March E Newsletter

Welcome to our third e newsletter of 2011.

As the world focuses its eyes on the horrific events in Japan, the primary focus is understandably on the human toll. Needless to say, the horrendous destruction of property compounds the abject misery and shock for survivors. Whilst our industry can make every attempt to safeguard life and property, last week’s events give us a sobering reminder that almost all that we do is at the mercy of nature.

Our first article talks of a related, but, in context, relatively minor story about water damage to business and the approaches taken by the AIB and Government. We then look at 2 issues where the property overhead is being highlighted; increased litigation levels between Landlords and Tenants as the downturn brings to the fore the part that property plays as an overhead, and the lowering of the business rates relief threshold on empty property.

We then look again at the 2 most high profile Best Practice guides for the property industry and the adherence or not, to them; another VAT related story on Waste removal and then we conclude with a valuable reminder about the dangers and importance of asbestos and the need for strict compliance with the rules surrounding its management.


The price of keeping your head above water is going up.

Changes are afoot that may result in property insurance being harder to obtain after June 2013. It seems that the Association of British Insurers (ABI) and the Government have an agreement whereby the ABI will continue to offer cover for flood damage whilst the Government continues to support the cost of shoring up our flood defences. However this agreement expires in June 2013 and at the moment it will not be renewed; this is even more likely following Autumn’s Comprehensive Spending Review.

The summer flood of 2007 resulted in claims in excess of £3 billion, the Carlisle floods of 2005 had claims of £272 million and the Cumbrian floods of 2009 resulted in claims of £174 million. These claims are met whilst flood insurance remains available and if the Government removes their commitment it is likely premiums will rise and in some instances cover will no longer be offered. How will this affect the property industry?

The insurers are not just concerned by rivers breaking their banks or coastal erosion but also groundwater flooding, which is where the drainage system cannot cope with heavy rainfall or melting snow.

As a consequence both Landlords and Tenants will be affected by this potential drop in cover and/or increased premiums. For a landlord, not having cover may infringe their banking covenants or result in them needing to enhance their flood defences which in turn may result in consultation about any consequential loss. This will have an impact on the property’s valuation. For tenants it will result in business interruption as there are still properties that locate their generators and electrical switch rooms in the basement and, in many cases, ill-prepared businesses may not survive a major interruption.

What can be done to help Tenants prepare for such a hazard? The Environment Agency is beginning to work with utility providers, emergency services, insurers, transport and the retail sectors to develop flood warning products and services. Organisations will need to obtain a licence to use the data but it is hoped that using this information will enable responsive action to be taken either to assist in preventing damage from a flood in a known area or reacting to an imminent flood warning. Additionally, we suggest that you think about the critical components that may cause interruption to your business. We have previously mentioned that this could include emergency power generation, telecom racking and important filing and data which is stored below ground all of which would be critical to your business. Also look at staffing arrangements; often business interruption results from people not having access to their place of work. Here having a ‘cloud’ based IT network may assist in getting through such an issue.

We have looked for useful websites that may help you think about business continuity. London has a useful website that can assist businesses in thinking about preparing their business for such an event. We have uploaded a link on our site to both the London and Business Link website but if you’re not one of our subscribers click here for the link to London Prepared and here for Business Link.


Landlord and Tenant High Court disputes rise by 43% in one year

A recently published report by the legal information provider, Sweet and Maxwell (S&W) has shown a significant rise in the number of disputes reaching the High Court. The statistics show that in the recessionary years of 2008 and 2009 (the most recent figures) the numbers rose from 28 to 40 and this has been put down to a rise in the number of companies trying to reduce property overheads, especially in the methodology used in attempting to dispose of surplus property.

Whilst S&W point out that many disputes are resolved by negotiation and arbitration, the increasing High Court numbers illustrate the importance that is now being placed by both parties on property matters. On a wider scale, the High Court (Chancery Division) numbers show a dramatic rise from 2005,where only 2 cases are listed, then rising to 3 in 2006 and still only 5 in 2007.The huge % rises in the 2008 and 2009 numbers is clearly linked to the economic downturn.

Examples cited include sub-lettings that are attempted by Tenants at below the passing rent, which is in contravention of their Lease’s Alienation clause, and actions brought by Tenants where Service Charge contributions are in dispute.

The other key areas that have triggered Court actions lie in Break Clauses where Landlords will be particularly keen to see that Tenants have fully complied with all contractual terms and conditions; in Lease Assignments where a Landlord will be looking closely at the financial strength of the proposed Assignee; and in the area of Dilapidations (often contentious anyway) where Tenants may feel that Landlords are being excessive in their Claims and where Landlords believe that Tenants should adhere accurately to their reinstatement obligations.

Whilst more up to date figures are still not available, TAP can only assume that figures for 2010 will continue to evidence that upward trend as economic conditions dictate and prioritise a business’ overhead exposure.


Lowering the business rates relief threshold may impact quoting rents

April 1st sees a change to the rating relief available as the Government reduces the Rateable Value threshold level from £18,000 down to £2,600. From this date forward vacant properties that have benefitted from the higher threshold will now have to pay full business rates.

It is expected this will have the greatest impact on industrial space where rents are generally lower but offices and retail may still be impacted. It is unlikely to have an impact on Central London property where the business rateable values are more likely to be above this level but it will impact properties in poorer parts of the country.

Older buildings that have not been modernised and provide smaller units could be caught by this change. Start-up space or incubator units may well fall into this category and Landlords or occupiers who have surplus space may feel the financial pinch. If they are marketing vacant space whose Rateable Value is less than £18,000 they may now be faced with the dilemma of perhaps reducing their rents to encourage a letting. In the past, Landlords have sought to remove similar financial burdens by looking at demolishing the property. This may seem a drastic measure but in some instances this is by far the cheaper option. The Federation of Small Businesses believes this change will badly affect small landlords and leaseholders. Andrew Carter argues that April will push firms to the edge. He says “Business rates are in the top three of the largest overheads that a small business has to deal with. Add to that the higher chance that, because of the economic situation, businesses will have properties that are left empty. So stopping rates relief serves to penalise those businesses that are suffering most.”


Have you cracked The Codes?

In our earlier e Newsletters, we have made mention of both The Code for Leasing Business Premises in England and Wales 2007 and the 2006 RICS Code of Practice; Service Charges in Commercial Property, both of which came into force during 2007.

We still believe that, whilst both are still voluntary, they set helpful parameters within which leasehold participants should operate, so long as enough participants actually know of their existence.

Who then should be promoting them?

Whilst Tap’s full name might hint at some form of allegiance, we do in fact operate impartially and seek to offer Guidance to Landlords and Tenants alike, such that property-specific information is made available and, in the absence of any other body proactively drawing attention to both Codes, we are happy to keep referring to them.

The RICS has been mooted as the best professional body to promote and maintain/amend the codes and to date a couple of University surveys (Reading and Loughborough) have reported that widespread take up and attention has not been achieved, mainly as the industry has relied on surveyors, landlords and lawyers to employ the Code clauses only where it suits. Their voluntary nature plays a part in this, although the Service Charge Code appears to carry greater weight as it has been issued as an RICS guidance note and as of December last year the RICS submitted a new version of it for consultation which closed on January 21st,with results expected at the beginning of May.

The purpose of each Code is to act as a guide to best practice and depending upon whom a surveyor or lawyer is acting (Landlord or Tenant) there is bound to be varying opinion as to what this actually means in practice and hence there is always likely to be evolution and adaptation being advocated by the advisory side of the profession. However current feedback suggests that most surveyors find them helpful, but the reality is that market forces will play a large part in their adoption, namely that with a trend towards shorter leases and capped service charges there has been less of a need to fall back on best practice guides.

Certain property markets(notably London Offices) are showing signs of recovery as Tenant demand picks up which may lead to lengthening leases and a re-emergence of Rent Reviews, both of which could see a move towards closer equilibrium between Landlord and Tenant and hence a more likely application of one or both Codes.

The market will determine take up, and TAP will keep on promoting them.


Local Authorities no longer charge VAT on waste collection

After a recent policy review, HMRC now consider the provision of trade waste collection services to be non-business. However, as the sector includes collections from public organisations and also commercial companies, removing the VAT element for those in the public sector does raise questions about unfair competition. In spite of this observation HMRC does not feel this is the case.

The letter from HMRC to the local authorities summarises the position as: -

We have been fortunate enough to be provided with comprehensive data from DEFRA about the whole commercial waste collection market. Both Local Authorities and the private sector collect commercial waste, and so there is at least a theoretical possibility that relieving Local Authority commercial waste collection services from VAT could result in the ‘significant distortions’ of competition referred to in the second part of Article 13(1) of the Principal VAT Directive. However, having considered DEFRA’s data and CJEU precedent, we have concluded that, in this instance and under these particular circumstances, there is no evidence that such significant distortions would arise.

According to articles we have seen a few experts believe this may lead to the possibility of reclaiming VAT going back several years. Whilst TAP is not in a position to offer advice on this,it is fair to say that it may be a question for your accountant.


Question & Answer
As an employer what actions do I have to take if the building has asbestos?

Recent judgements have seen large compensation claims awarded to people suffering from asbestosis. Asbestos is a natural fibre which is mined predominantly in South Africa and can take the form of blue, brown and white material. Because of it’s ability to withstand heat, electricity and sound it has been useful in the construction of properties throughout world.

As it is no longer used in the construction of buildings and associated mechanical systems, properties built after 2000 are generally clear of any potential hazards. However, there is still a need to manage the material which remains present in those buildings constructed before 2000, as it can still be found in pipe lagging, floor tiles, roofing, soffits, pipe gaskets and so on. Consequently there’s still a need to manage the material and monitor its condition as any damage may cause loose fibres that can be detrimental to health. Components that contain asbestos are often referred to as ACM’s (Asbestos Containing Material). So what does an occupier have to do?

Under the Health & safety at Work Act 1974 and employer is required to ensure the working environment is safe to work in and the duty to manage asbestos is contained in Regulation 4 of the Control of Asbestos Regulations 2006. Unless a building is new or has been fully refurbished there is a strong possibility that asbestos may have been used in the construction of the property. If this is the case and you are part of a multi occupied building then request from the landlord or his agent a copy of the asbestos survey and management plan. This will indicate if the there is asbestos in the building and what regime the owner or manager has in place to monitor and manage the material. It is unlikely that this survey will have covered a Tenant’s demise and so there will be a need to undertake your own.

The survey may need to identify and test material and if necessary an element of intrusion and investigation will be required in be sure of its identification. By knowing where it is located enables an occupier to fulfil its obligation of monitoring and managing its condition by conducting reviews through regular inspections.

If you aren’t aware of your own situation please don’t delay in finding out.

Should you require any further information on this subject then please call us on 0800 865 44 50.

February e Newsletter

Welcome to our second e newsletter of 2011.

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?

Recent reductions in the average length of lease terms, favourable tenant leasing conditions and the use of break clauses have led to increasing pressure on the traditional upwards only, open market review as a standard lease clause.

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?

In January 2011 the Department for Communities and Local Government issued an Impact Assessment aligned to the Localism Bill concerning Discretionary Business Rate Discounts. We said in our November newsletter that we would follow events arising from the Localism Bill and this is one which may have an impact on business rates.

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 Energy Bill is making its progress through Parliament and one aspect which will grow in prominence is their ‘Green Deal’. As part of the Coalition Agreement’ the Government made a Commitment that: “through our ‘Green Deal’, we will encourage home energy efficiency improvements paid for by savings from energy bills”. It is intended that the Green Deal will also help to enable improved energy efficiency in non-domestic buildings. So, broadly how will this work?

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?

The pressure on water resources is growing and according to the UN World Water Development Report, the quantity of water available could decrease by 30% in the next 20 years as demand increases. In the UK it is suggested that demand will be influenced by both climate change and population growth. With the population expected to increase to 65 million by 2018 (a rise of 5 million from 2008), this will lead to greater household use which will increase the strain on the available water. All this will lead to the need to have better water management both in houses and commercial premises.

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?

You may have heard of the need for Energy Performance Certificates (EPCs) in both Commercial and Residential property, but the same EU Directive that brought you those also contained an obligation on the company who controls the technical functioning of Air-Conditioning systems to have them inspected by a certain deadline. Why? To make sure they function properly and, where possible, to reduce energy consumption.

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?

The UK is a heavy user of CCTV equipment and your image is probably captured and held on numerous systems as you go about your daily routine. Many of us have come to accept this ‘Big Brother’ society without question and recognise it’s a common means of keeping property and the environment safe. So what are the rules governing the operation of a CCTV system?

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.

December e Newsletter

Editorial
This is our final e newsletter of 2010 and it brings to an end our 12 Q&A’s which highlighted some of the events found in the life of a commercial lease. Rest assured we will continue with this feature and focus on other areas that people may find of use.

It seems that 2011 will be as much a challenge as 2010 with the possible introduction of new accounting rules, certain changes to the uniform business rates and the beginning of ‘Localism’. We take a quick look at all of these in this issue. We also look at the Snow Code and a quick look at a recent survey of business sentiment. Many of the smaller firms are in better shape as a result of the recession which can’t be bad.

Finally, from all of us at TAP we would like to wish you all a very Merry Christmas and Happy New Year.

1. Lease Accounting; leases to face radical new approach

The International Accounting Standards Board (IASB) has recently published its ‘’Exposure Draft’’ (ED), something it has been working on since 2006, in an attempt to harmonise accounting practices.

If the proposals are adopted there are likely to be profound implications for lessee’s financial statements in the manner in which leases are accounted for on a Company’s Balance Sheet, plus additional burdens in regard to data collection, controls and processes. A further knock-on effect is likely to be in key company performance metrics, i.e. asset turnover ratios, return on capital and debt to equity ratios.

At high level, and for certain companies, it may even result in assessing the merits of owning real estate rather than leasing it, and even if leasing were continued, the likelihood is that shorter leases are favoured, as the accounting impact reduces in line with shorter lease terms.

So, what are the major changes that the IASB are proposing?

Fundamentally, all leases are to be accounted for on the balance sheet, showing that the ‘’right of use’’ creates an asset and the obligation to pay rent creates a liability. Current procedure has it that neither assets nor liabilities are recorded on the balance sheet, that Rent is an expense in the Profit and Loss Statement and that minimum future lease payments are disclosed. Rent and its escalation, will have to be accurately profiled throughout the lease term which may lead to increased reference to recognised indices (i.e. RPI) or by adopting fixed stepped increases, rather than open market rent reviews, in order to negate the need for forecasting, thus avoiding accounting variances.

Initially, there will be onerous data collection requirements, especially for businesses with multiple leased assets, which may well require external advisors to assist. Whilst timings of implementation may not take effect until January 2013, there will be a need to re-state prior year figures in which case prudent businesses would need to introduce preparation systems during the course of 2011, to cater for opening balances for accounting periods starting on or after 1st January 2012.

TAP is not qualified to advise on the intricate details of the proposals although, as a lessee, you are encouraged to contact your Accountant about the scope of the changes, but suffice to say that, if implemented, they are radical enough to effect business behaviour and will add, initially, a further layer of administration, and potential cost, to businesses operating under property leases.

2. Lease terms favour the landlord despite business sentiment being low

New evidence indicatesthat whilst SME's business confidence is still low, the length of newly agreed lease terms seems to be growing.  During 2009 lease lengths and incentives reached a low point but since then lease lengths are beginning to rise.

The figures of the recent survey were presented by Malcolm Fordsham, Director of Research at IPD. It was stated that new leases are now longest in the retail sector, averaging 14.8 years (excluding break clauses), followed by industrials on 12.2 years and offices at 8.8 years. At the same time incentives seem to be reducing, which is not surprising. Mr Fordsham commented “The average rent free period for offices is now about 15 months, but City offices averaged 27 months for the first half of 2010”. The size of fall can only be realised when compared to the length of rent free periods in Q2 & Q3 in 2009 where in some cases, there were rent free periods amounting to 46 months.

Lease renewals have also strengthened over the last 2 years with strong growth in the retail and office markets. However, the outlook may not be so rosy when you consider the recent SME survey conducted by QBE where it’s suggested 74% of UK SME’s expect it to be 2 years before they see a full economic recovery. Half of the SME’s questioned felt the 2.5% increase in vat will have a negative impact on their business and SME’s are unlikely to come to the aid of the unemployed public sector workers with only 17% expected to recruit during 2011.

Overall, although the business sentiment may be low, 54% felt their business was in better shape and more resilient as a result of the recession, so confidence maybe returning.

3. The rising cost of small vacant space........

The ability to benefit from a business rates relief in small vacant properties is likely to expire at the start of April 2011. The Rateable Value threshold was increased from £2,600 to £18,000 for the year 2010 – 2011 to help small occupiers overcome the financial burden of holding their space vacant.

With the threshold at £18,000 any vacant properties with a rateable value below this have been exempt from paying business rates. However, the Government now believes that returning the threshold back down to £2,600 will save them approximately £400 million per annum.

Liz Peace, Chief Executive of the British Property Federation said “If the government is pinning its hopes on a private sector led economic recovery then this is a damaging and retrograde step.

“Empty rates is a tax on hardship at the worst possible time. The majority of the properties affected by this announcement will be in areas that are already economically disadvantaged, and so this will be a further blow.”

The reinstatement of the £2,600 threshold will place a greater financial burden on those companies who currently benefit from the higher threshold relief however we understand there may be some active lobbying against this move which may lead the Government to water down the proposals. It will be interesting to see what may come of these changes especially as the Government has always stated the significance of an SME driven boost in the UK’s economic recovery.

4. Snow – Do we really need telling?

The unexpected snow fall this side of Christmas has caught many of us off guard but now it’s here, and with more predicted, do any of us know of the ‘Code’? The Government has issued a ‘Code’ which gives guidance on how to clear pavements and paths.

The Code can be found on http://www.direct.gov.uk/ although the home page isn’t that helpful and you may be better entering ‘Snow Code’ into a search engine, such as Google or Bing. This will take you straight to the right page.

The main elements the Government suggest that a considerate occupier should do are: -

1. Clear the snow early in the morning as this prevents it from becoming too compacted.
2. Use salt or sand and not water to melt the snow.
3. Be careful where the snow is moved to.

This website does not just contain information about how to clear your path; it also facilitates access to your local authority which enables you to review their policy on pavement and road gritting/clearing. So in the City of London, for example the roads and paths are cleared by the Cleansing Department!

On the face of it the information borders on common sense but as a portal to understand how your local authority approaches this problem, then it may be useful.

5. Localism – What does it mean?

The Government has this week issued its Essential Guide to the Localism Bill and describes how it proposes to make the shift of power from a centralised state to local communities.

More than half of all government spending in our cities, towns and counties is ring-fenced, which means that while it is spent locally, what it is spent on is dictated centrally. The sums of money spent in this way are huge, for example the total annual spend in Birmingham is £7.5 billion, in Kent it’s approximately £9 billion and in Greater Manchester and Warrington it’s £22 billion. Much of the money earmarked for expenditure in this way is spent on social security, health and education. This localism approach strongly suggests the money can be better spent under local control and so the Government has outlined 6 essential actions that will assist in delivering this change in direction: -

1. Lift the burden of bureaucracy

2. Empower communities to do things their way

3. Increase local control of public finances

4. Diversify the supply of public services by ending public sector monopolies

5. Open up Government to public scrutiny

6. Strengthen accountability to local people

For property, this will result in more local benefits arising from large developments, for example, changes to the "community infrastructure levy"( charges that local councils impose on developers). Now developers will be required to make contributions towards local infrastructure. With regard to the granting of planning permission more autonomy will be given to the local community who can, where the support is greater than 50%, push through planning proposals that may otherwise have been resisted in the past.

This Localism Bill is a complete change to Government’s existing approach and, as with substantial pieces of legislation, the devil will be in the detail but for the time being if it delivers savings by streamlining bureaucracy then it can only be beneficial to the country. Let’s wait and see.

Q and A – Relax; your lease has expired, or can you...?

So your lease is coming to an end and you’re moving on to new premises. What do you need to agree with your landlord? You certainly do not have to agree when your liability to pay rent, service charge, business rates and utility liabilities ends as these will be determined by your lease. Assuming you are not ‘holding over’ then your lease will expire in accordance with its express terms.

That leaves just one remaining element, Reinstatement and a potential dilapidations claim. To follow the prescribed route will be complicated as it will rely on a thorough knowledge of the various references to legislation and case law, such as the Landlord and Tenant Act 1927, in particular s18 (1), and if you are prepared to defend your position, and on occasions this is the right thing to do, then you will need to engage a competent surveyor to act on your behalf. A surveyor specialising in dilapidations will approach the situation by looking at the lease (tenant’s repairing covenant), consider the licences to alter and maybe Schedules of Condition, agent’s original particulars, rent deposit deeds and possibly any deeds of variation. This will help him build up knowledge of a tenant’s responsibilities to maintain and repair the premises that they have been using.

As a tenant you may not want to become embroiled with a discussion on all these and would much prefer to avoid a long and protracted negotiation. If that is the case many tenants opt for negotiating a settlement based on a priced schedule. This is by far the easiest way but you will need a priced schedule so you may have to wait for this to be formally served on you by your landlord. Timing may be an issue as the landlord can serve this on you in the last week of your term so you may wish to request the document earlier.

It is normal for this Schedule to include costs for the rent and service charge for the duration of the works as any remedial repairs will undoubtedly be undertaken after the lease has expired. Once received then you may wish to open up discussions on a settlement.

However, should you wish to undertake your own works then a tenant would be prudent to have these carried out during the period of the lease but remember this will involve liaising with the building’s management to obtain the right permissions and permits to work. Think about what impact this may have on your fellow occupants if you’re in a multi-occupied property as this may increase the works programme.

There are one or two aspects which are important to note about dilapidations; the future use of the property and do you, as a tenant, have an ability to undertake the works after the lease has concluded. The first aspect relates to whether the property is likely to be the subject of a substantial redevelopment and this may make the dilapidation claim void.

Landlords won’t always be able to secure a successful dilapidation claim if it can be shown the property is going to be the subject of a substantial refurbishment or development. Secondly, a tenant isn’t permitted (unless it’s agreed with their landlord) to carry out the works after the lease expiry.

For an occupier it can seem unwieldy when a lease expires and you receive a detailed Terminal Schedule of Dilapidations; so be prepared for when it arrives. Remember this can arrive at any time before the lease expires so it may be prudent to request this Schedule at least 6 months before expiry.

October E-Newsletter

As we go to print people are still digesting the effects of the Coalition's spending review. It's almost certain evryone will have to tighten their belts accordingly. But spending isn't the only issue that needs to be considered and this month we look at how the annual business rates increase is calculated, whether you need to inspect your air conditioning before the end of the year and review the findings of Lord Young's recent report on using common sense when dealing with Health and Safety. Furthermore it pays to have the right waste disposal strategy as we take a look at the first prosecution under the WEEE Regulations.

Finally we look at break options in our Q&A as it's not as easy as just serving a notice!

Retailers lead the charge towards a revised Business Rates calculation

The British Retail Consortium (BRC) has been at the forefront of lobbying the Government over the methodology used in establishing the new multiplier base. Traditionally, the system uses September’s RPI to form the basis of calculation for the following April’s increases and, coupled with last April’s Revaluation, the BRC says that this could see some retailers facing uplifts of 22%.

Whilst the BRC have appeared most vocal, the RPI figure will have implications for all commercial Rates payers and may come as an unexpected shock for business planning. Hence industry bodies are urging Ministers to consider other methods that are not so random. Stephen Robertson, Director General of the BRC says .....’’ Basing a whole year’s rates bills on one, almost random, month’s RPI makes no sense. The Government must switch to another way for next April and beyond.

Using the Consumer Price Index (CPI), as it does for pensions is one option. Or using the 12 month average RPI rate from October 2009 to September 2010, which would iron out inflation rate volatility.’’

The Rate that has been chosen is 4.6% (down from 4.7 in August) and is still considered to be too high for comfort, with commentators expressing concern that the speed of reduction from early year highs has been ‘’stubbornly ‘’ slow.

The coalition Government has its hands full with its Spending Review, and therefore a fine balance exists between spending cuts and tax adjustments to keep companies/retailers competitive, but if the RPI remains high and is the primary link benchmark in this annual recalculation, you can expect bodies like the BRC to increase the volume. For this next Rates year, however it looks too late.

Stop gassing around and take note?

ATTENTION... to those companies that install, maintain or service stationary refrigeration, airconditioning or heat-pump (RAC) equipment that contains or is designed to contain ‘’F gas’’ refrigerants …you have a legal obligation to hold either an interim or full Company Certificate. Should you want to review the list of F Gases (ie HFC's) visit the defra website (www.defra.gov.uk/fgas).

It is an offence not to hold an interim Certificate NOW and a Full one by July 2011 and enforcement will be pursued by your Local Authority and The Environment Agency, both of whom will have a range of options at their disposal to protect the environment. This reflects the fact that these refrigerants have a very high global warming potential, which can be up to 3000 times higher than CO2.

To clarify who is affected: Any organisation that directly employs engineers to install, maintain or service RAC equipment that contains or is designed to contain F Gas refrigerants. This includes RAC maintenance contractors and installers, including sole traders and RAC end users and facility managers employing their own qualified staff to carry out these activities.

Air Conditioning Inspections - Have you thought about this?

Air conditioning systems can account for 50% of the energy used in a building, and having it inspected by an Energy Assessor can improve efficiency, reduce operating costs which inturn lowers carbon emissions. Already the Energy Performance of Building Regulations (EPBD) are in place to impose an obligation on the operator to carry out an inspection on larger systems, and the an inspection on larger systems, and the obligation on the operator to carry out an inspection on larger systems, and the smaller (12kW) systems will need to have been inspected by the 4th January 2011. Do you need to undertake this inspection?  

Where you have to undertake such an assessment an assessor will be looking to: -

• Provide details of the system
• Highlight where it is possible to improveperformance and reduce carbon emissions, which may involve replacing the equipment

As with all regulations it is important to understand how an air conditioning system is defined. It is defined as: -

“a combination of all the components required to provide a form of air treatment in which the temperature is controlled or can be lowered, and includes systems which combine such air treatment with the control of ventilation, humidity and air cleanliness”.

The cooling capacity of an air conditioning ‘system’is further defined as “the sum of all individual cooling units under the control of one building owner or operator”, and so the criteria of 12kW may result from having multiple split units.

The need to inspect the larger air conditioning systems is already established and as such many of the property managers have access to the right people, qualified to assist you in understanding your requirements to have your air conditioning system checked. Alternatively speak to the Chartered Institute of Building Services Engineers who will be able to put you in touch with an approved assessor.

 
 
Will common sense prevail?
 

 

Is common sense finally going to prevail in the world we live in? If Lord Young and the Coalition government get their way then this will certainly be the case. According to Lord Young's recent report entitled 'Common Sense Common Safety', he would like to move away from the current compensation culture and endorse a culture of using common sense when reviewing non hazardous occupations.

The aim of the Report is to ' ...... free businesses from unnecessary bureaucratic burdens and the fear of having to pay out unjustified damages claims and legal fees. Above all it means applying common sense not just to compensation but to everyday decisions once again.’ His recommendations, should they be adopted, are only directed at non hazardous occupations and Lord Young freely recognises that the current system with tight procedures and processes has resulted in the lowest number of non-fatal accidents and the second lowest number of fatal accidents at work in Europe.

Lord Young identifies that this overall compensation culture has resulted in companies operating their health and safety policies in a climate of fear. The no win, no fee approach to making a claim against an employer and the role of the press in highlighting the absurd health and safety rules has identified the role Health and Safety Executive (HSE) and Local Authorities have to play in promoting common sense. The Report proposes: -

• The HSE develop downloadable checklists to reassure organisations operating in low hazard environments that they are meeting their legal obligations and managing risk as so far is reasonably practicable.
• Introduce qualification standards for health and safety consultants as currently this is not a requirement.
• Where local authorities are overzealous towards health and safety, the public should be allowed an appeal process and appropriate recompense.
• The insurance sector also pays a part where the requirement of meeting obligations can be too much of a burden for small businesses or voluntary organisations. Lord Young has asked the insurance sector to look at this point.

There are other aspects of the Report which touch on the voluntary, home working and educational sectors which we won’t touch on but it seems that the willingness to promote a common sense approach is there, it’s now finding the will and way to achieve what many of us have wanted for a long time.

Waste Electrical and Electrical Equipment Directive (WEEE).... First prosecution

A hairdressing supplies wholesaler has become the first producer to be prosecuted for failing to comply with the WEEE Directive. The Birmingham based company was prosecuted for non-compliance with packaging waste regulations and also for failing to register as a producer of electrical and electronic waste. The company was found guilty of 31 charges in total (at £650 each) amounting to £20,150 plus compensation of £7,135 for loss of registration fees and costs of £3,605.

Electrical and electronic waste is the UK’s fastest growing waste stream and the aim of the regulations is to reduce the amounts going to landfill and improve recovery and recycling rates. Since the original packaging regulations came into force back in 1997, they have helped in doubling the amount being recycled annually and the Environment Agency estimates that this amounts to some 6.6m tonnes being diverted from landfill to recycling each year. In general terms, the regulations demand that companies who handle packaging as manufacturers, pack fillers, sellers, importers or leasing companies are registered each year and provide evidence that they have and will continue to recycle packaging.

Break Options - Are they easy to exercise?

Incorporating break options in a lease is customary, especially in these austere times, as it provides the flexibility a tenant or landlord may require when occupying or owning a property. For a tenant is offers the chance to increase or decrease the space they occupy and for a landlord it affords the opportunity to redefine a building’s configuration to take advantage of changing occupier requirements. But if you have the chance to break a lease it is essential to exercise it in accordance with the prescribed dates and covenants of the lease. This is both for the landlord and tenant. Think about these steps before a notice is served.

• Think about your strategy. Once a notice is served it cannot be unilaterally withdrawn. Should you wish to serve a notice and then decide you wish to stay you will need the agreement of the other party.

• Is the break option personal? If this is the case it stays with the party that it was first attached to. If the lease has been assigned since this point it is unlikely the break option will be valid.

• Make sure you comply with the specific terms of the lease. Compliance is important if the serving of any notice depends on certain covenants being complied with. A prime example would be to have no arrears but it may be other elements such as keeping the property in good repair.

• Make sure you serve the notice on the right people. In the case The Hotgroup Ltd vs The Royal Bank of Scotland (as trustees of Schroder Exempt Property Unit Trust) 2010 the notice was not served on the property manager but merely the landlord. The Courts held that as this was a stipulation in the lease the notice had not been served properly. Make sure the notice is served on the right parties and if the lease is registered your solicitor should be able to establish who the registered parties are from the Land Registry.

The need to ensure compliance with the specific terms of the lease are noted and complied with cannot be underestimated if you wish the break to be valid. The principals apply to both the landlord and tenant, albeit most of the terms, which need complying with, seem to fall on the tenant more than the landlord.

Your next Assessment.. How will you be rated?

The 30th September 2009 sees the publication of the new Rating List which will identify the Rates Liability of your premises, to be effective as of April 2010. The Rateable Value of your premises is re-valued every 5 years and the Valuation Office Agency use a date (The Antecedant Date) at which rental levels are assessed, and this process takes into consideration the prevailing market conditions at that time; for the forthcoming Re-Valuation. The Antecedant Date is 1st April 2008.

This date is of great significance because in many cases it represents just about the high rental point in the Property cycle and is to be compared to the low rental levels used at the last Revaluation in April 2003, which dictate your current Rating Bill.  Consequently your rateable value will probably see significant increases: with the Retail Sector seeing the largest average rises and London's West End Offices seeing the largest specific increases; most other sectors are likely to witness average rateable value increases of between 10-15%.

Space is limited to identify all of the likely Sector ''winners'' and ''losers'' but it remains clear that the 2010 Revaluation comes at a particularly unfortunate time when businesses are looking to reduce outgoings and will be faced with, in some cases, a doubling in their Rates assessments.

The message is to prepare for a likely increase in your Bills and budget accordingly; however as with past Revaluations the Government has introduced a scheme of Transitional Relief to spread the increases over the 5 year period...this has yet to be announced but is anticipated prior to 30 Sept ''.