1
Q
How did you prepare for your inspection of Unit 29?
A
- Liaise with the tenant to arrange access
- Undertake a pre inspection risk assessment
- Understand what PPE - industrial so steel cap boots etc , also COVIC considerations e.g. face mask
- Review the tenants lease and obtain property file - tenancy schedule, service charge etc
- Inform colleagues and diarised the inspection
- Listed required equipment
2
Q
Why had the tenant experienced difficulty during covid?
A
Reduced customer base, shrinking supply chains as a result of COVID
3
Q
What did you look for on your inspection?
A
- Surrounding area - business activity etc
- External - defects, repair, condition and age of building
- Internal - lease compliance, repairs, defects, statutory compliance
4
Q
Could you describe Unit 29?
A
- Industrial unit built in the 1980s
- Steel frame with brick elevations, under a pitched roof
- Cavity wall construction with the brickwork
- Loading doors to the rear of the property
- Internal WC and kitchenette
- Asbestos roof
5
Q
How was the asbestos roof managed?
A
Tenants responsibility under their FRI lease
However asbestos register held, updated regularly and tenant undertook regular asbestos risk assessments
6
Q
On what basis did you measure unit 29?
A
GIA - in accordance with the code of measuring practice
7
Q
What is GIA?
A
Gross Internal Area
- Area of the building measured to the internal face of the permitted wall at each floor level
8
Q
What was included in your GIA measurement?
A
- Areas with headroom less than 1.5 metres
- Areas occupied by internal wall
- Mezzanine with permanent access
- Columns stairwells etc
9
Q
What was excluded from your GIA measurement?
A
- Canopies
- Perimeter wall thickness
- Open vehicle parking
10
Q
What was the size of Unit 29?
A
1890 square feet
11
Q
What was the size of the estate?
A
135,822 sq ft
12
Q
Can you explain the service charge of the site and what this was running at?
A
One schedule
Man fees, staff costs, site security, landscaping, drainage PPM, external repairs etc
Estate - £0.66 psf
Unit 29 - £0.66 psf
13
Q
What repairing basis was the tenants lease?
A
FRI - tenant responsible for all repairs and upkeep along with insurance
14
Q
Was the lease inside or outside the act?
A
Outside
15
Q
How was the lease contracted out?
A
Under section 38(a) of the L&T Act 1954
- LL served notice to the tenant advising of intention to contract out
- T signed simple or statutory declaration (statutory if less than 14 days before lease commencement
- Witnessed by solicitors
16
Q
What were the lease terms under the tenants lease?
A
- Rent - quarterly in advance
- No RR/Break etc
- Contracted Out
- T could assign or sublet subject to LL consent
- T could alter subject to LL consent
17
Q
What use class was permitted under the lease?
A
B1 B2 or B8 - light industrial, general industry and storage
18
Q
When was the use class order changed?
A
April 2021
New use for Unit 29 - E, B2, B8
19
Q
How did you know the tenant had fulfilled their lease obligations throughout lease?
A
Debtor payment history using TRAMPS, running arrears reports
20
Q
Why did you recommend a payment plan to your client?
A
- Tenant in arrears
- Offered protection from the Coronavirus Act (S82) and the Taking Control of Good Regulations - no CRAR, forfeiture, stat demands possible
- tenant responsive and this allowed for income stream to continue, while allowing tenant to continue to operate
21
Q
What does without prejudice mean?
A
Cant be used as evidence should negotiations fail
22
Q
Why were you keen to work with the tenant, with arrears over 75% rent roll?
A
- Limited recovery options
- Good payment history
- Act in accordance with Covid code of practice - maintain L&T relations, act in favour of business and be transparent
23
Q
What options were available with regards to recovering arrears?
A
- Payment plan
- Rent deposit draw down
- Court action
24
Q
What rent recovery options would have been available should the covid restrictions have not been in place?
A
- CRAR
- Statutory demand
- Lease forfeiture
25
You said you requested the tenants financial accounts, what did you obtain?
- Last three years audited accounts
- Income statement, balance sheet and cashflow statement
- Also supplemented with a credit safe report
26
What did the balance sheet show you?
- Assets
- Liabilities
- Shareholder equity
27
You said you ran a credit safe report, what are these?
- Calculation of the overall creditworthiness of an organisation, based on evidence provided by their previous dealings
- Details how likely it is that a debtor will fulfil obligations to creditors
28
What is contained in a credit safe report?`
- Financial strength indicator/analysis - based on accounts, balance sheet etc
- Financial risk analysis - likelihood on tenant defaulting on creditor liabilities
29
What credit safe score did you receive for the tenant at unit 29?
29 - High risk
30
What does a high risk credit score mean?
Tenant likely to fail/default - opinion based on computer modelling of accounts
31
Why did you not look at options to end the lease sooner, when you saw a credit score of 29?
- Credit score only an opinion - balance sheets etc still relevant
- Wanted to promote business in accordance with Covid code
- Tenant responsive at this stage
32
How much was the tenants rent deposit?
Equivalent of 6 months rent, plus VAT
33
Could the deposit have been drawn down sooner?
Potentially, however there was a top up requirement in the deed
34
What payment plan was agreed?
- Tenant to continue making full quarlety payments
- Alongside, monthly payments to clear down arraers
- Formally documented
35
Was there a guarantor?
No
36
What costs were there to be incurred by your client
Utilities, rates, insurance and service charge
Also added H&S compliance
37
Would your client have got any business rates relief? What would this have been?
6 months relief after vacancy
38
You mention one of the aims and objectives was to minimise void costs, what sort of void cost would you expect in a unit like this and are there any other initiatives that could be considered to reduce void costs?
Insurance, rates, SC
Rates relief following vacancy for 3 months
If struggling to let, could get rates relief tenant
39
When are rates payable for a landlord?
After property is vacant for 6 months (office is 3 months)
For listed buildings, nothing payable until occupied
Buildings with RV below £2,900, nothing payable until occupied
40
What were the void costs for 12 months?
- Rates - £5,738.50 per annum (6 months relief) - so £2,869.25
- Service Charge - £1,252.89
- Further void costs - repairs/upkeep, security, insurance obligations, utilities
- Overall - approx. £10k
41
What are the rates for the building?
RV - £11,500
Rates payable - £5,738.50
42
What measures did the tenant qualify for under covid?
Furlough
VAT deferment
Business Rates relief
Recovery loan scheme
43
What health and safety concerns were there with the unit not being in occupation?
- Risk of illegal occupation - security risk
- Limited monitoring
- Fire risk etc
44
How did you gain access to the unit?
Agreed in writing
- Communication of Workman's standard key holding letter to the tenant
- Keys held on a non-prejudice basis, which does not constitute surrender of the lease
- T will remain liable for all lease obligations, rents, unit costs, rates etc
45
Why did you want to maintain positive L&T relationship?
Find a solution for all parties
Gov Covid advice - be transparent, promote business and maintain positive relationships - act in accordance with this
Tenant had always been a longstanding tenant with a good payment history
46
What sections of the L&T Act 1954 was the lease contracted out of?
S24 - 28
47
You mentioned that the tenant had applied for grants, can you explain these to me please?
Business rates relief
VAT deferment
Furlough
Recovery load scheme - for small to medium sized businesses
48
How did you assess the tenant payment history?
Running debtor payment on TRAMPS
49
What restrictions were there for chasing the arrears?
Couldn't CRAR, Stat demand or forfeit
50
Could you summarise the Coronavirus Act 2020 and what this meant?
Section 82 - moratorium on rent arrears and ability for LL to forfeit
Amendments to the Taking Control of Good Regulations 2013 - couldn't CRAR
51
What is protected rent and under what legislation is it under?
Rent that can not be pursued if there was a forced closure between 21st March 2020 and 19th July 2021
Commercial Rent (Coronavirus) Act 2022 - Arbitration for protected rent - if application made
52
What period did the coronavirus moratorium cover?
21st March 2020 - 25 March 2022
53
How can protected rent be collected according to the covid act?
Tenant has 6 months to apply for arbitration.
Ended on 24th Sept 2022 - no restrictions on collecting protected rent
54
What changes were made to the COVID Act on 25th March 2022?
- restrictions introduced by Section 82 Coronavirus Act 2020 and amendments to the Taking Control of Goods Regulations 2013 ceased
- created new Arbitration laws relating to remaining commercial rent arrears which will operate in conjunction with a new Code of Practice for Commercial Property Relationships following the COVID-19
55
You refer in your second key issue the covid-19 moratorium and the subsequent commercial rent coronavirus act 2022, what did that permit landlords to do as far as tenants were concerned when arrears were accumulating?
Removal of CRAR moratorium
Introduced protected rent and arbitration for Tenants who applied
56
You refer to the mandatory closure of certain businesses as part of section 3 of the 2022 Coronavirus Act, which period is relevant here and what are the others?
Relevant period is 21st March 2020 to 18th July 2021 (or 7 august for Wales)
or
until the last day the premises was subject to closure requirement
57
What was the payment plan that was agreed?
- Tenant would make weekly payments for a period of 6 months
- Weekly payments amounted to £687.18
- Formally documented
58
You mentioned a credit score, what was this based on?
Balance Sheet
Financial Performance – including a financial stress test
Perceived risk level of your business
Trade References
Outstanding Debt
Payment History
59
What are some examples of credit rating providers?
Dunn and Brad sheet
Moody's
Fitch - credit safe
60
What financial information did you review?
Audited accounts - 3 years
Profit loss
Balance sheets
61
How did you determine a decline in turnover and cashflow?
- Reduction in overall sales in profit/loss account
Instructed a financial review to provide a competent assessment of the accounts
62
How much money was held in the rent deposit account?
6 months rent (gross)
£9,989.20
63
How was the tenants rent deposit held?
Usually set up by a competent accountant, so I have never set one up myself
Make a separate, interest bearing account
Check Rent Deposit Deed
Establish amount to be put into bank account - usually 3-6 months worth of rent
Establish if VAT is to be demanded on top
64
What major breaches were causing the unit to fall into disrepair?
- Hazardous material - food etc left in the fridge
- Damaged cladding/roller shutter
- Stained carpets etc
- H&S compliance - hard to obtain
65
You mentioned strike off action, what is this?
compulsory strike off means that your company has been removed from the official register at Companies House and formally closed - either voluntary or compulsory (put forward by 3rd party)
66
How did you reject to strike off action?
Instruct solicitors - formal objection
Cause shown (arrears) as to why the company should not be struck off the register
67
Why did you object to strike off action?
Unpaid rent arrears due - did not want the lease and arrears vested with the crown bona vacantia
68
Can you tell me about the term 'Bona Vacantia'
Property, cash and any other assets owned by a company when it is dissolved automatically pass to the Crown - includes the lease at Unit 29
69
Why did you want to avoid the lease being left with the Crown?
It would take time and incur legal costs to unravel this
70
Were you successful in rejecting to Strike off action?
Yes, this was postponed until August 2022
71
How did you assess the local demand for similar stcok?
- Spoke with local letting agents
- Inspected the local area - to let boards etc
72
Define market rent?
Estimated amount for which a property will be leased on an open market on the valuation date, between a willing lessor and lessee in an arms length transaction, after a period of proper marketing on appropriate lease terms, when both parties have acted knowledgeably, prudently and without compulsion
73
What are sources of comparable evidence for your valuation?
- Local letting agents info
- Office records
74
Could you talk me through your comparable valuation?
- Research and investigation into the area in order to find comparables
- Review of comparables to confirm the lettings
- Assemble the evidence in a comparable table
- Adjust, based on the hierarchy of evidence
- Analyse the comparables to determine market rent
- Report on the figures
75
Were your comparables inside or outside the Act?
Outside
76
What would have changed if they were outside?
Less weight applied
77
What is the hierarchy of evidence for comparable valuations?
Category A – direct transactional evidence
Category B – general market data providing guidance rather than a direct indication of value, such as evidence from published sources, commercial databases, indices, historic evidence and demand/supply data
Category C – other sources, such as transactional evidence from other property types and locations and other relevant background data
78
What makes an asset comparable?
- Physical condition
- Location
- Use
- Tenure
- Timescale
79
What is a Section 146 Notice?
Section 146 Law and Property Act 1925.
Notice of intent to forfeit the lease for a breach of lease covenant.
80
What must a S146 notice contain?
It must:
Specify the exact breach of the covenant
Require the Tenant to remedy the breach, if it is capable of being remedied
Require the tenant to monetarily compensate for the breach
Give the tenant reasonable time to remedy the breach
81
Was there a cost in service a 146?
No, just solicitor fees £90+VAT
82
If the forfeited was due to disrepair would action would you have taken?
Repair notice,
s.146 notice,
specific performance,
undertake the works if there is a Jervis v Harris clause.
83
How long does the tenant have to remedy the breach when they receive a s.146 notice?
4 months in this lease clause 4.6
84
What is a surrender agreement?
voluntary agreement between the landlord and tenant that the tenancy has come to an end
85
What is the properties EPC rating?
D - 83
86
What is an interim schedule of dilapidations?
Served when more than three years left to run on a lease
87
What is CRAR and what legislation does it fall under?
Commercial Rent Arrears Recovery
Tribunals Court and Enforcement Act 2007
88
Could you not CRAR during Covid?
554 days rent outstanding required on or after June 2021
89
Why did you not CRAR?
- Tenant not in occupation
- Did not want to waive the right to forfeit
90
Why was the option of forfeiture bought in later?
- Tenant stopped communicating
- Originally, keen to maintain relationships given the tenants history and COVID code etc
- Valuation - higher rent could be achieved etc, small risk of void periods
91
What does it mean to waive the right to forfeit?
Following lease breach - accepting rent, communicating with the tenant etc - recongising the lease as exisiting
92
How did you avoid waiving the right to forfeit?
Aired on the side of caution
- Stopped any communication
- Tenant on rent stop etc
93
Did you not consider a Stat demand?
As we did not want to waive the right to forfeit and no guarantee the tenant would be in a financial position to pay.
Also a long process which would have ignored other goals
94
What is the process for serving a stat demand?
Served (delivered) to the individual who owes you money by leaving it at registered office or main place of business
Keep postage receipt or confirmation from your process server
Debtor has 21 days to pay or agree payment
Can then start winding-up proceedings – 4 months to action this
95
What are the traditional and English quarter days?
Traditional:
25 March, 24 June, 29 September, 25 December
English:
1 April, 1 July, 1 October, 1 January
96
How long does the tenant have to apply from relief from forfeiture from the courts?
6 months
97
Explain the process of regaining possession for non-payment of rent?
Check forfeiture clause
21 days no payment whether formally demanded or not
Change locks
98
Was the tenant able to regain entry to reclaim their goods?
Yes TORT notice gave a 14 day period
99
Can you use the proceeds of the goods to pay back the arrears?
Yes
100
What were your key achievements?
Regaining possession of the unit - effecting forfeiture
Process following forfeiture - refurb, reletting - unit became income producing once more
101
Did you note any defects during inspections? Or what defects were you looking for?
Damp
Roof leaks
Condensation / poor ventilation
Structural movement
Defective materials -> that degrade with age
Hazardous materials
Defective floors / Defective ceilings
Defective bathroom fittings
Defective gutters, down pipes and external drainage
Defective windows / doors
Invasive species around car park
102
Did you recover any rent?
Apart from the deposit, no
103
What is a TORT notice and what are the timescales?
a legal document alerting the owner of items that have been abandoned on private land or property
- 14 days to respond/collect items
104
If the tenant had offered to pay some of the arrears, would this have changed the final approach?
Yes, i may have contacted them to agree further payment plan if they were responsive.
I would have requested further accounts into
105
What types of breach were there?
Breach of rent payment – once and for all
Breach of use clause – continuous
106
What is protected rent?
Rent that is unpaid and accrued as a direct result from closures due to COVID-19
107
What was the passing rent for the tenant?
£16,482.00 (£9.24 psf)
108
What happened to the unit after forfeiture?
New lease agreed at just over £10.00 psf.
Tenant now paying rent in full
109
What does high risk in a credit report mean?
It means they are likely to fail / default – opinion based on computer modelling of accounts
110
What did you do upon taking over the property?
- full handover with previous PM
- Arranged inspection
- met with tenants etc
111
What made up the tenants arrears?
Rent, service charge and insurance
112
What does the new Government guidance say regarding the Covid act/
Tenants should pay rent and arrears if they are able
Landlords should waive some or all rent arrears where they are able
Negotiations should be held between the parties
Parties will be encouraged to find means of dispute resolution before Arbitration
Binding Arbitration will not be compulsory
Either party may refer the dispute to Arbitration
There will be a 6 month window for an application for Arbitration to be made
There will be a maximum 24 month period to pay arrears in an Award
113
When and how will this new government guidance come into force?
The Act came into effect on 25 March 2022
It applies in England & Wales
The new Code of Practice applies throughout the UK
114
Thinking about your case study, now the property is vacant, what actions do you need to take from an insurance perspective?
Void inspection;
Informing insurers
Key holding
115
Again, now the property is vacant, can you tell me how many months rates relief your client will obtain?
6 months
116
You refer to the mandatory closure of certain businesses as part of section 3 of the 2022 Coronavirus Act, which period is relevant here and what are the others?
Relevant period is 21st March 2020 to 18th July 2021 (or 7 august for Wales)
or
until the last day the premises was subject to closure requirement
117
You mentioned Surveying Safely, can you outline the recommendations contained within the guide? Is it mandatory?
No it is guidance note
- carry out RA
- Plan site visit - i.e diary, colleagues, charge phone, ppe
Firms:
- Have H&S olicy
- Provide training
- Outline clear H&S responsibilities
118
How frequently do you inspect the property? What determines how frequently you should inspect?
KPI is once every 6 months however we aim to visit once a month or once every other month
PMA determines frequency
119
The tenant insured directly?
No the landlord recharged
120
Reviewing tenants accounts, what would you have been looking at to determine the covenant strength of the tenant?
Income statement
Balance sheet
Profits test
121
What would a balance sheet show you?
Assets
Liabilities
Shareholders equity
122
If there had been a guarantor, how would you have pursued this?
In accordance with the Landlord and Tenants covenants act 1995
123
What does section 17 say in terms of timescales of pursuing a guarantor?
Within 6 months of the debt arising
124
You refer to the landlord and tenants covenants act 1995, what did that replace?
Privity of contract
125
If you had pursued the guarantor and they had cleared the arrears, what right would it have given the guarantor in respect of this property?
Overriding lease
Will P
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