Whilst the traditionally ‘slow’ month of August sees many property professionals taking annual holidays, the riots that have shocked the world have highlighted the vulnerability of high profile real estate and the businesses that operate from within them. High-end brands were targeted across the country but many lower profile businesses and dwellings have been lost or damaged leading to questions over what, if anything, can have been done to protect the lives and bricks and mortar when committed attacks occur.
Tap, does not promise a silver bullet solution but this month we look at what the Government’s immediate response has been and this may be a continuing theme in the coming months.
We also look at market conditions which still seem to be favouring tenants, the need to challenge unnecessary bureaucracy in the Red Tape Challenge, issues affecting empty property and then the prospect of changes in consumer protection in property transactions.
Finally our Q and A asks; what are the main Green Tax incentives?
England’s Riots; can the High Street recover?
The UK’s High Streets have been struggling for too long already and any shopper will be able to vouch for the abundant vacancy that pervades most shopping districts, and the casualties continue to mount up, month on month.
So to be assaulted in such a manner by sustained rioting with some stores not only looted but burnt to the ground, can any local or central government action be enough to compensate Landlords and Tenants for such damage?
Early figures put the damage at £150m however this pales in comparison to the wider and longer term issues of UK regeneration, economic recovery and business confidence which needs to flow through to the High Street.
So, in the immediacy, the official response to those affected can be summarised as follows:
A government led £20m high street support scheme to help affected business get back up and running
An extension for claimants to seek compensation (from 14 days to 42 days) for those suffering damage or loss of their building, under the Riot Damages Act 1886, even for those uninsured.
A business rate relief for those affected, with Central Government funding at least 3 quarters of local authority costs, plus a council tax cessation for affected residential ratepayers.
Deferment of tax payments for businesses in greatest need
Relaxed planning regulations, where appropriate, for businesses to rebuild A £10m Recovery Scheme to provide additional support to councils to make areas safe and clean
A government pledge to meet the immediate costs of emergency accommodation for families left homeless as a result of riot damage
In London, a £50m pledge from Mayor Boris Johnson to deal with affected areas and as part of a longer term regeneration programme.
Useful police websites to visit include:
http://www.apa.police.uk/your-police-authority/contactinformation
…and Banks have also joined forces to offer funding advice and can be viewed at:
Business Banking contact telephone numbers
Heartening scenes of local communities helping in the clean up have confirmed local resolve and it’s clear that businesses are not deterred by the damage they have sustained, but will continue to look to trade, and the help outlined above is a welcome relief to most. Tragic and tough as last week was, the High Street is still in dire need to help and a far wider programme of ideas are needed to assist all retailers who are suffering through this downturn and the notable changes in shopping habits that affect them.
Consumer Protection for you instead of the limited scope of the Property Misdescriptions Act
For those involved in transactions in property there may be a change in the way you are protected by the materials and actions of the seller/lessor.
The Department of Business, Innovation and Skills (BIS) undertook a 3 month consultation at the beginning of this year to look into the workings of the Property Misdescriptions Act 1991 with a view of having it repealed and replaced by the Consumer Protection from Unfair Trading Regulations 2008(CPR).Their findings and recommendations are expected very shortly.
The CPR implements an EU Directive on unfair trading practices (Unfair Commercial Practices Directive 2005/29/EC) and, whilst it has never been used to deal with offences under the PMA, it does prohibit commercial practices that do not show the necessary standards of professional diligence as well as those that are misleading or involve misrepresentation.
Currently the PMA only applies to property SALES, so Tenants remain largely unprotected and it only covers defects in specific pieces of information which means that those who spot inaccuracies are often reluctant to bring forward a prosecution on one point alone. The information can be judged to be ‘false’ if it is false to ‘a material degree’ and is referenced to what a reasonable person would infer from it, or its omission. Agents and/or Vendors can use the defence of due diligence only, however the PMA can claim to have had some benefit as the number of prosecutions has fallen from 26 in 2001 to 12 in 2009 (and only 3 in 2008).
The scope of the CPR however is wider than the PMA which may cause greater concern for agents as the BIS sees that an offence under the PMA would also be so under the CPR. The whole area would be covered by the Office of Fair Trading whose proactive steps would involve the comparison of particulars to properties and the seeking of injunctions to prevent the use of specific misleading statements.
Because CPR is more principle-based, a consumer would need to show that an agent’s actions had led it to be influenced by the unfair practice and to have made a transactional decision. Again, the only real defence is to prove that all it was a genuine mistake and that all necessary due diligence was undertaken to avoid it. If found guilty, an offender may be liable to a fine of up to £5,000 and/or face a prison term of up to 2 years ,with limited company directors also being pursued alongside the Company.
As mentioned, the BIS’s findings are expected shortly but it seems inevitable that CPR will play a far wider role in property transactions, including those affecting Tenants, as all the factors that lead the consumer to a transaction are open to scrutiny.
Lease concessions continue to benefit Occupiers
In their 14th Annual review of UK property leases the joint findings of the Investment Property Databank (IPD) and the British Property Federation (BPF) are that rent free periods are getting more generous alongside shortening lease lengths and the increasing prevalence of break clauses.
As global economic data continues to cast doubts about sustained economic recovery the UK property market is reflective of this as vacant space struggles to find occupiers. Not only are Landlords(whether they be Owner Landlords or sub-letting tenants)having to find creative ways of mitigating the payment of Empty Property Rates (as we comment elsewhere in this e Newsletter) but they are having to offer greater incentives to attract tenants to their space.
The Review finds that the average rent free period for a new office lease has pushed out from 14.5 months a year ago to 18.5 months in a study covering the period from January 2010 to March 2011 over 52,500 tenancies. The upward trend is reflected across all Sectors and on an overall basis it produces a figure of 13.4 months as against last year’s figure of 10 months.
Regional Offices seem to be faring the worst followed by Retail rising from 7.3 months last year to 10 months now and Industrial up from 8.1 to 9.1 months.
Not only are concessions still proving necessary to attract tenants across all sections but the average lease lengths also appear to be falling too with many incorporating break clauses to afford the tenant greater flexibility.
The review shows that across the country and across all sectors typical lease lengths are now only 5.8 years, down from 6.3 last year set against a figure of 17.5 years back in 2001; hard to imagine.
With rents barely growing too across most regions it would seem that favourable conditions for new tenants should continue to offer some attraction, however without the economic conditions into which to grow, many businesses are still not in a position to take advantage of the situation and relocate or grow. A Catch 22 for those disposing of space.
Your chance to cut down Red Tape
From April this year, the Government, via The Cabinet Office, launched the Red Tape Challenge which is designed to harness your views on necessary and unnecessary regulation and to make whatever reforms are deemed appropriate following a consultation period. The default position for Ministers is to cut away red tape unless Ministers can prove its necessity. In total some 21,000 regulations could potentially be looked at, however only those considered by you to be the most burdensome will attract the most attention.
The process is set to last until April 2013 and your comments can be submitted via their website at www.redtapechallenge.cabinetoffice.gov.uk. The process has been designed to address regulations on a subject by subject basis and, currently the site is taking observations for the Manufacturing arena. As of July 28th the section on Health and Safety closed however comments can still be directed to the Health and Safety Executive as part of the Government’s long term plan for regulatory reform.
Forthcoming subject areas include Environment, Employment and Utilities/Energy and the Challenge will also deal with EU Regulations which may be deemed overly burdensome, in conjunction with other EU Countries. The Government is keen to ensure that its commitment to SMEs are met whereby companies with fewer than 10 employees are exempted from new EU Regulation.
At the end of each sector’s comment period, relevant Ministers will review the submissions over a 3 month period and will then present their findings publicly on the website which will contain details of those regulations that they plan to repeal and within what time period.
TAP recommends that businesses keep a watchful eye on the website (above) in order to maximize this valuable opportunity to streamline regulation and enforcement, especially on those areas that continuously place the biggest burdens on business and society as a whole.
The Rating Game
Local Authorities around the country are playing a cat and mouse game with ratepayers who are looking at innovative ways of exploiting minor loopholes in Rating Law to avoid paying Rates on ‘empty’ property…or at the very least obtain a temporary exemption of 3 or 6 months(the longer time frame applying to Industrial property).
In a lot of cases the issue comes down to whether or not the property is actually empty and whether or not it is lawful or unlawful to occupy due to its condition or the presence of hazardous materials.
However, there are other approaches being tried and in a recent case in the North of England The Insolvency Service investigated a scheme being run to help numerous Landlords avoid rates payment due to the insolvency of the relevant rate paying company. Their investigation led to the winding up of 13 separate companies which had been set up to sign leases on property which would otherwise have been vacant and these companies were then placed into members voluntary liquidation, but no liquidators were then appointed. The effect of this was then that the Landlord was no longer liable for the business rates and councils were no longer able to collect. In total it was found that over a 3 year period the scheme had avoided some £8.9m in rates liability and that some £1.4m had been earned in fees by the scheme’s operator.
Another topical example involves the tiny presence of a new marketing device which sends out, via Bluetooth, a continuous series of adverts to nearby, passing mobile phones. These have been placed in empty properties such that, if the Valuation Office deems this to be ‘’occupation’’, then upon its removal, the ratepayer would be entitled to a 3 month exemption from rates payment.
Similarly, the presence and use of an alarm system in an empty property has been attempted to be regarded as ‘’occupation’’ by the ratepayer in an attempt to gain a later exemption.
Ratepayers, whether a Landlord or Tenant are clearly prepared to try whatever route they can to save money and in this downturn that is not too surprising and the result of that is that Local Authorities are increasingly eager to collect money owing to set against their frozen budgets. The downturn has led to a vicious circle in some retail parades where charity shops have emerged as leading takers of vacant space, and provided they can vouch for their charitable status, they can claim either the mandatory 80% relief of even a 100% discretionary relief. Good news for a Landlord in that he is no longer responsible for Rates but for the Rating authority the presence of a new tenant in the high street does not generate any tax revenue.
Being a Landlord or Tenant means little if you are in fact the Ratepayer, but be aware that most local authorities are very wise to scams and will be asking more questions than usual about claims for relief.
What are the principal incentives open to me whilst investing in Green Technology?
You would have done well to have missed Government rhetoric and initiatives about carbon emission targets, and in simplistic terms the UK are intending to reduce emissions by 80% from 1990 levels, by 2050.
But are there sticks or carrots being used to encourage us to participate?
Essentially the sticks are taxes imposed on environmentally damaging activities and the carrots are tax reliefs or reductions relating to ‘’green’’ activities.
So whilst the damaging activities are generally being priced away from us the main incentives pertaining to UK property are:
Enhanced Capital allowances: these are applicable to expenditure on capital assets such as plant and machinery which would not otherwise be deductable for tax purposes and being ‘’enhanced’’ could give a 100% relief on environmentally friendly equipment in the year in which the cost was incurred. Such a % compares very favourably with standard rates and could provide substantial cash flow benefits as well as helping to meet a company’s CSR commitments.
Reduced VAT; installation costs in residential property for the likes of insulation, solar panels, wind/water turbines, biomass boilers can attract a reduced rate of VAT.
Feed-in tariffs and RHI (renewable heat incentive); whilst not technically tax incentives these are designed to provide home and business occupiers a set level of investment return on the installation and running of energy efficient technology. Combined with the EHA’s above relating to the plant and machinery tax incentives, these tariffs can provide a double benefit for users. However be warned, as the Government is in consultation to have certain limitations placed on the %’s available as on April 2012.
SDLT exemption; again this applies to the residential sector and specifically on new zero carbon homes and provides savings on the levels of acquisition tax within certain pre set price brackets. Reductions in SDLT could be up to £15,000 in the £500,000-£1m price bracket. Certification is required by way of an EPC to enable qualification.
More generally, changes to the planning system through the National Planning Policy Framework (NPPF) are intending to mean that the default assumption is ‘yes’ to development, except where such a project would compromise the sustainability principles set out in the NPPF.
This ‘wrap around’ position is designed to incentivise development which might otherwise not have happened.
