Administering rent collection and service charges is an essential skill that property managers need to demonstrate for their APC, and as such Property management is a popular competency for those looking to practise in this area.
RICS' Commercial real estate pathway guide, found among the sector pathways, says the competency 'includes issues relating to works, health and safety, landlord and tenant relationships, and service charges'; in general, any matter associated with the smooth running of a property.
The requirements for this competency by level are briefly explained in the guide.
- At Level 1, you should be able to demonstrate your knowledge and understanding of property management and the relationship between owner and occupier, which will include the factors key to the running of a property, understanding key lease terms and their implications for property management, and how disputes and problems can be resolved.
- At Level 2, you should be able to apply the principles of property management to resolve issues affecting both owners and occupiers of real estate, including managing property from both a landlord and tenant perspective, understanding the key factors as well as property management accounting principles from each viewpoint, legal requirements and those set by RICS, and understanding courses of action when a landlord or tenant breaches the lease.
- At Level 3, you should be able to provide evidence of reasoned advice, including the preparation and presentation of reports in relation to property management, participating in all aspects of property management, and applying your negotiation, communication and business skills to contentious issues with both landlord and tenant.
Breadth of understanding needed at Level 1
At Level 1 you should be aware of areas relating to rent collection, including:
- quarter days, whether English – 25 March, 24 June, 29 September and 25 December – Scottish – 28 February, 28 May, 28 August and 28 November – or modern – 1 January, 1 April, 1 July and 1 October
- lease wording, the interest accruing on arrears, at what percentage, and whether VAT is levied
- definition of rent in a lease
- instances when the property manager should not accept rent; for instance, to avoid waiving the right to forfeit or where a contracted-out lease could create security of tenure.
When it comes to rent arrears and debt recovery, you should be alert to the following:
- warning signs, such as bounced or post-dated cheques or persistent late payments
- interest on late payments
- considerations such as the tenant's financial position, the amount of arrears, payment history, current rent payable under the lease compared with market rent, the overall value of the investment and the prospects for reletting
- remedies for tenant default, such as a payment plan, court proceedings, rent deposit drawdown, pursuing a former tenant or guarantors, issuing a statutory demand, commercial rent arrears recovery (CRAR) and forfeiture.
Finally, with service charges, you need to understand:
- what a service charge is, and why you might need one in a multi-let building or building with common parts
- basic principle that charges should not be for profit or loss
- service charge caps
- apportionment method set out in the lease
- sinking and reserve funds
- benchmarking against, for example, BDO PropCost for offices, shopping centres and retail or other standards
- tenant consultation
- service charge accounting such as reconciliations, where figures are checked to ensure accuracy
- relevant case law, including Boots UK Ltd v Trafford Centre Ltd [2008] EWHC 3372, where Christmas entertainment services were not deemed as rechargeable promotional costs under the service charge.
At Level 1, you should also be aware of RICS standards, including the current editions of:
- Commercial property management in England and Wales
- Real estate management
- Service charges in commercial property
- Property agency and management principles – new RICS guidance that is essential reading.
Practical experience must be shown at Levels 2 and 3
Three typical examples you might include in your summary of experience to demonstrate how you applied this knowledge at Level 2 could include:
- managing a service charge, including day-to-day tasks such as budgeting, reconciliations and managing suppliers
- issuing rent demands and collecting rent in line with the lease
- processing a CRAR application to recover arrears from a defaulting tenant.
At Level 3, you might use the following to show you are able to give reasoned advice:
- setting up a new service charge from scratch and advising the client on issues such as lease wording, inclusions and exclusions, apportionment and services
- advising on the most effective method of recovering substantial rental arrears from a tenant
- advising on the management of major works to a property that will need to be paid for through the service charge, including tendering, tenant consultation and recovery.
Competency should be contextualised by wider role
You should be familiar with the property manager's role and responsibilities relating to rent collection, debt recovery and service charges.
What you write about in your summary of experience will be defined by your own work, and you are not expected to cover everything in the lists above.
You will need to convey this in your summary, with two to three practical examples at both Levels 2 and 3. These need to be written in the first person and the past tense.
Of course, the Property management competency covers more than just rent collection and service charges, so you may only decide to focus on one or two examples in this specific area.
The others could then relate to different responsibilities such as statutory compliance or dealing with licences to assign or alter.
You may also include elements of this competency in your case study and add relevant knowledge acquisition to your CPD record.
Some very good case studies focus on Property management as a technical competency, among others, such as Inspection and Legal/regulatory compliance.
These case studies have considered the recovery of significant rental arrears, and setting up a service charge for a newly developed building, as just two examples.
After finalising your written submission, you will then need to be ready to address questions on your examples and knowledge in your final assessment interview.
Actual questions for final assessment will be based on your experience, starting at Level 3 and focusing specifically on the examples you have put forward.
You should always answer the assessors' questions based on your practical experience, ensuring you explain the advice you gave at Level 3, or what you did at Level 2.
Because the 60-minute interview is short, your answers should be concise and considered. Avoid the temptation to tell the panel everything you know about a specific example or the competency as a whole.
A sample answer at Level 3 is given below, which you can tailor to include your specific examples. The answer covers a wide range of advisory issues that you could consider.
The answer itself is too long for what you could give in the APC interview, however, due to time constraints – so you will need to be selective in the relevant advice or examples that you speak about.
Property management sample answer
Q: You have written about an issue you faced at XM House in Bristol, where a major tenant in the building persistently defaulted on rent and fell into substantial arrears. How did you advise on debt collection?
A: First, I reviewed the payment history with the client's accounts department and made a clear schedule of what was owed, and from when. I also checked the lease and the rent demands to ensure that the sums owed were correct.
I carried out due diligence into the tenant's financial standing and covenant strength, using Companies House and a credit report from Dun & Bradstreet as well as seeking specialist input from my client's finance director.
This confirmed that the tenant was not at risk of insolvency and should, in theory, be able to pay the sums due.
The tenant was also a major occupier of the building, so I advised my client that the objective should be to retain them and enable them to pay the rent on time again.
I did not recommend forfeiting the lease given the impact this would have on investment value and loss of rental income during the void.
I also advised, in collaboration with my firm's agency team, that reletting prospects could be difficult for a large space and there would be significant costs incurred in pursuing this option.
As a result, I considered a number of options to recover the debt, including a payment plan, court proceedings, drawing down the rental deposit, issuing a statutory demand and CRAR.
My preferred options were to negotiate a payment plan because this would help maintain a good working relationship between the parties, followed by CRAR as an established method of debt recovery where the arrears have been outstanding for more than seven days.
I did not recommend drawing down the rent deposit as other options were available and doing so may have been necessary at a later date.
Neither did I recommend court proceedings or a statutory demand, given the associated costs and potential impact on the landlord and tenant relationship. There was no guarantor or former tenant to pursue, so this was not an option.
My negotiations to agree a payment plan became protracted, so I confirmed to my client that we should pursue CRAR.
At this stage, however, the tenant had an internal change of finance personnel; they decided to re-enter negotiations, so we were able to agree a written payment plan that would bring the tenant up to date on their arrears and current payments within six months, including full interest on the arrears.
This resolved the matter and preserved a better working relationship with the tenant than I believe any of the other options would have done.
Whatever you say in your answer, you will need to ensure that it reflects your own experience and reasoned advice. Think logically about the action you took and the justification for the advice you gave.
Jen Lemen FRICS is co-founder of Property Elite
Contact Jen: Email
Related competencies include: Property management