Was Shake Shack ever trading at a loss?
No, but income was completely diminished and they still had outgoings to pay like rent, service charge etc
How was the lease regear mutually beneficial?
Tenant: 9-month rent free, good location and free from historic debt
Landlord: T to remain in occupation to 2030 at increased rent, and another rent review in 2025 and could even renew lease at contractual lease end (outside act so simple negotiation)
Did postponing rent review from 2020 to 2021 help client with investment value?
Not in the short term, but in the long term it is likely to
Open Market RR mid pandemic would have been unlikely to produce £175k pa rent
What was the construction of the office and retail property?
- built in 1930s
- 9 storey building (2 basements and 6 above ground)
- steel frame construction with ornate stone façade and double glazed windows
- office has reception area and is Grade A with raised floors (150mm void), suspended ceilings (350mm void), shower and locker facilities, and DDA compliant lifts (lower buttons & braille)
- retail unit was visible from high st and rectangle shape with depth about 3x the width
What defects are common in units like Shake Shack?
- dry rot
- wet rot
- damp penetration
- structural movement around windows
How did you inspect Shake Shack in accordance with RICS Surveying Safely?
- section 6 covers inspection
- I confirmed I had the competence, knowledge and skill to complete the inspection
- I assessed the risks prior to attending the site and noted there were very few, the main one being slip/trip hazards
- I ensured I would personally be safe on site because I went with my manager, took a charged mobile phone and made my other colleagues aware of my location and when I was due back
- I was aware of the ‘safe person’ concept whilst on site which meant I was responsible for my own, my colleagues and others health and safety
How did you measure Shake Shack in accordance with the Code of Measuring Practice?
- I determined I would need to use NIA for valuing a retail unit
- I reviewed the examples in the Code of Measuring Practice as well as the NIA definition
- I measured the useable area and measured to the internal face of the perimeter walls but excluded toilets, cleaners cupboards and areas under 1.5m in height
Why did you use overall NIA basis for measuring Shake Shack rather than zoning?
- zoning is valuation technique used for comparing retail units with different frontage to depth ratios
- all my comparable evidence was on NIA basis, rather than ITZA
- likely due to small size of retail units
If the unit had been larger, how would you have used zoning?
- I would have halved back in zones of 6.10m/20ft to express the floor area in terms of Zone A
- I would have then multiplied by the market rent per sq ft at the Zone A rate
If Shake Shack had had a return frontage, how would you have dealt with it?
- I could have added an uplift for the depth of the return, depending on the pedestrian flow EG 5% uplift
- if the pedestrian flow had been equal, then the whole unit would have become Zone A
How would you have measured the lower floor storage area if you had used zoning?
I would have taken a fraction of Zone A for the basement area
If there had not been a PMA in place, how would you have agreed terms of engagement and fees?
- for terms of engagement would have identified clients, assets, currency, purpose of valuation, basis, investigations and limitations, assumptions and special assumptions
- for fee, this could have been calculated on an hourly rate, or been a fixed fee, or been a percentage of the reported valuation figure
How did you ensure anti money laundering (AML) checks were up to date?
- Workman Compliance Officer emails client every 3 months to check whether there has been any change in ownership (rare)
- had name, company number and registered office address for LL, and had confirmation they were registered with HMRC
- this was all confirmed when we were first instructed
What did the client accountant look for in the internal credit check?
- internal Workman client accountant carried out external credit check using CreditSafe which gives rating between 100 (low risk) and 1 (high risk) - predicts how likely a company is to fail in next 12 months
- assessed Shake Shacks creditworthiness based on their Company Registration Number
- assessment is based on balance sheet, outstanding debt, payment history etc
- score was low, at 30 whereas in 2015 when the T took on the lease the score was nearer 90
How did you determine Shake Shack covenant strength?
- looked at profit and loss account
- shows income and expenditure over a year
- income = sales
- expenditure = cost of goods, salaries, cost of running business (insurance, electricity, rent etc)
Compared to previous year profits and saw they used to be higher
What’s included in void costs?
Insurance, service charge and business rates
What type of Rent Review was it for Shake Shack?
Open Market Rent Review
Examples of other types of rent review?
- open market rent review
- stepped rent review
- index linked rent review
- turnover rent review
Can you talk me through the rent review for Shake Shack?
- agreed terms of engagement, checked competent and checked conflict of interest
- checked lease which stated open market rent review with usual assumptions and disregards
- inspected and measured
- found comparables
- did calculation and made recommendation
What was the purpose of the update to the Use Classes Order in September 2020?
- provide more flexibility
- provide greater freedom
- buildings can change use without planning
- Class E = shops, restaurants, cafes, gyms, nurseries, health centres, professional / financial services
If an assignee had been found, how would you have organised the assignment?
- already checked lease
- request undertaking for costs from Shake Shack
- check assignee covenant strength
- check it AGA / rent deposit / guarantor required
- check if reasonable grounds for withholding consent
- check impact on investment value
- recommend and obtain consent from client
- draw up licence to alter
Rather than a payment plan, were monthly rather than quarterly payments discussed?
no, as the tenant was paying quarterly and it was just a matter of clearing historic debt now but they were only just recovering so did not want to commit to any additional payments or a payment plan
What is RICS Covid Rent Arrears Arbitration process, brought in by Commercial Rent Act 2022?
- came in 25 March 2022
- if LL and T cannot agree, this scheme is available to businesses that were mandated to close due to Covid-19
- applies to arrears from 21 March 2020 to 18 July 2021 (rent, SC, insurance, VAT and also rent deposits that should have been topped up)
- either party can apply by end of September 2022 (don’t need to agree)
- both parties submit proposals for arrears (write off or payment plan etc)
- arbitrator selects one that maintains T business and doesn’t affect LL solvency
- decision is final and binding, and lease gets altered so T is not in breach of lease (EG for not paying figure that has been written off by arbitrator)
How would you have surrendered the lease?
- T would have had to request surrender
- LL would not have had to agree (T would have had to wait and exercised break instead in September 2025)
- if LL did agree, may have requested premium from T for early surrender
Note: LL could ask T to surrender in exchange for reverse premium
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Property Management96
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Submission Questions24
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Landlord & Tenant105
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Valuation122
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Accounting Principles75
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Sustainability51
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Inspection100
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Measurement81
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Case Study33
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Data Management33
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Ethics, Rules Of Conduct & Professionalism74
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Health and Safety28
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Client Care, Communication & Negotiation, & Business Planning11
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Conflict Avoidance12
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Diversity, Inclusion & Teamworking & Inclusive Environments11
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RICS13
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