So much is happening in the property world that on occasion it is hard to decide which elements we should comment on. However here are a few which may be of interest.
We tackle a growing view that there may be a case to replace the open market rent review with a review linked to the Retail Price Index. We also take a look at draft proposals that allow local authorities to have a greater say in determining the level of business rates as a way of stimulating growth in the local community. How to introduce greater energy efficiency may allow an opening for the energy companies to fund such works. We also look at the increasing scarcity of water, the need for air conditioning inspections and finally the rules governing CCTV – not everyone seems to comply.
1. Is the Open Market Rent Review on the wane?
Traditionally, property is valued using a few primary factors one of which is the level of rent achievable. Where it is anticipated that rental levels will increase, due to open market forces of supply and demand, the value of an investment should appreciate and this is particularly important where the property is purchased with the use of bank finance.
However, owners who are free of debt restrictions are able to be less constrained in the way that they structure leases and the methods that they use to ‘review’ rent and, coupled with the introduction of the ‘Code’ (the Code for Leasing Business Premises in England and Wales) much greater emphasis is placed on looking for flexible alternatives.
So what are they and how widespread is this move away from the traditional method?
Looking at European models, they tend to favour Index-linked increases and in a low inflationary environment this may be acceptable to occupiers, but now, with inflation rising so rapidly one can imagine certain resistance in new lease negotiations. It must also be said that we are a long way from agreeing terms that would see a reduction in rent should inflation be negative.
So perhaps a fixed increase method is more equitable whereby both parties agree that the rent will rise to a pre-agreed figure after a certain amount of time, as a way for the Landlord to try to keep pace with inflationary pressures and rising rents and providing certainty for the occupier too. Some Landlords, however are not prepared to restrict themselves to such certainty and would rather speculate on rents rising, as has been forecast in Central London Office markets, for example, thereby trying to insist on regular open market reviews.
Turnover rents have often been popular in the Retail sector whereby the rent is linked to the trading success of the tenant, but again, in a downturn, this may not be great news for the landlord who owns retail centres with decreasing footfall and trading conditions, but it does mean the overall success of the Centre is shared with the landlord taking a keen interest in making the trading environment right.
As can be seen, timing and market conditions play an important role in rent review negotiations, but alongside this sits a trade-off in lease terms whereby concessions in some clauses (service charges/reinstatement/shared energy costs etc) might be appropriate for some parties dependent upon their view of the future; thus, the review of rent might not be the centre-stage issue that it once was.
2. Local Government Resource Review – It may affect you?
Currently business rates are collected locally, passed back to Central Government and then redistributed back to the local authorities as part funding of their services. The Government is looking at ways of allowing the local authorities the ability of influencing these business rates locally in an attempt to stimulate growth.
The ‘Barker Review of Land Use Planning’ identified that UK has some of the highest occupational costs in the world and that where industries are property dependant they will find it hard to compete and also stifle new business entry. The Government believes that by reducing this burden businesses may have more money to invest in their company’s expansion and so help to fuel a recovery in the economy. However, they do also accept that where rates may be lower this could assist in supporting increased rents and so the occupier may lose out on the benefit.
This would be a radical change to the current system and may see some businesses prosper as a result of the changes however as it’s just a discussion paper at the moment it may not happen, so let’s wait and see.
3. Leaving the cost of energy efficiency behind when you move...
The Green Deal Finance develops a new legal mechanism whereby the obligation to repay the costs of the energy efficiency measures is attached to the property and not the bill payer. This basis will enable the energy provider to develop various finance packages that can be utilised for projects that will improve a property’s energy efficiency. The over-riding principle is based on the assumption of making sufficient savings by introducing more efficient technology. So it is feasible that people can move out of a property and not only pass on the benefit of the works but also the costs involved on their installation. At the same time it is possible for a company to move into a property and inherit the costs associated with earlier works.
The dilemma a property owner has faced in the past is where do they get the finance from to undertake energy saving projects? We at TAP can see that this initiative from the Government will answer that question with one caveat; it must be able to show that enough savings can be achieved as a result of these improvements in the property.
This Green Deal will have provisions attached which may include:
The original and proposed assessments must be accurate to provide the comfort of knowing how much energy will be saved.
Only accredited measures can be installed.
Limits on how much finance is available.
The ability for the energy providers to collect the agreed repayment amounts
When is it hoped the Green Deal may begin? Well the literature on the subject suggests the second half of 2012 so let’s wait and see how this initiative develops.
4. Water; when will it become a scarce commodity?
Our ability to take the supply and availability of water for granted is no longer acceptable and Fiona Mannix, Associate Director of the RICS Land Group comments ‘Fresh water in the UK is now more precious than ever for its extensive use in essential activities.’ This view is supported by the Environment Agency (EA) who believes it is in part due to the increase in climate temperature and changes to the rainfall pattern. They say ‘Summers are likely to get hotter and drier, significantly increasing demand for water, and winters warmer and wetter’. Coupled with the change in the weather pattern whereby Britain is subjected to increased intensive rainfall which produces more frequent surface floods, the ability of water to infiltrate into vital ground stores is likely to decline.
With the ability to capture water efficiently ever decreasing, the water companies are having to try harder to extract this resource from the underground basins which in itself can cause further environmental damage. It won’t be long until the tables turn with the water companies looking to the consumer to be more prudent in how they use this vital resource. New developments, whether they are houses or commercial buildings, are already starting to incorporate water harvesting ideas such as using grey water for flushing toilets but more will be needed. This won’t be enough and before long there will be a need to retrofit water saving equipment to existing properties. TAP would advocate the need for managing agents to begin looking at ways of conserving the use of water in buildings as there is still time to reflect on the benefits of various projects in an attempt to meet this challenge head on. However, in the next decade the importance of water will become increasingly important in all of our everyday lives.
5. Air Conditioning Inspections – Are you too late?
For smaller systems, that deadline was January 4th 2011.
The key points to consider are:
Are you the company responsible for the system’s operation?
Is the system’s output over 12kW (i.e. the power required to air-condition an office or retail unit of approximately 1,500 sqft)
…if Yes to both then you should look to appoint an accredited assessor to inspect the system, with the intention of ensuring that it is functioning as efficiently as possible in a general drive towards maximised Energy Efficiency. The Assessor’s Report will indicate where the system can operate better.
You may not require a survey as in most multi-let buildings it will be the Landlord’s responsibility to ensure the central air-conditioning plant conforms to current legislation but if you have installed a separate stand-alone system, or occupy the entirety of a building, you are likely to be the responsible party.
For large systems, i.e. those with outputs greater than 250kW, the system should have been inspected by January 4th 2009; in both cases, Trading Standards Officers can and will check that Inspections have occurred, and fines will be applied for non-compliance.
For more information view our Guidance Note or alternatively contact us to discuss how you can arrange an inspection.
Question and Answer – CCTV; what are the rules for filming?
Helpfully the Information Commissioner’s Office has issued the CCTV Code of Practice (‘Code’). The ‘Code’ has been drafted to help ensure that good practice standards are adopted by those who operate CCTV systems and covers certain elements such as how to capture, store and when is it appropriate to release images to a third party. By doing so it overlaps with the requirements of the Data Protection Act 1998 which also plays a part in how information is managed.
For those who operate a CCTV system they must consider who is responsible for the control of the images and how it is used; they must notify the Information Commissioner’s Office that they are the data controller, and put in place a clear procedure on how the images should be handled and stored in practice.
Importantly an operator of a CCTV system must put in place sufficient signage which alerts a person they are in an area which is under CCTV surveillance. The signage has to be descriptive enough and mention who is operating the system, why it’s being used and who to contact should you wish to view the images.
The operator must also ensure that any information stored is done so in a way that maintains the integrity of the images. This then enables the information to be of a good standard should it be needed as evidence in court but there is no time scale for the length of time images must be held.
What everyone wants to know is can they view the images that have been recorded? Well, in general the answer is yes albeit an organisation can reject such a request if they believe there could be a risk to other people. Interestingly where you have had your image recorded, such as a shopping centre then those people have a right to have a copy of those images and these must be provided within 40 days of the request. The organisation can charge you for this service but the maximum charge is £10.
Should you want more information on this subject then please feel free to call us on 0800 865 44 50.
