Not sure of the original source but here is an example of how the assessors may test your understanding of an area( in this case leases) and how you might persuade them you know what you are talking about. Also a bit on ethics.
Question: Why might the rent be depressed by a short lease term?
Answer: Because tenants require security of tenure, and if, for example, the
majority of tenants require a lease of at least 5 years, the number of
tenants in the market for leases of 2 years or less will be relatively
limited.
Comment: Relatively brief answers are being given to the assessors, but the assessor
is asking follow up questions. The next question shows how you can look
to give more information to the assessors – but ensuring that is good
quality, concise comment.
Question: Back to the term of occupation then. What would be the position if
there were no express obligations in the lease?
Answer: The unexpired lease term would be the assumed length of term of the
hypothetical tenancy. This reflects the ‘presumption of reality’ principle.
However, the prospect of the renewal of the lease can also be reflected
insofar as it may weigh in the mind of the hypothetical tenant attracted
to the property. The prospect of lease renewal, and therefore continued
occupation, may, for example, be strong in the case of a modern office
block where the landlord is keen to retain tenants and optimise
investment value, but in the case of a warehouse within a development
site, the renewal is unlikely to be possible. Indeed, a short term to lease
expiry and enforced vacation would be unattractive to the market, and
could be a situation where rental value is depressed at rent review.
Comment: Note how the provision of more information produces a better quality
answer. Much more could be said, but you must know when to bring
your answer to a close and await the next question.
Question: What about the assumed length of term at lease renewal – what would
that be?
Answer: It would reflect the length of the new lease. The court could grant a
maximum of 14 years, but a range of factors could determine the length
of the new lease, such as the term of the current lease, any aspirations
for the landlord to redevelop the property and consequently require a
break clause, and the need for certainty for the tenant.
Question: Just remind me what the 21 year rule states.
Answer: The value of improvements cannot be taken into account at lease
renewal if they were undertaken during the current lease (whatever its length),
or where the improvements were undertaken during the 21 years prior to the
application for a new tenancy.
Question: While we are on improvements, what would be basis of compensation
for a tenant who has undertaken improvements, and is leaving the
property?
Answer: It would be the increase in the value of the property as a result of the
improvements, or the cost of undertaking the works today, whichever
the lower?
Question: Just finally before I hand over to the chairman, who can serve an interim
rent notice – the landlord, the tenant or both?
Answer: Only the landlord.
Assessor
We’ll ask you a bit more on rent review later, but in examining the main comparable, the rent review of the nearby property shown on your plan, tell me how you went about obtaining the information, and also how you analysed the transaction.
Candidate
When I first inspected the property, I also walked the high street and other retailing areas looking for boards. I contacted these agents, and also others covering the area. I was fortunate to be provided good quality information by the agent undertaking the rent review, which included areas of the property, including zoning breakdown, the effective date/valuation date, the new rent and the previous rent (and effective dates), the rent review frequency, the length of the lease and term to be assumed for the rent review, availability of break provisions, rent review assumptions, repair provisions, the user clause, alienation provisions and insurance provisions. All these factors can affect rental value, but there needs to be something significant in order to make it a particular point in negotiations.
Assessor
What were the main negotiating issues then?
Candidate
The effective date of the subject review was four months after that of the comparable property, and the landlord’s agent felt that an uplift should be reflected. I resisted this, requesting that the landlord’s agent provided evidence. Another difference was that the subject property had a five year rent review pattern, whereas the comparable was of only three years. The landlord’s agent maintained that a five year period was more valuable to a tenant than a three year period, particularly in market conditions where values are rising strongly. I pointed out that inflation was currently low, economic conditions relatively stable, and that although there had been rental growth over the last five or so years, this largely reflected the market’s emergence from recession, and also that rental growth in retail rents was not expected to be substantial over the next few years – as indicated in the research of a large national practice. Another thing I checked initially was whether the rent could go up or down at review. For both leases it was upwards only. I held my ground, and agreed a rent of £25 per sq. ft. zone A, against £24.50 payable for the other property.
Professional ethics for the APC interview
Acting outside principal employment
Consider the question, ‘What would you do if a friend asked you to act on his behalf in respect of a rent review on his shop/the securing of planning permission for a house on his large garden/the drawing of plans for house/the arrangement of tenders/the monitoring of works?’
The question assumes that you are working for a firm, rather than being self-employed, and that the friend is seeking your assistance on an informal basis. You would, of course, have to decline to act for the friend. Remember that you do not hold professional indemnity insurance.
Although declining to act would be the correct answer in the APC interview, an assessor could still ask a private practice surveyor, ‘What about the opportunity to secure fee income for your practice - would you turn it down because the potential client is your friend?’
This may appear to be a rather stern approach by the assessor, but it is giving you the opportunity to acknowledge the prospect of securing an instruction for your practice, and ideally contributing further information to the assessors. You may say that you would invite the friend into the office to discuss a formal instruction. An assessor might say, ‘Is there anything to stop you discussing matters in the pub or in your home?’ You may say that there is not, but that you would just prefer to keep matters on a more professional footing. You may add that you would ensure that a colleague quoted fees bearing in mind your friend was the client.
Professional ethics is an area where assessors can bounce questions around in order to test a candidate’s understanding. Candidates should not feel things are not going their way in the interview in respect of professional ethics because assessors appear to be ‘moving the goal posts’.
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