Editorial
In this edition we look at 2 issues in the Sustainability arena: the British Property Federation’s findings with regard to CRC costs allocation and how your business might benefit from addressing procurement and purchasing in a ‘greener ‘way. We also cover 2 issues of Insurance;one affecting cost via taxation,the other being a worrying report on the actual understanding what cover businesses actually need.On a brighter note we report on a reduction in Red Tape and conclude with a Q and A on Landlord approvals in the event of you wishing to sublet.
Enjoy the Summer!
A working party at the British Property Federation has published the results of their consultation on the introduction of the Carbon Reduction Energy Efficiency Scheme. In summary the conclusion supports the view that the ability to recover the costs associated with this scheme very much depends on the wording of the lease; with the acceptance that if both real estate investors and occupiers work together then everyone can benefit from the improved energy efficiency of a property. In this respect Landlord’s are looking to introduce Memorandums of Understanding (MOUs) to set out how to achieve a successful partnership.
The Working Party was made up of a number of people from a cross section of the property profession and reviewed a number of questions surrounding this topical subject. Many of the questions considered how the costs and potential benefits from the recycled payments, the scheme may generate, would/could be distributed; was it right for tenants to receive some of the benefits arising from the recycled payments if they didn’t contribute? Should they contribute in the first instance? What is the difference between the costs associated with administering the scheme with those for buying the allowances? Should the costs for the common parts be separated from those for the tenanted areas where the Landlord supplies the energy but the Tenant decides how it should be used?
There is no real consensus to these questions but overall it is evident the profession needs to work together to reduce the amount of energy we all use. Over the next 3 years those property owners who are captured by this scheme will have to buy allowances at a value of £12 per tonne of carbon emitted. After this initial 3 years term the cost of carbon will be subject to market forces and people are already suggesting it will increase thus forcing energy prices to rise. During this ‘settling in’ period Companies may wish to turn their attention to looking at ways of conserving power and according to the Carbon Trust companies can save up to 20% of their annual usage by improving their approach to using power.
We at TAP believe the future will see every organisation having an energy plan (drafted in compliance with BS 16001), more energy conscious clauses incorporated into commercial leases, energy managers responsible for overseeing consumption across a portfolio and a better working partnership between the Landlord and Tenant where both parties appreciate the benefits of investing in new plant where a reasonable pay back on the money can be seen. These suggestions are all reasonable but before we get there we need to repair the fundamental fault in a Landlord and Tenant relationship that the occupier doesn’t always trust a Landlord’s motive for doing something.
Would your business benefit from Sustainable purchasing?
TAP has been in the fortunate position of meeting many people since we started and often the question of sustainability is raised. Many organisations tend to be ambivalent about the subject seeing the ability to trade in a sustainable way to be more expensive and until changes are made companies will focus on other aspects of their business where it is cheaper to achieve results.
But what are the benefits in using sustainable methods in your daily business life? NetRegs has a useful website which explains the benefits but here is a brief overview.
• SAVE YOU MONEY: Landfill tax is increasing, so why pay more than you have to.
• UTILITY EFFICIENT: With more efficient products on the market you can look to drive down operational costs
• DIFFERENTIATION: Make your offering different to you competitors. Many larger businesses are looking for this attitude from their suppliers.
• INDUSTRY REPUTATION: among staff, customers and the public
• MITIGATE RISK: New products have been manufactured in line with the latest environmental standards.
• TAX EFFICIENT: Especially with energy efficient equipment, there is a possibility of benefitting from
Enhanced Capital Allowance (ECA) scheme or loans for energy saving measures from the Carbon Trust
Larger companies are looking at ways of working with organisations who can demonstrate support for their
Corporate Social Responsibilities and so pressure is being brought to bear on smaller companies to work in a more responsible way. Companies who change their policies to incorporate sustainable policies in both procurement and operation will stand them in good stead for winning business from many larger organisations. If you buy goods and services in the public sector you should see the Office of Government Commerce (OGC) guidance on sustainable public procurement, Centre of Expertise in Sustainable Procurement.
Be prepared for higher insurance premiums
As part of the recent budget many people may have missed the fact the Chancellor has increased the Insurance Premium Tax (IPT) by 20% from 5% to 6%, and the higher rate from 17.5% to 20% with effect from 4th January 2011. Not much you may feel but nevertheless an indication that occupational costs continue to rise.
As with most charges, in these times, where there is a need to have an insurance policy it is rare for the annual premium to be lower year on year but if you are an occupier with a good claims history it may be sensible to remind your Landlord of how good you are at managing your property matters. Good housekeeping by making sure you’re up to date with your various responsibilities such as Fire Risk Assessments, Portable Appliance Testing or general risk assessments will help to demonstrate a systematic approach to managing risk. This will help in seeking the reward of lower premiums. The counter argument is that with many Landlords they have a block policy that has many factors which influence the premium but if all tenants could work together in a collective manner then insurance brokers and underwriters would have to listen.
TAP can help you with managing your risk and reviewing how you maintain your records. Just call us on 0800 865 44 50.
Cutting through the red tape!!
You may not believe it but you have probably received the benefit of having to comply with less red tape! According to the latest Government Report, Simplification Plans 2005 – 2010 businesses have received the benefit of less red tape which has an estimated saving of £3.50bn. In these austere times the Government has introduced a number of simplification measures which may take the form of fewer changes to legislation, publication of guidance or the creation of web-based tools and all these to assist the business community.
It seems all these measures have been validated through an independent validation panel which comprised individuals from a number of organisations such as the TUC, CBI, Federation of Small Businesses and Confederation of British Industry. So have you benefitted from the introduction of some of the measures?
HSE Example risk assessments – Easy to use examples of risk assessments for 34 lower risk activities. As at May 2010 estimated savings were £235m.
Ladbrokes are an example of this where Bill Bennett, Health & Safety Manager stated “We complete all our assessments in-house but because we have so many (2,400) betting shops and the assessments themselves are so diverse – there are 26 generic risks to a typical small betting office – the paperwork volume was very high”. By having a simplified approach they can now produce the documents much quicker and simpler, saving time and money.
Abolishing the requirement to display Employers’ Liability certificates at all business premises which estimates savings of £58m.
By way of an example Adrian Rendell, Risk Consultant for BT mentioned that “The requirement to display an Employers’ Liability certificate at each of our premises was an enormous burden on BT, and probably many other large Corporates, because of the number of premises. Most employees would probably look for it on the intranet where it is freely available.” The change allowed businesses with suitable IT systems to display certificates electronically so long as staff had reasonable access to it in that format.
Introduction of Netregs an on line Environmental Agency service which it is estimated saves businesses approximately £32m per annum. An example is John Patch, Director, Roger Bullivant who commented
“We cannot be environmentally responsible without understanding the wider issues governing sustainable business. NetRegs.gov.uk is a great tool for helping businesses reach this goal and I would certainly recommend it.”
You may not appreciate some of the changes that have happened over the last 5 years but it is certain from the examples listed that changes are afoot to help small medium enterprises (SME’s) and the micro businesses. Many people do not realise that SME’s make up 99% of all businesses in the UK and micro companies, who employ less than 10 people, make up 96% of businesses in the UK employing 7 million people. Both the costs and the time required to comply with regulations are proportionately greater for smaller businesses and can take resource away from their core business. That is why the Government consider it vital that these burdens are minimised to allow these enterprises to thrive and, in so doing, strengthen the UK economy.
They therefore have a policy to ‘Think Small First’ which is an approach they take when drafting primary and, now secondary, legislation.
Do you understand your business insurance policies?
Apparently 70% of Small businesses believe they understand their insurance policies but research by Premierline Direct feel this isn’t the reality. Are you the same?
For example 42% of small companies weren’t sure if temporary employees or work experience personnel were covered by the firm’s Employer Liability Insurance Policy, despite Employers Liability Insurance being compulsory for any company that hires personnel, regardless of the terms they are employed on. Furthermore, more than 30% were unclear if health & safety legislation applied to every company even if they employed less than 5 people. Also 53% of companies did not realise how often they should review their risk assessments in order to comply with their business insurance policies.
Other interesting points which came out of this research were that companies didn’t realise they could insure for legal costs associated with a dispute nor that their policy may cover seasonal increases in value of their stock.
What is more important is that many businesses did not inform their insurers of a change in circumstances, particularly where the change on circumstances may affect their insurance cover. For example 73% of businesses didn’t inform of an increase in stock levels, 62% to changes in the security arrangements (Managing Agents may have an input into this element of service), and 69% about employing more
staff.
Chris Little, managing director of Premierline Direct commented, "It’s vital that business owners are honest with their insurance provider as their answers help to establish the level of risk the company is at and ensure they receive adequate protection."
"To ensure that a business is fully covered by its policy, it is essential that the insurance provider is advised of any amendments to the business. This may include expansion through selling new products, moving premises, changes to the company structure altering its legal entity and an increase in turnover or staff," stressed Little.
"In addition, if SMEs fully understand a business insurance policy, then they can have the confidence to go direct to a provider, which can lead to cost savings," he concluded.
Sub-letting – Why won’t my Landlord give me consent to sublet my premises now I’ve found a company?
One downside of a commercial business lease can be its lack of flexibility; especially when you no longer require the space. How do you mitigate the cost of having vacant space? One such way would be to sub let part or the whole of a property but this will depend on the wording contained in your lease. As a Tenant looking to sub let space do you understand what a Landlord is looking for when considering an application?
In all situations a Tenant looking to sub let either the whole or part of their space will have to refer to the terms of the lease. The lease identifies whether such an arrangement can be made and if so what conditions are attached to any such application. There are a few principles any company applying for consent should be aware of before they apply for consent.
1. Lease or a Licence? Be careful, many Landlords will not grant consent for a Licence to Occupy.
2. Length of Lease remaining vs length of lease being granted. In all cases a sub lease will have to be shorter than the remaining time left on the current lease (usually by a few days).
3. Passing rent or Market rent? The ‘headlease’ will state whether the rent which can be agreed in the sub lease should be the passing rent (ie the rent being paid in the current lease) or the Market rent,ie that which can be found in the prevailing market place. Why is this important? Well it’s because the Landlord will want to ensure that the value of the property remains high and he will be looking to secure the highest possible rent.Market rents vary and if they are below the passing rent then a letting at that level will become market evidence which can reflected in a lower valuation of his asset.
4. The terms of the sub lease match the terms of the superior lease. A subtle point but one which may ‘muddy the waters’ in any negotiation. In short, most sub leases will need to match the principle terms of the superior interest, such as the timing of a rent review or the recoverability of the service charge.
These are the principle issues that will need to be considered along with an understanding of the financial strength of the proposed sub-tenant. Timing on any application is important and where a Landlord does not agree to the sub letting then he should inform the applicant as soon as possible, stating clearly the reasons why he does not agree. In any event an initial decision should not take longer than 14 working days although the full documentation may take longer.
Once this has been agreed the Landlord’s solicitors will issue a Licence to Sub let. This document is evidence of the approval.
There may be other points to consider such as insuring new fit-out works or changes to the service charge apportionments if changes to the premises increase the floor space which we haven’t covered and if these are relevant to you then please call TAP on 0800 865 44 50 and we can guide you through any concerns you may have.
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