Task 1: Case Study
ASSIGNMENT BRIEF TASK 1: 20% of Total Module Mark
Each part carries equal marks. You should take the valuation date for this
assignment as February 3 2017.
Billy Button (Landlord) owns a mixed use commercial property in Bournemouth. It
comprises 2 shops on the ground floor and 2 upper floors of offices.
Lease and Property Information
Shop A
Shop A is let to a rug selling company trading as Alibaba Rugs Ltd for a term of 10
years from 3 February 2014 at an initial passing rent of 40000 pa subject to a 5
yearly upwards only review. The lease is on effective FRI terms with the tenant
liability for a proportionate share of repairing maintaining and decorating the external
and common parts together with insurance provision. The rent review clause has
the usual tenants assumptions and disregards with the rent to be determined on net
effective terms.
The following measurements are available (assuming that all welfare facilities are
separate to the retail trading space given below):
Net frontage: 6.75 metres
Shop depth: 42.95 metres
Shop B
Shop B is let to a local pharmacy trading as Pills R Us Ltd for a term of 15 years from
3 August 2015 at an initial passing rent of 48700 pa subject to a 5 yearly upwards
only review and a tenants break at the end of years 5 and 10. The lease is on
effective FRI terms with the tenant liability for a proportionate share of repairing
maintaining and decorating the external and common parts together with insurance
provision. The rent review clause has the usual tenants assumptions and
disregards with the rent to be determined on net effective terms.
The following measurements are available (assuming that all welfare facilities are
separate to the retail trading space given below):
Net frontage: 7.21 metres
Shop depth: 42.95 metres
Comparison
You may for this assignment rely on the single comparison detailed below as being
indicative of market rental levels as the valuation date. Retail premises in very close
proximity have been let from 3 February 2017 for a 10 year term on FRI terms
subject to an upwards only review at the fifth anniversary of the term. The rent has
been agreed at 45500 pa subject to 9 months initial rent free.
The following measurements are available (assuming that all welfare facilities are
separate to the retail trading space given below):
Net frontage: 5.43 metres
Shop depth: 26.50 metres
Investment evidence in the area shows that the all risks (market) yield for rack rent
retail premises selling in the area is 7.25% (net basis) for average tenant covenant
risk.
There are two questions to answer:
A. Billy Button has been approached by a national convenience store outlet (At
Your Convenience) to take both premises on a single tenancy (with attendant
opening up works to trade as a single outlet). He has approached Alibaba
Rugs Ltd and Pills R Us Ltd and even though they have only been in the units
for relatively short terms both are struggling to pay their rents and have
signalled that if they are given a sensible premium they will vacate without
any dilapidations liability.
Evidence suggests that with an improved covenant the market yield is likely to
strengthen by 50 bps. However the prospective tenant has requested that the
Landlord pays for all the opening up works with a new lease for 25 years
being agreed with 12 months rent free at market rent (the comparison noted
above should be used to determine this). Rent reviews will be 5-yearly based
on CPI uplifts.
Stating all reasonable assumptions calculate the premiums that each of the
tenants could expect to receive if the Landlord can make the surrender and
re-grant work. You should explain what your results mean.
B. Using the above information and stating any reasonable assumptions should
the Landlord be approached by At Your Convenience where it wishes to
contract on the same terms but leaves open the amount of rent free which
could be offered (in place of the 12 months noted above) by the Landlord
calculate and explain how much rent free the Landlord could reasonably offer
with the deal still being affordable. Both existing tenants have demanded a
premium each of 35000 to vacate.
MAXIMUM MODULE MARK: 20 MARKS (equal to Parts A and B)
Suggested word limit: circa 1000 (excluding references)
Assessment Criteria
Assessment of your submission will be based on the weighted criteria as given
below. These relate to your module learning outcomes.
Assessment Criteria Mark (%)
CASE STUDY (40% of this Assignment):
20 Module Marks
Communication: Presentation & Structure (beginning to reach a
professional standard). Accurate Spelling; Good grammar and
sentence and paragraph construction; evidence of editing and proof
reading; Writing style appropriate to task (report; essay; etc.); work
well structured; understanding of both legal and academic referencing.
5%
Research: evidence of wider reading round the subject; list of
references quite substantial; use of books and professional literature
and beginning to use academic literature through search engines;
developing appreciation of the quality of literature. Appropriate use of
recognised academic and legal referencing systems.
5%
Surrender calculations: Understanding of the concept of surrender
and re-grant calculations appropriate analysis of evidence full
statement of valuation assumptions and carrying out of relevant
calculations to determine tenant compensation. Demonstration of a
level of knowledge and understanding to present a fully argued and
supported outcome based on the material circumstances given.
30%