September e newsletter

Welcome to our September 2011 e newsletter.

It may not seem so, but the autumn and winter seasons are upon us and as the number of day-light hours reduce we look at whether Shopping Centres can reduce their energy consumption by 2.56% per annum for the next 39 years.

We also take a look at what we can all do to reduce waste and why some companies restrict access to the social media world.  It’s official, the service to occupiers, by their landlord and property manager, is improving and we take a look the results. What do data centres offer? We take a look.

Finally our Q&A takes a look at virtual security patrols and whether they can would benefit the service charge?



Can we deliver 2.56% reduction each and every year until 2050?

The Energy Savings Trust states that shopping centres contribute 3 million tonnes of CO2 to the UK’s total emissions each year. This is equivalent to the emissions of nearly half a million homes. The Government has set a challenging target of reducing CO2 emissions (50% by 2030 and 80% by 2050 from a base measure recorded in 1990) and if shopping centre owners want to meet this level they will have to reduce energy consumption by 2.56% per annum until 2050.

In an attempt to outline how this can be achieved, the British Council of Shopping Centres (BCSC) has issued a report entitled ‘Accelerating Change towards low carbon Shopping Centres’ with the aim of identifing areas that may accelerate the implementation of energy saving projects.  After speaking to a variety of stakeholders a number of elements were identified, where improvements can be made:

A high turnover of staff at grass root level should encourage companies to place the role of energy reduction at Board level.

Retailers are seeking better financial incentives from the Government.

Landlords can play an important part in spreading knowledge of ‘what changes work and what do not’.

In the long-term investment in energy efficiencies must go beyond that which is easy to achieve. We at TAP sense this stage is not too far away.

Communication is often highlighted as a cause for concern in any aspect of property management and all this needs to be improved.

Examples of areas where retail occupiers could achieve savings are numerous but a couple of the lesser known ideas are to reduce the light intensity – 70% of the total intensity before 11am; or look at moving away from the profession norm – large retail units normally have a fit out criteria of 40 watts per m2 and smaller retail units 80 watts per m2 but perhaps look at using high efficiency lighting where it is possible to have 14 watts per m2 in a large retail unit and 40 watts per m2 in a smaller unit.

These are simple wins but the opportunity to take advantage of these situations will become limited as the need to make greater savings takes over. Such projects will need greater occupier collaboration and so communication will inevitably become more important to enable energy to be reduced at the rate the Government wants.



Hardly a Waste of Time, get thinking about your Waste

We all know we should!... and at home our Local Authorities are loading us up with new bins and new pick-up schedules in an effort to get us to focus on how much we are throwing away and where it goes.  This also ties in with the current packaging debate about “Sell by’’ dates, “Best before’’ dates and so on, but within your business, who is taking the lead for what we dispose of and where and should we be thinking about this more responsibly?

Unsurprisingly we believe that we should and set out below some areas for your business to consider:

Waste is a huge subject and not only covers the refuse we collect in bags/bins but also Water, Electricity, transport, fuel, office stationary, pollution and time. It can also attract certain tax breaks and financial incentives, so its worth spending a bit of time on.

If you already use Waste Transfer Notes or have a hazardous waste consignment, from 28th September 2011, you will have to have shown that you have applied the Waste Management Hierarchy when choosing a waste option, and essentially this means you must have looked at:
- prevention
- prepared it for re-use
- give consideration for recycling
- give consideration for other uses…. ie as a biofuel or energy recovery
- disposal options

Consider looking at the useful guides and training offered by WRAP (Waste and Resources Action Programme www.wrap.org.uk).  Amongst a mass of very useful information they run online training programmes such as The Ripple Effect and ReThink Waste.

Consider contacting the Resource Efficiency Helpline on 0808 100 2040

As ‘easy wins’ in the office you can look at:
- refilling toner and inkjet cartridges
- using waste paper as notepaper
- using durable drinking cups not disposable ones
- reusing envelopes and other packaging
- donating used equipment and furniture to charities, including electrical items (see The Furniture Re-use Network)
- using greywater recycling systems in toilets
- read your meters and monitor usage
- print double sided and re use print paper in fax machines
- try not to over-order raw materials which may never be needed
- when replacing energy and water equipment consider buying items on the Enhanced Capital Allowances and Water Technology Lists for tax benefits

As mentioned this is a huge area and we cannot cover all of it in a Newsletter of this size, but there is plenty of advice out there, but some of those organisations above will definitely be of assistance.



Social Media – Many companies are still unsure about the its security

Company managers remain uncertain about the benefits that social media offers the workplace.  Many of these managers also believe viruses, loss of confidential data and the fear that their employees are spending too much time surfing the net also contribute to the idea that restricting access to these services is a safer option.

A survey produced by ClearSwift Research asked 1,529 employees and 906 managers in companies across the world about social media in the office.  Interestingly the results were: -

60% of employers worried about potential virus contamination
49% were concerned about loss of confidential information
40% felt viewing these facilities impacted on productivity
37% believed it could have a negative impact on the reputation of the company

This survey also covered the question of technological advancement in the workplace and concluded that companies were still taking a cautious approach to the introduction of new software systems based upon these results.

However the potential exposure to these security risks has resulted in a number of companies either banning access to the social media platforms or monitoring the individual employee’s use of the web. Of those employers questioned 71% had in place a practice policy on the use of the internet, 68% monitored employee internet activity and 56% blocked the use of certain social networking sites. But this last policy does have an impact on the younger generation as only 35% of 18-24 year olds and 44% of 25-35 year olds would remain at their job if their employer banned the use of certain social media websites.



It's official: Occupier satisfaction is getting better – but not by much

The latest Occupier Satisfaction Survey has been released and occupiers have improved their weighted score to 5.4 (where 1 is dissatisfied and 10 is extremely satisfied) on their landlord’s performance, although when considered more closely 10% felt their satisfaction improved, 75% felt their satisfaction remained the same, and 14% rated their satisfaction as worse than the previous year, so has there been any real change? This is the 5th year the survey has been undertaken.

To give you a feeling for the depth of research to achieve these results, the survey was conducted across a broad section of commercial occupiers although only 159 responses were ‘usable’ and were conducted by a Steering Group from the Property Industry Alliance with Corenet Global. The result can be broken down further and as with previous year’s occupiers, the industrial sector remained less satisfied with their landlord than office or retail counterparts.  Smaller medium-sized enterprises (those with less than 250 employees) are also less than content than their larger counterparts. However don’t take our word for it click through and have a look at the report. 

Areas where improvements were seen as significant are the process for applying for consent, and the process of handing back a property to the landlord. However, aspects that scored low related to service charge arrangements and the landlord’s communication and involvement with the occupier on Environmental matters.

This survey continues to highlight that smaller occupiers still find it difficult to engage with their landlord despite forming the largest “occupier” when you combined the total amount of space they occupy. Much of this is because their access to the right information, (that helps them understand their obligations and commercial requirements), is often priced out of their reach. For tenant satisfaction to greatly improve landlords will have to demonstrate a willingness to find a conduit to ensure that regardless of size, all occupiers receive the right amount of communication.



Off site data storage; the general principles

Companies need to make the best use of their floor space, and many are wondering why they are spending prime city centre rents on technical areas that could easily be housed off-site in secure, managed locations.

The data centre market is big business, and growing and can present opportunities for owners of vacant buildings with the prospect of relatively secure long term income streams (many with fixed increases) and the security and cost effectiveness that many business require for their data.

Essentially a data centre’s function is to provide uninterrupted, resilient services with the necessary cooling and ventilation that the systems best perform within. Additional services will include security, repair, common part maintenance and back-up against service interruption and it is usually these features that represent the components of a separate services agreement which is best linked to the ‘lease’ so that the termination of one can include the other. This ability for the tenant to terminate in the event that the services are unacceptable or breached is an important detail.  Furthermore, a tenant can expect to have their non-interruption backed up by service credits, liquidated sums which can be credited against rent or service fees. These features are key to the agreements and tend to illustrate where differences lie between tradition occupational leases, which tend to focus on alienation and repair obligations.

In such a model the actual lease rent can be as low as 10% of the total agreement, the balance representing the receipt of services. Such a low rent percentage also has the benefit of minimising Stamp Duty Land Tax applicable to the rental consideration. Electricity tends to be charged separately, as are any other services requested. 

Difficulties can arise when the centre needs to undertake repair or upgrade works and these need to be handled very carefully between the parties, bearing in mind the sensitivity of the ‘business critical data’ that is stored there. Back up plans should be drawn up to deal with this and should accommodate sensitive timing to minimise impact. Care should also be taken when dealing with a departing ‘customer’ as many tend to leave the equipment behind which causes uncertainty for the data centre manager who will be unsure if it can be re-used or not.  Document drafting should cover this from the outset. This can depend upon whether or not the customer has actually entered a collocation licence and had leased racking space or installed their own.

The immediate future sees increasing use of internet based back- up via Cloud based services which, once one is confident about data security issues, can allow for much greater employee participation and behavioural change, plus the usual benefit of reducing floor space usage for data equipment. You can anticipate data centre operators to be looking at using Cloud technology to meet this growing trend.

For further guidance on this area, TAP can direct you to industry experts.



Security Patrols – Can they be undertaken remotely?

If you work on an industrial estate or retail park, security of the common parts is often provided through regular manned patrols which are scheduled outside of the normal operating times of the estate or park.   In the current climate many managing agents are looking at ways of reducing the cost and one way maybe to replace these with a virtual patrol.

Virtual patrols operate through utilising a CCTV system that is linked via a wireless or broadband internet connection to a manned monitoring station where the cameras are regularly monitored. Typically a manned patrol can cost between £50 -£100 per patrol however there is a huge benefit as a security guard is capable of judging a situation and responding immediately to a potential issue, whereas a virtual patrol may cost as little as £3 - £6 per review.

A virtual patrol operates on the basis that the camera monitoring company can sweep the property using the images provided by the cameras at set and agreed times of the day.  The cameras can also be set up to provide alert alarms that would highlight a potential situation and bring an issue to the attention of the monitoring company.  With the images being provided through the internet, this allows the property manager to also view the site from any computer which aides the management of the property.

Using a virtual patrol can reduce the traditional routine, out of hour inspection cost, but there is an up front installation cost and broadband/wireless connectivity. Depending on the number of cameras a property manager may be looking at a capital expenditure amount above £10,000. This level of cost does depend on the number of cameras required to properly monitor the property.  The return on capitalfor such a project will depend on the number of years savings you apply to the project but based on 2 routine out of hours manned patrols per weekend at £60 per visit would result in an annual saving of £6,240.

As technology improves there will always be opportunities to offer a service in a different and potentially cheaper way so it is worth looking at what new innovations are out there.

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.

November e newsletter

Introduction

As the year draws to a close we take a look at how the Carbon Reduction Commitment Energy Efficiency Scheme has been modified from an incentivised ‘cap and trade’ scheme into something resembling a green tax. We highlight the reduction in service from the Essex Fire Brigade following the Coalition Government’s comprehensive spending review and also look at how the Better Building Partnership (BBP) is looking to collaborate with occupiers to deliver more sustainable buildings.


Are you ready for the festive shut down? If you approach it sensibly it could save you money and give you peace of mind. We also take a quick look at the January increase in VAT, and finally we look at why we believe you should work with your landlord, in our Q&A.


''For a current update film on CRC and necessary behavioural change,from leading UK influencers, go to... Property Week [PW.cffnbzelmoqwzqmecoz@propertyweek.ubm-info.com]''


Major adjustments to CRC by Coalition’s CSR

The Government’s Comprehensive Spending Review (CSR) has introduced fundamental changes to the way the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is administered, which will have cashflow and timing implications for both Landlords and Tenants.

In its simplest form, the impact on business will be postponed, as the 2011 allowance sale (for 2011-2012 emissions) will now not take place until 2012.

The second fundamental change is that the revenue generated from such sale will now not be recycled to participants but will be retained by the Exchequer, thereby effectively switching the scheme into a Green Tax. The original legislative net which was used as a driver towards less energy consumption contained an opportunity for reward for lower usage plus positive PR benefits but no longer…the Scheme’s simpler format now just looks like additional cost to participants. The League table,however does remain so this still offers a reputational incentive for businesses.

And this cost looks like arriving during 2012 and may appear as a ‘double-whammy’ as participants will have to buy their 2011-12 allowances plus those for anticipated usage during 2012-13.

Uncertainty still remains as to a Landlord’s ability to pass on certain CRC costs to Tenants and as before, much remains enshrined in the wording of existing leases, plus the ability of parties to agree suitable wording in new leases. Now that CRC more closely resembles a tax, it seems that in those buildings where the landlord procures power and recharges the tenants, he may be able to obtain CRC cost repayments too as part of a Tenant’s covenant to pay all outgoings(including taxes). Tenants will no doubt try to argue against this being seen as a Tax, and indeed if a Landlord requires additional allowances he will be forced into the secondary market to buy more, which, in itself does not resemble a tax.

If the balance of power is now drifting towards Landlords, we wonder what implications there are for new leases where a Tenant may be shortlisting very similar buildings but due to the difference in ownership structures between landlords, one may be looking to the tenant to pay CRC costs, whereas another may not be even falling within the range of the CRC regime at all. The impact could, therefore be felt by small as well as large occupiers, and noteably, if a non- CRC Landlord sells to a CRC one, the impact for the occupants could be very real.

The Government has now called for a period of Consultation on the subject until December 17th 2010.


Fire brigade no longer responding to business alarms

Fire fighters in Essex have confirmed that they will no longer respond to automatic alarms from business premises or from calls from telephone kiosks that are abandoned.

They say that this is because some 97% prove to be false alarms and they want to ensure that their operational resources are deployed more effectively.

Essex’s Chief fire officer said that taxpayers should no longer bear the cost of businesses failing to maintain their alarm systems and that there exists a greater need to have teams ready to respond to real emergencies.

This clearly illustrates the need for landlords, property managers and occupiers to undertake the necessary and regular checks on the systems that their manufacturers require.

Outside of Essex therefore, parties responsible for the building’s system, should also check with their local fire authority to understand upon what basis a fire crew will attend an alarm call out.


Better Building Partnership Forum 2010

On November 10th, TAP attended the BBP Forum 2010 which was entitled ‘Owner Occupier Partnerships-Panacea or Impossibility?’

The BBP is a collaborative organisation made up of some of the largest commercial and public property owners in London, and, as their mission statement sets out..’’All members are working together to improve the sustainability of London’s existing commercial building stock and accelerate the reduction in CO2 emissions from those buildings’’.

The Forum addressed 3 topics which were attended by all participants in rotating groups; they were

1. Sustainable Retrofit, energy performance contracting in multi-occupied buildings

2. Transactional and Letting Agents; a key role to play in promoting sustainability to both owners and occupiers?

3. Owner Occupier partnerships; what can realistically be achieved?

In brief, the messages from each were as follows:

1. This follows a model in contracting with ESCOs (Energy Servicing Companies) and participants should view them as an ongoing service rather than just a cost item; they need simplification and to become an industry standard with a recognised seal of approval; but at a primary level there still needs to be co-operation between Landlord and Tenant, as a Landlord cannot simply compel a Tenant to make building or spacial improvements. The Forum concluded that there would always be an issue when talking about ESCOs in buildings with short lease terms remaining.

2. Agents knowledge was deemed to be poor and lacking in detail of issues facing both Landlords and tenants. Few, if any firms were educating agents sufficiently, enabling them to guide clients in matters of sustainability with most agents still focusing on the 3 Heads of Cost (i.e. Rent, Rates and Service Charge). There were regional differences noted with London tending to fare better. The BBP saw fit to provide Tool Kits and a Charter for their agent members to adhere to.

3. There were barriers to overcome, namely Who pays, who benefits, Trust, Interests not being aligned, lack of common language, education, how to treat existing lease agreements, is the financial prize worth the effort and the supply chain .i.e. is the property manager meant to be undertaking much of this work?

As a general summary of the event, it seems that many sustainability issues are still out of sight and out of mind and the BBP will continue to see itself as one champion in the mission to better broadcast these important messages. They conclude that they need more Forums, to engage with more occupiers, to produce more Tool Kits, to highlight more case studies and to make more interactive use of their website.

There is clearly still a long way to go to affect behavioural change in this area.


Festive shut down – How prepared are you?

For many us we look forward to the festive period with delight after a long and often challenging year, and that can mean we shut and lock the door on Christmas eve and hope nothing happens while we’re all enjoying the annual celebrations. However, as a company, what contingency is in place should something happen? Does the property manager or your landlord have your contact details? Where is your business insurance policy? Have you turned off all non-essential equipment?

Many of these questions you may think are common sense but you would be surprised how many businesses are not prepared for this eventuality. It is also important to appreciate that in the winter with much colder weather, the chances of potential accidents relating to burst water pipes or electrical faults can be higher than other times of the year.

In many multi-occupied properties the landlord or property manager will have in place some form of security cover and this may involve a red care security alarm with a telephone link to a monitoring station, periodic patrols by a security firm or constant 24hour security presence. In each situation should an incident occur it may result in the need to have up to date contact details. Not only is it important for an occupier to pass on their key holding information but it will also be important for an occupier to know how they can contact their landlord or property manager.

However, an occupier may want to use the services of a key holding company who, as the title suggests, can hold a set of keys on behalf of the occupier and it is they who will be called first in the event of a problem. Costs for such a service would range between £350 - £750 per year and would depend on where your office is located.


VAT – When does it increase?

Following the Coalition Government’s Comprehensive Spending Review, VAT is set to increase early 2011; any invoices raised on or after the 4th January 2011 will attract the new level of VAT. This is the third time in as many years that changes have been made to the level of VAT with the rate reducing in 2009, returning to its original level in 2010 and, now at the start of next year, increasing to 20%.

The rules surrounding when and how much VAT to charge are complex at the best of times and so when there is a change in rate or circumstances then interpretation can prove even more difficult. However, in simple terms if you’re a retailer and you sell an item on or after January 4th then the new 20% rate would apply, however, should a customer take delivery of an item before this date and an invoice is raised after January 4th then the supplier can apply the lower rate of VAT.

This is only a simple example that shows it is not straight forward and so we have found the easiest place to look, should you not have access to an accountant, is HM Customs & Excise (www.hmrc.gov.uk/vat and then search under ‘rate increase’). This will provide you with simple details on how to interpret the rate changes.


Q&A As a business,how important is it to work with my landlord?

Traditionally the relationship hasn’t always been co-operative between the landlord and the tenant despite the obvious benefits that can flow from having such a good understanding of one another’s needs. Trust is at the heart of the relationship and is not always regarded highly enough. Over the years both tenants and landlords have gone to extreme lengths to hide aspects from one another about what each party wants from a property but of late this is changing.

Combining the downturn in the economy, the general decline in lease term lengths and the common desire to see a more sustainable environment is, in our opinion, bringing landlords and tenants together. It is important to note that it is the landlord who has the opportunity to enhance the services on offer to a building, albeit with the co-operation of the occupiers. In answer to the shorter leases being offered and demanded , the opportunity for landlords and tenants to work together is becoming more relevant and this is happening.

Furthermore, with external factors such as increases in fuel prices and the emergence of green taxes, the need to enhance a property’s efficiency is no longer a luxury and more a necessity. Value for money can be demonstrated more easily now as financial benefits can be identified given the increase in technology versus cost of energy. The growing cost of supplying energy to a property is forcing more innovation and the need to form a better working relationship with your landlord is now essential.

Throughout the life of a lease an occupier will need to make changes to their demise, may even require to assign or sub let space or install equipment outside their demise and this will require co operation from the landlord. This co operation is based on honesty and trust and underpins a strong working relationship. It is now a requirement of both the landlord, tenant and property manager to be more accessible and open with each other and we would promote the need for an occupier,where appropriate to support this working ethos as it will benefit them in the long term.

Do electricity meters measure enough?

Industries and professions across the country are firmly focused on reducing electricity usage, especially with the “cap & trade” CRC scheme which comes into effect in April 2010, but how can you meaningfully measure consumption?

It is safe to assume all buildings will have an electricity meter but what information can it provide? Simply, the information is basic providing just a measurement of units consumed. These days measuring usage is not enough as it is essential for companies to analyse their consumption “profile”. That is to say it is important to understand how the electricity is used and by what equipment. Once you understand this aspect you can then look at:

• Energy wastage – When all usage has ceased is there any equipment which is still on that may consume electricity but which is not required?
• High consumption data – When and what causes it? Is it necessary?
• Weather patterns – How do they influence usage?
• Benchmarking – Monitor regular usage and maintain a steady usage.

Larger users (where peak demand of electricity is above 100kW) will already have half hourly meters and the supplier company will be able to record usage every 30 minutes. However this data doesn't have any details attached to it so you can not record the consumption of individual items of equipment.  As a result more meters will need to be installed to measure the consumption of individual pieces of equipment such as pumps, chillers, lighting circuits and so on.  This will aide transparency of usage. The new “smart” meters will give more information to allow proper strategies to be adopted to reduce unnecessary energy consumption, and landlords are now moving towards installing this equipment. Hopefully savings will come from better use of this expensive commodity.

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 ''.