Understand the requirements of property leases

Assignment Brief

Unit FM4.16: Understanding property and asset management for facilities managers

1. Understand the requirements of property leases

1.1 Describe different types of leases and other contractual arrangements between landlords and tenants.(including general leases, finance leases, true leases, operating leases, skip leases, deferred leases, pre-paid purchase leases and sub leases)

1.2 Explain the ways in which leases are created and administered (no additional guidance)

1.3 Identify the key legislation affecting the ownership and use of property and assets (including specific legislation (such as property, covenants, planning consent, CDM, sustainability & carbon legislation as they apply to landlord/tenant agreements, tax legislation, business rates) and more general legislation that has an impact (such as the Disability Discrimination Act, Sex Discrimination Act, Race Relations Act)

1.4 Explain the obligations of landlord and tenant to each other (supporting the explanation with examples of the landlord’s obligations (e.g. repairs to the structure, exterior & interior of the property, safety of gas and electrical appliances, fire safety of furniture and furnishings) and of the tenant’s obligations (e.g. paying rent, utility bills and council tax, and taking care of the property) rather than trying to provide an exhaustive list)

2. Understand property costs and charges

2.1 Explain the costs associated with occupying or owning property. (providing an overview of both capital and revenue costs)

2.2 Explain how the property costs, taxes and associated charges can be managed. (including the different financial reporting and tax implications of ownership and leasing)

3. Understand how to set up and manage registers for property and fixed assets

3.1 Explain the principles, rationale and costs involved in setting up and maintaining a property and fixed asset register. (including financial, maintenance and legislative compliance)

3.2 Describe the technology that can be used to assist in setting up and managing such a register (including the range of available technologies, from the spreadsheet to the CAFM package)

3.3 Describe the information which can be obtained from a property and fixed asset register and explain how this can be used to advantage by management (illustrating the description with example/s from the learner’s own experience and/or case studies, rather than trying to develop an exhaustive list)

4. Understand the factors involved in property relocation

4.1 Explain the different factors involved in property relocation to fulfil business requirements (supporting the explanation with example/s from the learner’s own experience and/or case studies (e.g. handover procedures, space planning, change of use, cost reduction, consolidation, novation of contracts, TUPE, sustainability, corporate & social responsibility, employee relocation, redundancy, morale, motivation), rather than trying to develop an exhaustive list)

Sample Answer

Understanding Property and Asset Management for Facilities Managers

1. Understanding the Requirements of Property Leases

1.1 Types of Leases and Other Contractual Arrangements

There are several types of leases and agreements used between landlords and tenants, depending on the nature of the property and business requirements:

• General Lease: A standard rental agreement where the tenant pays rent to use the property for a set period.

• Finance Lease: The tenant pays most of the cost of the asset over time and may take ownership at the end.

• True Lease (Operating Lease): The landlord retains ownership, and the lease is usually short-term.

• Skip Lease: A lease with irregular payment schedules, often used to help businesses with seasonal income.

• Deferred Lease: Payments start at a later date, useful for businesses with initial cash flow challenges.

• Pre-paid Purchase Lease: The tenant pays upfront for the full lease term, often used in long-term investment property.

• Sub Lease: The main tenant leases the property (or part of it) to another tenant, usually with the landlord`s consent.

1.2 Creation and Administration of Leases

Leases are usually created through a legal contract signed by both parties. This contract should clearly state the terms, responsibilities, duration, and cost. They are often administered by property managers or legal teams who ensure compliance, handle payments, and manage renewals, maintenance, or disputes.

1.3 Key Legislation Affecting Ownership and Use of Property

Various laws affect how property is managed:

• Property and Planning Law: Covers land ownership, planning permission, and development controls.

• CDM (Construction Design and Management) Regulations: Ensures health and safety in construction projects.

• Sustainability Legislation: Includes energy efficiency requirements and carbon reporting duties.

• Tax Legislation and Business Rates: Affects how property costs are reported and taxed.

• Equality Laws:

  • Disability Discrimination Act: Ensures properties are accessible.

  • Sex Discrimination Act & Race Relations Act: Supports fair use and treatment within property agreements.

1.4 Obligations of Landlord and Tenant

Both parties have duties:

• Landlord’s Obligations:

  • Maintain the building’s structure and safety (gas, electricity, fire).

  • Keep the property in good condition (roof, walls, heating).

• Tenant’s Obligations:

  • Pay rent, bills, and council tax on time.

  • Avoid damage and use the property responsibly.

  • Inform the landlord of major repairs needed.

For example, a landlord of a retail unit must ensure electrical systems are safe, while the tenant must ensure they don’t overload circuits and report faults.

2. Understanding Property Costs and Charges

2.1 Costs of Occupying or Owning Property

Property costs are divided into:

• Capital Costs: One-off costs like purchasing land or buildings, and major refurbishments.

• Revenue Costs: Ongoing costs such as utilities, maintenance, insurance, and management fees.

For instance, owning a warehouse involves paying annual business rates and maintenance costs, while leasing may require monthly rent and service charges.

2.2 Managing Property Costs, Taxes, and Charges

Effective cost management includes:

• Budgeting and forecasting for repairs and upgrades.

• Understanding tax relief options on leased vs. owned property.

• Using accounting systems to track costs accurately.

• Considering tax planning and claiming allowances on capital improvements.

For example, a company may claim capital allowances on insulation upgrades to reduce tax bills.

Continued...