We take a look at a few comments from the British Property Federation Conference, and also look at a recent update on how Green Leases are fairing in the current climate. What do you think about the way the Government is tackling the deficit? Many small companies would like to see the deficit lowered but is it the majority? We look at a recent survey from the Forum of Private Business.
Finally our Q and A considers some aspects of service charges and how they work.
The summer is nearing its peak with the solstice upon us. The sun is high and the rising daily temperatures will, yet again, put a strain on keeping buildings cool. Managing Agents will field a lot of calls regarding air conditioning systems over the next few weeks but what are the common problems occupiers’ experience?
"I’m sitting under a draft" – Often people feel a draft when sitting beneath or, close to, an air vent, and subsequently ask for the temperature to be raised, as they feel cold. The size of a vent has been designed to supply enough air to cool an area of the building, and we have seen occupiers plug these vents which does suffocate the air supply. It is hard to avoid a draft but the Property Manager may be able to adjust the vents to push the air across the ceiling or you may have to adjust the desk layout. Other than turning down the fan speed, or system temperature, which may have knock on effects for the rest of the office, there maybe little else to correct the issue.
"The air conditioning is noisy"– In the summer the fan will need to be turned up to supply more cool air. This can increase the level of noise and can be difficult to cure.
"Pockets of warm or cold air" – This is a common complaint that can highlight an issue with the original office fit out, or equipment failure. It’s usually an issue where either the sensors, which record the air temperature, are faulty or the system serving the floor has not been set up, commissioned or balanced properly.
"No cool air coming from the vents" – Possibly this could be due to a problem with the main chiller because of excessive demand or a refrigerant leak. Report the problem as early as possible.
"There are hot temperatures close to the windows" – Glass will magnify the air temperature close to a window. Where possible seek to install and operate window blinds.
"I’ve opened the window because the air conditioning doesn’t work" – Usually open windows will adversely affect the operation of the air conditioning. It is important to have the windows closed as this will give the air conditioning a chance to operate as it was designed to do.
"Drips over the desk" – With cold pipes running through warm air, condensation can build up and should run away. Sometimes the drains can get block and unfortunately the engineers will need to investigate.
Whilst a faulty air conditioning system is not always due to poor maintenance a Tenant would be wise to have a contingency plan at hand that can assist when the office environment becomes unbearably hot.
For Health and Safety remember there isn’t an upper temperature limit for working in an office but the Health and Safety Executive talk about having an environment which has a reasonable temperature to work in.
Furthermore, in the summer repairs to an air conditioning system can take longer to address. An occupier could help the situation by having a contingency plan that caters for the unexpected and if nothing else have the telephone number for temporary cooling equipment should it be required.
We can help by putting you in touch with the right company for air conditioning problems so please call us on 0800 865 44 50.
Some of the country's largest Occupiers, JD Sports, Deutsche Bank and the BBC, voiced concerns over the archaic structures still pervading within the L+T relationship. There was talk of a lack of flexibility in
leases and an incessant flow of upward only rent reviews from JD Sports Chairman, Peter Cowgill; a call for an audacious and radically different relationship between Landlords and Tenants from Deutsche Bank's Head of Corporate Real Estate David Prout, who also felt that despite swings in market favour over time between each party, there was ''still fundamentally the same framework from over 50 years ago''. This thought was echoed by Chris Kane, head of workspace at the BBC who viewed the outside perception of our property industry as '' a cosy club where nothing much has changed in decades, if not centuries'”.
So, what to do about it?
TAP believes in better communication between L+T, which can be achieved by direct contact and understanding the day to day issues that tenants have to deal with not just in their real estate but as businesses.
Indeed, in a statement reinforcing TAP's stance, Landlord Rick de Blaby, CEO of MEPC said that, particularly in a recession….''building owners have got every possible incentive to ensure that they put their revenue-producing customers at the very top of their priorities. Landlords would do well to learn the art of customer care during the course of the lease, not five minutes before its up for break clause or expiry''
Air Conditioning Inspections…. THEY HAVE TO BE UNDERTAKEN.YOU HAVE BEEN WARNED
As air conditioning systems can account for 50% of a building’s energy consumption, they are, understandably, the target for EU regulation and as such they fall under the Energy Performance of Buildings Directive (EPBD);the same Directive that brought us EPCs and DECs.
To avoid any conflict of interest with maintenance contractors, Inspections have to be undertaken by independent inspectors and should be to a Chartered Institute of Building Services Engineers (CIBSE) standard, known as TM44. The responsibility for arranging the inspection lies with the party who operates the system or has responsibility for the technical functioning of it, which could be either a Landlord or the Tenant depending on the circumstances. Either way, the Regulations are very clear as to the timing of these inspections and so far, in many cases, these HAVE YET TO BE UNDERTAKEN.
For smaller properties, operating systems over 12Kw (ie a system serving a 2,000sqft office or retail unit) YOU HAVE 6 MONTHS LEFT as the deadline is 4th January 2011. For larger systems which is above 250Kw (ie a system serving a 25,000sqft building), these should have been inspected by JANUARY 2009 and sanctions for non-compliance are identical to those for EPC non-compliance, i.e. a series of fines and named disclosure. Thus it is in both the Landlords’ and Tenants’ interests to address the issue immediately.
CIBSE has launched a campaign to address the current lack of compliance (it estimates this to be only 5% so far) and has even suggested that the current enforcer, Trading Standards be replaced by a body more able to act, and more interested.
TAP’s message is that this EU Regulation will result in fines and potentially costly exposure for non compliers but also that the recommendations on energy savings that emerge from the Reports can very quickly cover the cost of inspection. According to Martin Gibbons, Director of Vital Energy, the UK’s specialist provider of EPCs and environmental inspections, he has witnessed an upswing in activity particularly as the timeframe for compliance shortens towards January 2011 for the smaller systems, and goes on to add… "Alongside our increased workload, particularly from Tenants, we are finding that we are getting very positive feedback from customers about energy saving initiatives, confirming that Companies are beginning to see a link between energy savings, cost savings and environmental impact; and with a typical inspection costing around £850, they are able to see a return on this cost in savings, very quickly."
For more information contact us and we will be able to put you in touch with one of our Suppliers and secure you a 10% discount as a TAP recommendation.
5 members of the BBP, Keith Budgen (programme director of the BBP, a director of RPI Consult Ltd and a consultant to Hermes), Miles Keeping (Head of Sustainability at GVA Grimley), David Short (Counsel, sustainability and environmental affairs at GE Capital Real Estate-Europe), Siobhan Cross(Partner in property litigation at Pinsent Masons) and Becky Clissman (solicitor and editor at PLC Environment) have had a recent interview published where they reveal their frustrations and difficulties in getting their Green Lease Toolkit to a wider and more accepting audience.
Communicating messages is at the heart of what TAP seeks to do within the Landlord and Tenant relationship, and some of the statements that the panelists’ made reflect this view: Commenting that there have been difficulties, Keith Budgen said….''The driver for Green Leases, and particularly the toolkit, is to raise awareness and to provide a building block for engagement between owners and occupiers.
We still need to overcome significant barriers, such as breaking down the adversarial relationship between owners and occupiers”. Siobhan Cross noted that ''Tenant take up is greater among Public Sector tenants who have tended to sign up to a Memorandum of Understanding (MOU) rather than a Green Lease. Due to economic conditions we are finding it difficult to persuade tenants and non BBP landlords, where deals are time-critical, this isn't a top priority. Hopefully, with market changes and the CRC in force, the incentive will be greater''.
David Short said ''We want to work with our tenants, especially during the downturn, so as to retain those we have and retain others. Tenants need to understand that by together running the building more efficiently, we will both save money. It’s an issue of timing, complexity and lack of understanding.''
Also commenting that he felt occupiers don't want it,... ''If it became a selling point for attracting tenants into buildings, every landlord would want it''. Noting that the Toolkit can be very useful in multi-tenanted buildings, he went on to say about Tenants... ''They want their Landlords to help them, and it can be very frustrating if they are unable to obtain data from the landlord.” Both Becky Clissman and Miles Keeping went on to add that ''Making the connection between those responsible for CSR policy and those negotiating leases would change the latter's perspective... B.C....and…. ''There's a disjoint between property decision-making and corporate decision making.... there's a willingness but a lack of knowledge on what to do ''M.K........ again, the point being here that organisations are failing to see the connectivity of business related activity and real estate.
On the subject of CRC and Green lease take up David Short's positive message was that... ''It gives Landlords of multi-tenanted buildings, where typically they purchase the energy, an incentive to reduce energy consumption and carbon emissions because those emissions are theirs and will determine their league table position.''
Keith Budgen added that... ''Many organisations don't understand CRC and how it will affect them. It’s an opportunity to use an MoU and agree a non-legally binding document that enables parties to save energy in their building''.
Suspicions, on behalf of Tenants, were raised however by Siobhan Cross as to whether or not Landlords are ''in fact lining up a way of passing down CRC costs to Tenants?'' ...Keith Budgen responded with evidence that BPF sponsored workshops ''showed that a significant number of occupiers agree to cost sharing as long as its fair and reasonable''. But as Becky Clissman stated, no one will know what this means until CRC clauses get tested; an MoU gets round this as the parties are working together in ''a consensual approach''.
So, in conclusion there is a very long way to go to reach agreement as an industry about how to incorporate Sustainability issues into commercial leases; and still at the heart of it all is the need for a change in the adversarial relationship between Landlord and Tenant.
Following The Forum of Private Business quarterly referendum, almost 80% of Small and Medium Businesses (SME’s) in the South East support a rapid deficit reduction. This was echoed throughout the country where similar surveys were conducted. But there was still caution with concern over where the potential public sector cuts may strike.
In comparison to the strong opinion for cutting the deficit only 41% said introducing fairer taxes should be a priority and only 23% thought access to public procurement should be improved. Other areas of interest in the survey were that simplifying the tax regime ranked high on the list of desires as well as stronger regulation for Banks and Utility Companies. The Forum’s Hampshire based Head of Policy, Matthew Goodman said “the figures showed the depth of concern over public debt among business owners in the South East. He also went onto say “Small firms in the South East clearly appreciate the need to tackle the UK’s vast amount of public debt and they appear to be behind the new Government’s effort to do so.
“However, we would hope that crucial small business support services, both in the region and the wider UK, aren’t sacrificed in the Government’s drive to cut costs. Smaller businesses are key drivers of growth and employment and their continuing survival is crucial to Britain’s economic recovery.”
Service charges are the monies the Landlord uses to maintain the common parts of a property, or those services that are provided for the mutual benefit of the occupiers. They are collected in advance from each occupier every quarter but how are they calculated and apportioned?
Each year the Property Manager calculates a budget or forecast of expenditure and broadly this will involve 2 distinct areas; the first will be the regular utility and service contracts and the second will be the capital projects where items have been ear marked for repair or works due to changes in legislative requirements. What can be included in the budget will be governed by the terms of the lease. It is important a tenant understands the costs and if necessary have a meeting with the Landlord or Managing Agent to understand how the budget has been compiled.
How is my element of the budget calculated? There are a number of methods available to apportion the costs such as using the area occupied by the tenant as a percentage of the whole lettable area. In most instances this will be net lettable area as a percentage of the whole net lettable area. It is worth noting that should a tenant occupy a property with vacant space the Landlord will be responsible for the element of service charge relating to the vacant areas. Generally a tenant can not be liable for costs relating to Landlord’s vacant space. Again it is important to understand how their contribution to the service charge is calculated.
What happens at the end of the budget year? At the end of the service charge year the Property Manager will reconcile the expenditure and issue a final account. If there has been an ‘over spend’ then an additional invoice will be raised for each tenant. If there has been an ‘under spend’ then there will be a credit invoice detailing the amount due back to the tenant. The service charge normally takes a few months to reconcile and so there will be an overlap with a new budget being issued and an old reconciliation being prepared, but whoever is compiling these figures should have a good understanding of the closing costs and projected budgetary forecasts.
Are there any industry standards that Property Managers work to? The Royal Institution of Chartered Surveyors, British Property Federation, British Council of Offices and many others have compiled The Code of Practice on Service Charges in Commercial Property which outlines a guide for Best Practice. Many Property Managers do try and work to this code and it would be worthwhile to enquire at the outset whether your Landlord endorses such practices. We have a link to the ‘Code’ on our site which you may wish to consider.
If in any doubt please call TAP on 0800 865 44 50 and we can guide you through any concerns you may have.
