60 commercial property
Business property – an asset or a liability?
Most people think of buying a business property in the same way as buying a home but Sarah McLoughlin, property litigation lawyer at B P Collins LLP, believes nothing could be further from the truth. Businesses change quickly and being saddled with the wrong property at the wrong time, can often constrain business agility
Business growth aside, there are often many parties involved in the business ownership that can further muddy the waters. Coupled with that is the fact that standard agreements affecting landlords and tenants are usually tailored from a template to save time, but this could well be the wrong starting point as the agreement is manipulated to fit today’s requirements, rather than starting from the position of documenting what has been agreed.
One common mistake is the tendency for organisations to wait until they’ve all but agreed a deal with a landlord before seeking professional advice. Starting the discussion at the wrong time can be
damaging; negotiations may have focused solely on price and critical aspects may have been overlooked. At a basic level, organisations can end up paying too much rent. More damagingly, their inexperience can lead to them paying the far higher price of failure further down the line.
There are numerous additional considerations. How much rent-free period can you negotiate to allow you to move in and fit the premises to your specific requirements? Is there a service charge, and if so, is there potential for capping or limiting it?
Dilapidations are another important consideration. A property could, for example, be a listed building with a lead roof that becomes
beyond reasonable repair and needs replacing. A landlord will undoubtedly want to pass those repair costs onto a tenant. Although there will be a number of get-outs, the cost of finding them – reactively – will not be insignificant. Proactive advice, on the other hand, is priceless.
Sometimes disputes can appear to be outside of a tenant’s control – not least in multi-tenanted premises. For example, taking an assignment on premises that already have tenants in occupation of other parts of the building is not uncommon. However, in some cases, organisations can find themselves indirectly exposed if their agreement stipulates vacant
Changes to Permitted Development Rights: Eighteen months on
In May 2013 the Government quietly made some ground breaking changes to the planning system. Not widely publicised at the time, the changes allowed for the conversion of offices to residential without the need for formal planning approval, as long as certain criteria are met, writes Peter Fry, associate, Vail Williams LLP
This potentially avoided costly s106 contributions (including the provision of social housing) and its replacement, the Community Infrastructure Levy. The changes are temporary however, ending in May 2016.
As we are now half way through the allotted relaxation period it is a reasonable time to take stock of the effects of the legislation. It was intended to stimulate the residential market, increase the housing supply, bring life back into neighbourhoods blighted by a glut of empty buildings and promote the continued use of properties, which may have otherwise reached the end of their economic lives.
So what has the market made of the past eighteen months
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of relative freedom? In the Vail Williams’ valuation team we have seen a considerable increase in the purchase of suitable buildings and funding of these conversion schemes. The timing of the change has worked well, as the past year saw the biggest increase in house prices since May 2007. The market for the right type of ‘redundant’ offices was boosted by residential convertors’ demand, with the number of sales of buildings, for which there was previously no demand, increasing dramatically.
How has this affected our towns? The re-gentrification of a number of areas, with apartment and ‘loft style’ schemes growing out of tired 70s and 80s office blocks is now well on its way. It would appear
possession of the whole building at the end of the term.
The importance of building flexibility into lease assignments cannot be overstated. Organisations should avoid agreements that commit them for lengthy periods of time and, where appropriate, negotiate short-term leases or break clauses. Likewise, businesses should beware of contracts that are too difficult to exit; disposing of a property is as important as acquiring one – and it’s vital to establish sensible exit terms up front.
The casual notion that commercial property is one of the most straightforward aspects of business ownership is a myth. The smartest organisations are not those that try to be clever by doing it alone, but those that acknowledge its many pitfalls and partner with a trusted adviser to ensure they avoid them.
Details: Commercial property 01753-279087
comproperty@bpcollins.co.uk
2016. As the economy improves and demand increases for office accommodation from office occupiers, the ‘weeding out’ of the lower grade office stock may well result in inflationary pressures on office rents as demand starts to test supply. We anticipate over the next few years office rents will start to rise and those tenants facing rent reviews and lease renewals on leases which were taken out in the late noughties may well have to consider carefully at each event where the correct market rental level lies.
At Vail Williams we have specialist valuation, agency and lease advisory teams, who can advise on these issues to ensure the best result is achieved.
Details: Peter Fry 07717-576022
pfry@vailwilliams.com
there is a whole new generation of residents embracing city living.
What will be interesting to monitor over the next couple of years is the effect on the remaining office stock in these areas and whether the demand for this type of scheme continues beyond May
For more information about Vail Williams LLP, visit:
www.vailwilliams.com
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2014
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