How a Landlord Can Protect His Rent Flow during the Property Cycle - Essay Example

Discuss in detail how a landlord can protect his rent flow during the property cycle” Using UK law and Proactive Management By (Module) Tutor (Date) Introduction In the current market, the landlords are faced with the challenge of protecting their rent flows is due to the changing environments. The landlords have to apply relevant laws and management strategies to ensure that they continue to receive rental income during the different stages of the life cycle of the property. This paper looks at the various strategies that can be used to ensure that a landlord investments results in the continuous rental income. It is also important to not only increase the value of the underlying assets at different stages of the life cycle but to also protect adhering to the legal procedures in all contractual agreements. As the property moves in the different stages, the quality can be retained by upgrading the portfolio. This would attract investors and consequently lead contributes to the security of the income security. Finding an investment property Buying or developing property to let is the first step for landlords to add to the investment portfolio. This is a medium to long term investment in which the property is let out to tenants or lease holders. Investment in property is a good for someone will to tie up large sums of money, require more tangible investments than shares and are willing to take a risk. The landlord needs to therefore have effective management system of protecting the rent floe during the various stages of the property life cycle. It follows that one has to deal with the risks of not earning a profit from the investment and also the fact that property prices may increase or reduce. Once the landlord finishes the purchase process, he can start earning the income through the rental that is paid. Formation stage-Drafting of the lease One of the options for the landlords is to insist on the use of the onerous provisions in the commercial leases. It is however will have very negative repercussions to the landlord when the rent reviews are done. Landlords may refuse to use a flexible system because the rent may be market prices that provide the standard rents (White, 2010). The preparation of the lease agreement is crucial for the landlord to manage the rent from the business. According to the tenant Act of 1927 and the landlord and tenant Act of 1988, the lease agreement can be done by absolute prohibition, qualified restriction and absolute qualified restriction. On the other hand, the most common method of developing effective leases is the qualified restriction. In the case of Addiscombe Garden estates Ltd v Cramble (1957) in which a trustee of a tennis court took possession of the tennis courts and a club house under lease agreement needed a new lease based on the Landlord and Tenant Act of 1954 Act. The dispute was brought about by the fact that the landlord as the fact that the licensee was not entitled to a new lease arguing that they were not in the business. According to the property Act of 1952, a lease agreement can only be done by deed especially is the lease is over three years. On the other hand, under the Prudential Assurance Co Ltd v London Residuary Board (1992), it is possible to have a lease for less than three years based on the written or oral agreement with the tenants. So that a landlord does not lose money, such an agreement should best when the rent to be paid is reserved. Childhood stage Lease Lease is a legally binding document that the landlord can use to ensure that the estate or property is properly managed. This document helps to deal with the tenants who are not cooperative and ensure that the rents are paid on time. It also includes the process of recovering the rent in case there is a default of payment. According to the Landlord and Tenant Act 1954, it requires that terms of the security. For instance, the term of the lease can have indicated that the lease would not be automatically be renewed at the end of the contract, if this is the case, the landlord need to have the tenant make such that declaration before signing a lease (Gray & Gray, 2005). It is important to note that there is no obligation on the part of the Landlord to grant the tenant a new lease when the old one expires (Cowell v Rosehill Racecourse Co Ltd 1937). It, therefore, follows that the landlord can change the terms of the lease to enhance the rent income according to the market rate. Even when the tenants have been granted security of tenure, the tenant needs to follow some set rules and procedure as set in the Landlord Tenant Act 1954 to request new tenancy similar to the previous terms. Rent reviews The rent reviews should be staggered to help so that landlord can have flexibility. So that the rent is paid in time, the landlord can include the payment of interest on late payment. One of the rent reviews strategies is upward only. Contrary to view by many people that the strategy of upward only rent review involves adjustment increasing of the rent, it means making the rent aligned to the market price. Establishment of an upward only rental review refers to the market rental system. It is important to understand that by using the alterations system to tenant, such a flexible system will provide even higher rents both at the initial and review stage. It is because the tenants need to ensure that they can not only update the premises but also adapt to the changing needs of the business.to have increased income, the landlord should not link the user clause to the particular business of the tenant. Such a strategy for the management of the real estate would lead to diminished rent instead of increasing it. Licenses alterations In order to manage the tenants and other occupiers of the premises, the manager can use a solicitor to include all the relevant clauses in the license agreement. Some of the concern that should be included in the licenses includes the protection of the structural integrity of the building, having agreements that will attract good clients and establishing a management system that does not reduce the value of the property. The actual term on the lease is normally included on the hypothetical lease agreement, it need to include elements that make the rent increase on reviews. it is done by making the actual lease more onerous does not only make the lease less attractive to the prospective person that need to rent the house leading to a further lowering rent that they are prepared to pay. Most of the time, the tenants would narrow the user provision indicated on the lease agreement so as to pay less rent. Edwards v Central London Commercial Estates (1984), the estate manager can consider including the permitting a wider use of the premises so as to reflect the opportunity value to the landlord. Adulthood stage of the property life cycles This is the stage of the property that the landlord need to conduct regular valuations of the business to implement strategies to keep the values of the property rising. Landlord and Tenant Act of 1927 provide that the tenants should not change or modify the premises and property to suit the needs of the businesses. This is especially if such variations are prohibited in the lease covenant. In some instances, the modification can be done to the premises when the landlords grant the permission. It many commercial premise lease agreements, the landlord retain the right to provide consent for the modification of the building. For example, when the word unreasonably withheld is omitted on the lease, the applicable clause would mean that the use of the premises is restricted in advance based on the rent that is paid. The value of the property in certain location can be increased by letting the occupiers to modify the property according to their business. It will entitle the landlord to values the premises on the most profitable used so that consent would not withhold. User’s provisions According to the British property federation, it is recommended that landlords consider allowing the letting the houses below the standard passing rent to ensure a continuous flow of the rent so long as the under lease rent is not below the market prices. In order to make the premises more attractive to prospective tenants, it is necessary to use the flexible lease agreements so that the tenants will not only be able to make changes to the premises business but also easily assign the premises to the business owners. According to the case of Plinth property investment Ltd v Mott, Hay and Anderson (1978), 247 EG 1167, it is not professional or legally sound when a landlord links the user clause to the tenants nature of the business. In this case, the lease provided could not be used for any other reason than the one leased for, which is being used as offices for the clients business of consultant in engineering. It reduced the rent that the owner could have got to the class of consulting engineer from 130, 000 pounds to 89,000 pounds. The landlord, therefore, could not have the maximum market rent for the premises for the lease limited its uses to the consulting business. Law of Property Act (1925) indicates that the lease, the permitted User agreement can be phrased either negatively or positively. When the permitted User agreement is faced negatively, it will have provisions that indicate that the building will not be used for any other reason than the specific purpose that it has been rented. This means that in the event that the occupier opts to use the property or building for other reason, he or she would not have breached any condition. On the other hand, the positive users provision indicates that the premises must be used for a specific purpose. This is, therefore, a requirement that the entire premises or part of it should be used for a particular reason, which could have an adverse effect on the review if such a venture is not profitable. Importance of location of the premises Location of the premises is a crucial consideration for the landlord determination of the user clause to include in the lease. It is a very practical approach in which the landlord looks certain uses for the premises that would bring in more value due to the prime location of the premises. As a result, the landlord would not want to lose more income by keeping the user clause open for all types of uses. Likewise, the keeping the user clause restricted to the particular use may have a negative effect if the location is a place that can accommodate multiple businesses. Establishing system for secure rent payment Apart from the covenant that one establishes with the tenants, having a guarantor would increase the security of the rent flow. In addition, landlord can use payment of rent deposits, use of the bank guarantee and guarantee. Rent deposits are effective tools when they clearly spell what happens when the lease is assigned, and the protection given to the tenant in case of disputes and when the landlord becomes bankrupt. Many premises require that the tenants or lessees have guarantor to take the responsibility of payment in the event the tenant is unable. The agreement should not only have the nature and obligation of the guarantor but also the level of indemnity for the rent payment and any other obligation of taking a new lease if the current lease is forfeited or the tenants become liquated. West Horndon Industrial Park v Phoenix Timber shows that the variations in the lease may end the obligation of the guarantor and affect the rent flow abruptly. Having a statement on the lease that any variations will not affect the liability of the guarantors may not be effective to the landlord. License When the license is used, it means that no lease has been created. According to the case of R v Tao (1977), a license document that the landlord signs can be used as a contractual agreement. However, it is important to note that the contractual license will provides no interest in the premises as was witnessed in the case of Ashburn Anstaldt v Arnold (1989). A contractual license is very different from the bare license that is defined as a personal permission of the owner of the building to use it. This is granted to the person that occupiers the property for an agreed period of time. According to the case of Bruton v London Quadrant Housing Trust (1999), that involved a case in which a petitioner had leased a property owned by a housing Trust company. The claimant benefited from the statutory protection in that is provided by the Landlord and Tenants Act of 1985. The court established that there was a lawful license agreement. This is not a very safe way since the person using the house does not have to make any commitment. The purpose of the license is to be a defense for the tenant to use in case they encounter an allegation of trespass. This means that the tenant will have full rights to the property so long as they don’t overstep that the boundary that have been placed as happened in the case of Tomlinson v Congletion Borough council(2003). The contractual agreement has to include the requirement of the licensee. Repairing the premises Forrester & Edwards, (2007), argues that the landlord need to include the service charge in the lease so that he or she can recover part of the amount used to repair and restore the property especially at the end of tenant’s contracts. This amount is paid by the person that occupies the building and all the other tenants that benefits from the services and property provided. Sykes v Harry (2001) found that the tenant had obligation to ensure that the premises are repaired. The arrangement of collecting the service charge is indicated in the lease agreement with the intention of entitling the owner of the premises to recover not only the charges, but also the administrative cost that is incurred in the management of the property. According to the case of the Southwark London Borough Council v McIntosh (2001) that involved the case in which the council, as the Landlord was in breach of its duty and responsibility of repairing of the premises. It was established that that it was not the responsibility of the landlord to ensure that the property is in good condition. The service charge is especially important in ensuring that the tenant enjoys all the facilities in the premises. The Landlord and Tenant Act 1985, give the lesser the obligations to undertake a certain amount of repairs to ensure that the property remains in good conditions based on the rent that is paid. The service charges will therefore include not only the costs of repair and maintenance, but also the replacement of things like equipments, plants. It also includes other fabrics used and all the specific materials that the parties agreed should be included in the service charge or provided by the landlord. However, it is required that the occupant of the premises or property reimburse the funds used to do the repair and maintenance. It is critical that the property is not only fully let but also that the owner uses the services of a professional manager who administer the needed services to the customers, the service charge may include the cost incurred in enhancing fabrics, plant equipment’s as along as the expenditure can be justified and falls within the leases of the occupiers. Adulthood stage of the property life cycle Redevelopment and maintenance of the property It is for enhanced stream of rent income, the landlord need to calculate the values of the building and the determination rates so that appropriate repairs can be done at the correct times. This will keep the building in good condition and attractive to the customers. The landlord need to make the building to be attractive for modern offices that provide both quality and flexibility to the occupiers and be able to used increased technology needs. According to Peter Goddard v Hounslow LBC 1992 1EGLR 281, the landlord has a responsibility to keep the premises to in a certain state. The lease agreement do not include such additional expenses that the landlord can incur in the building as the initial costs incurred in making the building match the original design. The landlord will also not be able to recover any setting up costs that are above the normal costs of maintenance of the building (Defective Premises Act 1972). It is therefore the responsibility of the Landlord to ensure that the tenants enjoy the premise and renew the leases. Conclusion Application of modern management practices will ensure that a landlord protect the flow of the rent income in the midst of different stages of property cycle. Effective management will reduce the chances of diminution value of the property since the repairing and maintenance process will keep the property in good condition. The management of the real estate requires that there is a balanced approach that not only combines efficient management but also the understanding of the case laws and statutes of the real estate business. The commercial lease should also include the obligations of repairing and reinstating the premises to the usable state. The manager therefore has the responsibility of ensuring that there the buildings or property are kept in a good habitable state. This can be done by having clauses in the lease that help in the recovery of the money used in repair. Bibliography Forrester, P. and Edwards, C., 2007 Commercial Property Professional Group, Service charges in commercial property RICS code of practice. Royal Institution of Chartered Surveyors. Gray, K & Gray, SF 2005, Elements of Land Law (Oxford: OUP) White, A. 2010. Asset management, Commercial property journal, pp.130-133. Cases Addiscombe Garden Estates Limited v Crabbe [1958] 1 QB 513. Alker v Collingwood Housing Association [2007] EWCA Civ 343. Ashburn Anstaldt v Arnold [1989] Ch 1. London & Quadrant Housing Trust [1999] 3 W.L.R. 150 Cowell v Rosehill Racecourse Co Ltd (1937) ALR 273 Edwards v Central London Commercial Estates 1984 3EGLR103 Peter Goddard v Hounslow LBC [1992] 1EGLR 281 Plinth property investment Ltd v Mott, Hay and Anderson [1978], 247 EG 1167 Prudential Assurance Co Ltd v London Residuary Board [1992], 2 AC 386. R v Tao [1977] QB141. Southwark London Borough Council v McIntosh [2001] All ER (D) 133. Sykes v Harry [2001] EWCA Civ167. Tomlinson v Congleton Borough Council [2003] UKHL 47. West Horndon Industrial Park v Phoenix Timber. Group [1995] 1 EGLR7. Statutes Defective Premises Act 1972 (c. 35). Landlord and Tenant Act 1985 Law of Property Act 1925 Read More