms are included for the release of the monies
- Details of the release mechanism to be stated in the deed
- Rent deposit deed attached to the lease as it is a separate deed, personal to the tenant.
Ahead of agreeing a lease on behalf of your client, what financial information do you request from the prospective tenant?
- Bank accountant
- 3 years of audited accounts / Dun and Bradstreet ratings
- Previous L’lords reference
- Also do a profits test
What is the profits test and how do you do it?
- Commonly used to test the covenant strength in relation to the amount of rent paid.
- Done by checking that a business’ net profit is three times the rent due for three consecutive years.
- However you must consider whether the market is strong enough for a landlord to be picky r.e. retail market – not a huge wave of retailers after new shops, more small independents.
what lease issues affect the value of a property?
- The lease lengths / term certain
- Break clauses
- Alienation
- Repairing obligations
- User clauses (might be restrictive i.e. industrial if it’s not B8)
- Rent review pattern (fixed uplifts, Inflation linked, OMV)
- Security of tenure provisions
- Inside the act or outside of the act.
- If no mention of being inside the act then it is protected
are break clauses typically mutual?
- This is dependent on the terms agreed between the landlord and tenant
What is the required break date notice period?
- This is usually at least 6 months before the break date
Are there any pre-conditions to a break clause or is it open?
- Yes there typically are pre-conditions to include:
o Full payment of rent and service charge payments
o Condition of the property (returning in good order)
o Leaving property with vacant possession
what is Alienation?
- This is the process of either sub-letting or assigning the current tenants interest in a lease.
What is the difference between a sub-lease and an assignment?
- A sub-lease is a relationship between the existing lessee and a new one. The sub-lessee has no relationship with the landlord and pays rent to the original tenant.
- Assignment creates a direct relationship with the landlord and the new Tenant and payment of rent is directly to the landlord.
Are tenants able to assign or sub-let to whoever they want?
- This depends on the individual wording in each lease. Leases can have absolute, open or qualified alienation clauses. Typically is says that consent is not to be unreasonably withheld but may include clauses that the tenant covenant has to have a similar covenant strength to the existing tenant or better etc.
what does the Landlord and Tenant Act 1988 say in relation to Alienation?
- The aim of the legislation is that he landlord has a duty to deal with consents diligently and not be unreasonably withheld or delayed. Failure to do so can lead to a claim for damages from the tenant.
What does the Landlord and Tenant (Covenants) Act 1995 cover?
- This relates to the assignment of leases and introduced AGA’s for the most recent former tenant to a guarantee the lease obligations.
- Only one AGA in place at a time
- Code for Leasing Business premises states that if a new tenant coming in is of strong financial status, a rent deposit is paid or a guarantor is provided, an AGA should not be sought by a landlord.
what does the code for leasing business premises 2020 say in relation to Alienation?
- Assignment: it says landlords should allow tenants to assign the whole of the premises with landlord consent, not to be unreasonably withheld or delayed. Landlords may set out ground for refusal but these must be reasonable.
- Sub-letting: leases should allow tenants to sub-let the whole of premises and may allow sub-let of part with consent from the Landlord, not to be unreasonably withheld. Sub-leases should be on terms that are consistent with the tenants own lease.
what are the remedies for landlords in relation to illegal alienation?
- Forfeiture
- Damages
- An injunction
can a tenant make alterations to a property that they have leased?
- I would read the lease and look at what the alteration clause says in relation to landlords consent and the types of alteration that can be carried out.
- Typically alterations are subject to reinstatement at the end of the lease.
- A licence for alterations is to be completed before the works commence
what does the Landlord and Tenant Act say in relation to alterations?
- It states that if a lease prohibits improvements being made to a property without L’lords consent, section 19 imposes a proviso that such consent cannot be unreasonably withheld.
what are dilapidations?
- These are negotiations that take place at the end of a lease in respect of bringing the property back to its original condition as it was at the start of the lease.
- Should check the lease terms and check for a schedule of condition
