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.

June E Newsletter

Welcome to our sixth e newsletter of 2011.

It’s Wimbledon already and the drought has broken so we take a look at comfort in the workplace to see who and what can make a difference. The occupier is again the focus of high level strategy within the BCO and BPF and we draw attention to this, following recent public declarations. We again find the need to touch on CRC reporting and introduce some potential assistance, up against an end of July deadline and identify new legislation within the Bribery Act which has significance beyond real estate.

We top and tail the Newsletter with a commentary on the hot topic of Sinking Funds, and close off with our Q and A - Occupier’s security. 

Enjoy your strawberries and cream.

Are sinking funds a thing of the past?

The rise of the serviced office network, mobile working and the change in business sentiment towards shorter leases, has seen less and less sinking, reserve and depreciation funds (‘Funds’) being used. Typically new lease terms are generally 10 years and often contain break clauses which, if actioned would reduce the duration of the term. Together with the questions over how these funds are treated for tax, is it not surprising that rarely do we see these funds being used and we ask if there’s a future need for them?

These ‘Funds’ were used as a means of spreading the cost of large scale repairs or replacement of plant and machinery serving the common parts of a property.  By smoothing out these potential peaks and troughs in an annual service charge allowed occupiers to better predict costs over the lifetime of the lease but not all landlords were deemed trustworthy and this frequently led to mistrust between the landlord and the tenant on how the money was being held, and more importantly spent.  Was the tenant right in believing the landlord was using this money to improve HIS property? 

The traditional 25 year lease allowed property managers the chance of introducing an element of certainty to maintenance and repairs within a property.  But these ‘Funds’ work best for large projects such as replacing the air conditioning, lifts or heating system, which are expensive, so collecting tenant contributions over a long period of time can prove helpful.  Shorter leases however, do not afford the same luxury and increases the possibility of tenants having to meet large scale cost in a single year.  But the possibility of establishing a ‘Fund’, collected over a shorter period, for smaller projects and using it for works that would improve the operation of the property may be worthwhile.  We see energy efficiency as an area where this could work. 

With mounting pressure to see energy efficiency improved in the commercial property market, property investors are looking at ways of meeting the goal set by the Government (cutting carbon emissions by 50% by 2025).  This ambitious target will involve a collaborative approach by both landlords and tenants.  So to answer our earlier question, we strongly believe a sinking fund approach on a project by project basis over a shorter period will work well in delivering operational changes to the building which could skew a single year’s service charge.

The Bribery Act 2010 – What does it mean for business?

The Bribery Act details both general offences in relation to bribing another person or being bribed and a specific offence relating to bribing foreign public officials, and introduces a specific corporate offence for failing to prevent bribery.

This new crime, ‘failure to prevent’ bribery, will result in companies having to introduce policies and procedures that prevent corrupt practices within their ranks or by 3^rd parties on their behalf. The consequences of not being able to prevent bribery are unlimited fines as well as other consequences such as being struck off the register for public/government contracts. Individuals found performing that act of bribery may incur a prison sentence of 10 years and an unlimited fine. 

Corporately, the only defence is where you can show that adequate procedures are in place which are designed to prevent bribery occurring. What are ‘adequate procedures’? At the moment it is not clear, but the Act does specify that the Secretary of State for Justice will issue ‘guidance about commercial organisations preventing bribery’. To introduce the right procedures will involve a combination of departments ranging from human resources, internal auditing, legal compliance and finance to name but a few. 

In a recent survey conducted by PwC, 75% of Non Executive Directors, Heads of Internal Auditing, Heads of Risk Management and Senior Executives asked said their Boards or audit committees had not considered the implication of the Bribery Act.

Consideration should be given to the policies of the current Government where they are encouraging the private sector to participate in Government contracts which can often include overseas contracts. This in itself will require those companies seeking such appointments to have adequate measures in place to avoid potential prosecution.

Landlord’s rushing to meet July 29^th deadline

In compliance with the CRC Energy Efficiency Scheme, which was introduced in 2008, companies which consume large amounts of energy are required to report their carbon consumption figures every year. This Carbon Footprint Report, which must be submitted by July 29th, will define which sources they have to report every year over the next four years, and will say how much energy was used, and carbon emitted, from 1 April 2010 to 31 March 2011.

According to a survey conducted by the accountancy firm PwC earlier this year, only 21% of large public and private organisations had previously reported carbon emissions which meant 79% had never looked at, or collected data, on this subject. To get it right you must work with a company who has a deep understanding of the subject. Here we look at one company. 

Carbon Guerrilla is a web based platform for clients to track and manage their energy consumption and generation and associated carbon and Greenhouse Gas emissions.  The CG dashboard provides quick and easy user access to multi-portfolio data management and reporting:- 

Identifying and calculating all sources of emissions directly and indirectly attributable to the operation – from 500+ emission categories, from electricity to aviation to waste

Allocating these emissions to individual sites, cost centres or assets to build a comprehensive and robust inventory, benchmark against others, set budgets and monitor targets

Analysing where hot spots of energy use occur and run 'What If' Scenarios to work out reduction strategies

Complying with legislation such as the Carbon Reduction Commitment Energy Efficiency Scheme (CREES), UK Emission Trading Scheme, EU Emissions Trading Scheme, ISO 14064 (Reporting of Green House Gas emissions at an organisational level, PAS 2050 (standard method for assessing GHG emissions of goods and services; and, later in 2011, American, Australian and Japanese carbon schemes,

Managing reputational and financial liabilities by producing accurate reports for Footprints or Annual reports and, maintain an auditable evidence trail for regulators and stakeholders.

Many of the reports that the system can produce help to identify areas of occupation where overly high energy usage has taken place. Armed with this information the property manager now has evidence to engage both their client and occupiers and collaboration is something we continue to promote on a monthly basis. To find out more information visit their website www.carbonguerrilla.com for tutorials links to YouTube videos and pricing. Alternatively call the Carbon Guerrilla team on 0207 956 8698, especially if you are struggling with your CRC reporting.

If you’re too hot or too cold then take a look at this.......
 

Weather patterns are changing and seasons are becoming more extreme. This year the UK has seen a very cold winter, the driest spring in 100 years and there is talk of a possible hot summer. These unusual climatic changes may result in the office worker finding it difficult to be thermally comfortable. An odd term but the Health & Safety Executive (HSE) has found it important enough to devote a whole microsite on ‘Thermal Comfort’.

So what is thermal comfort? Well according to the HSE it’s a person’s state of mind that determines if they’re too hot or too cold. The microsite goes on to say that thermal comfort is not simply down to the temperature in the room but will also include other aspects such as environmental conditions; the heating, personal factors; the clothes an individual is wearing and how hard the individual is working. 

At the heart of this microsite are the six factors that affect a person’s thermal comfort; air temperature, radiant temperature, air velocity, humidity, clothing insulation and metabolic heat. The importance of understanding how these inter-relate with one another is important in determining how someone’s thermal comfort is affected. The HSE has produced a very useful checklist to help assess thermal comfort and a link can be found on our website.  Throughout the year, but particularly in the summer hot working conditions can lead to a contentious relationship with the landlord or property manager and the root cause isn’t always down to the management of the heating or air-conditioning system in a building. 

As it is seen from this article there are a number of factors which contribute to a person’s thermal comfort and certainly it would be helpful for occupiers to review these before contacting the property manager about a problem. In many situations it may be quicker for the occupier to eliminate any other factors before determining if it’s the heating/cooling system or control mechanism that is causing the problem. 

BT is aiming for 1.6 – What is your business aiming for?

Both the British Property Federation (BPF) and the British Council for Offices (BCO) have recently commented that developers, employers and property managers need to be more cognisant of the needs of the end-user in their thinking towards the creation and use of real estate. 

In a recent interview with the Estates Gazette, the BCO’s incoming president, Gary Wingrove commented “It’s time now for occupiers to drive the agenda for space and for Landlords and developers to help us to do that, rather than to say that we have to take what’s there because they’ve decided that that’s what we want’’. As part of implementing this, Wingrove is suggesting an Occupier-focused accreditation scheme for property agents so as to ensure that areas such as design and sustainability are understood and form part of the advice that an occupier should expect from his property agent. 

Wingrove himself works for one of the UK’s largest corporate occupiers, BT, and is acutely aware of changing working practices and the need for rationalisation across large portfolios. He is also a major advocate for flexible working and sees how improved technology is determining property space requirements. Indeed, BT now claims that over 60% of staff has no allocated desks and that their targeted workspace ratio is 1.6 people per desk.

This shift was picked up at the recent BCO Conference where Head of Innovation at Ove Arup and Partners, Dr Chris Luebkeman said that graduates were far more likely to be fluid workers who are familiar with high levels of engagement with evolving technologies. He branded the new generation ‘’clickizens’’ who present both a challenge and an opportunity to those involved with designing workplaces of the future. The ‘clickizen’ would expect to be able to work at any time and any place and it is to them that designers need to turn in order to understand what is meant by ‘normal’, and design accordingly.

Aside from the physical aspects of occupation, the BPF is supporting the Best Practice Index (BPI) which looks to measure best practice in property management, and as Liz Peace of the BPF says’’. This is an excellent example of property owners and managers working in collaboration with occupiers to improve customer service in the property industry’’.

The occupier’s voice is at last being heard in the right places within the industry.

Question & Answer 
 

The property manager takes care of the security in the common areas; does that mean we do not need to take any extra security measures for our demise?

It’s not unusual for a tenant to believe that the property manager is responsible for securing a multi-let building from potential break-ins or breaches in security. Where the property lacks any on-site presence from a building manager, a security guard or receptionist then the property manager will rely on other elements to secure the building such as an access code, access cards, CCTV or video entry systems. Despite having an array of equipment at their disposal if an intruder is determined to get into the building then they will find away.

Using a number of factors such as size of property, its location, where it’s situated, and how it’s being presented to the market the property manager will define and manage the security arrangements. So if the property is located in the City of London then the security arrangements will differ to those of a retail shopping destination or an industrial estate. But what is important is that these measures are conveyed to the occupiers so they can dovetail their own arrangements which may include sharing the costs of a mobile security guard or linking in to the building’s CCTV system by locating cameras dedicated for your demise. 

Although the property manager oversees and manages the security strategy for the common parts they are NOT responsible for the security arrangements of the individual leased units. This falls firmly in the lap of each individual tenant. The security of a tenant’s demise must still remain with the occupier and as such a prudent tenant would review the security arrangements in the building and supplement these with their own bespoke requirements. However, security should not just relate to the physical nature of the property but may also include looking at protecting the power source and telecommunication cables coming into the building. 

Ultimately the tenant is responsible for securing their own demised premises and can achieve a more secure environment by understanding the building’s security strategy operated by the property manager. As with all cases, working together and avoiding duplication will deliver better results.

If you would like to discuss your specific circumstances please call us on 0800 865 44 50.

May E Newsletter

Welcome to our fifth e newsletter of 2011.

This month we start with commentary on the eagerly awaited review of the Service Charge Code by a range of Industry heavyweights and follow this up with an article about other influential property leaders taking the DEC debate right to the PM’s door, in the pursuit of pressurising the Government to keep to its Green promises.

We then look at how local authority funding is likely to embrace the Community Infrastructure Levy, highlight changes in ownership and maintenance of our sewers and also question value-for –money with certain building projects.  We finish with our Q and A section which seeks to explain what’s out there…. in The Cloud.

Take a look at the 'New Code'

Launched and ready to take effect from the 1st October 2011 the revised Service Charge Code (‘New Code’) is here.  The ‘New Code’ has been drafted by a steering group which comprises representatives from a number of real estate groups including, the British Council of Offices, British Council of Shopping Centres, British Property Federation, British Retail Consortium, Corenet, Property Managers Association, and the Royal Institution of Chartered Surveyors.  You can take a look at this new document which we have uploaded to our Knowledge Centre but how does it differ?

The New Code has been revised after a consultation period managed by the RICS.  During this consultation the RICS received over 200 responses covering a variety of issues which they were able to review.

The ‘New Code’ primarily is concerned with the management and administration of service charges which remain the single largest area of concern for occupiers. This ‘New Code’ also extends to assisting those involved in drafting service charge clauses and directs them in using the right phrases and language.

The ‘New Code’ covers a number of core principles and these are set out in 26 points, the more relevant principles being: allocation and apportionment, certification, proportionality, anticipated future expenditure, environmental sustainability, and standard cost classifications.

In all situations the need for effective communication cannot be underestimated.  Occupiers have a need to understand how a service charge account is constructed as without it there’s an element of uncertainty and doubt over how the on-account and reconciliation sums are reached.  If doubt and mis-trust creep into a relationship then achieving a collaborative working partnership becomes much harder to deliver. The ‘New Code’ identifies the importance of good communication and timely responses and TAP’s clients do favour our proactive and strategic methods of liaising and supporting their occupiers. 
 
We would urge you to take a look at the ‘New Code’ and if you’re unsure about any of its contents then contact us where we can discuss any points you may have.



The Community Infrastructure Levy continues to gain support

Property consultancy, Drivers Jonas Deloitte, has published its 3rd annual review of the popularity of the Government’s proposed Community Infrastructure Levy (CIL) as a favoured method for Local Authorities to secure funding from development, and whilst this initiative was originally promoted by the Labour Government, it seems to be gaining momentum now that the Coalition administration has given backing to the scheme.

The results show that 68% of Authorities are now proposing to adopt the CIL, compared with only 20% in the 2009 survey, although you should be cautious with these figures as many Authorities still have other priorities ahead of adopting the CIL.

Julia Chowings of DJD comments, “Only a small number of authorities are advanced on CIL and the Government has recognised this in identifying them as Front Runner authorities.  We anticipate that their progress will be watched closely with many learning lessons and best practice from their experience.  It is apparent that many authorities are keen to share costs and resources by joining forces with neighbouring authorities to work on CIL.’’

So what is the CIL all about?  Briefly, the levy is designed to help pay for the infrastructure required to support new development and may sit alongside the more commonly known planning obligations (Section 106 agreements).  Charges will be based upon net additional sqm of floorspace in buildings that people normally use and will be calculated on evidence of the infrastructure needed, but in no way is the levy intended to be the main source of finance. Local authorities CAN apply the levy, but do not have to, however if they do then the infrastructure project must be set out on the authority’s website.  Other than money, the levy can be paid in kind (i.e. the acceptance of any land or existing buildings).

For further specific information on this important planning improvement, TAP would be delighted to direct you to an industry expert.


It hasn’t changed in 74 years but now costs will rise

The Government is proposing to change the ownership of sewers and lateral drainage systems with effect from the 1st October 2011.  The effect of this change will be to remove the uncertainty of who should repair and maintain the sewer system and make long term planning, in the light of changing climate conditions, easier.

Currently the majority of properties are connected to the sewer system from a private pipe or lateral drain and on the 1st October these will move across and become the responsibility of the statutory water authority.  In a written Ministerial Statement by James Paice on the transfer of 200,000kms of private drains it was said “Private sewers serve more than one property so ownership is shared and usually a large extent of the sewer will lie outside a property’s own boundary. Lateral drains serve one property but always lie outside the property’s boundary. Transfer provides the only comprehensive solution to a range of private sewer and lateral drain problems affecting householders. These include a lack of awareness of owners’ responsibilities and unwillingness or inability to co-ordinate or contribute to potentially high costs of maintenance and repair. It will bring simplification and clarity to owners, local authorities and sewerage companies, all of whom typically become involved when these problems arise.

Transfer will also significantly help address a lack of integrated management of the sewerage network as a whole, and provide much greater efficiency of effort, environmental stewardship and expenditure at a time when climate change impacts and housing growth may impose greater demands on urban drainage systems. Having a much greater proportion of the sewer network in the management of the water and sewerage companies means they will be able to plan maintenance and resolve problems more easily and comprehensively.”

This transfer of responsibility will lead to higher sewerage charges for the repair and maintenance of the extended system.  Early indications are that annual bills for residential properties, with shared sewers will increase by about £14 per annum.


Pressure increases on PM to deliver on promises for energy efficiency ratings

As a follow up to our comments in last month’s e Newsletter we draw further attention to the DEC debate with the news that some of the property industry’s heavy hitters have signed an open letter to the Prime Minister and Chris Huhne urging them to make DECs mandatory for the private sector.

The letter was initiated by the British Property Federation and the UK Green Building Council but attracted top level signatures from Hammerson, Land Securities, British Land and Legal and General, inter alia all of which is timed to escalate the debate such that A-G Energy ratings form part of the Energy Bill which is about to be debated in the House of Commons.

Following widespread criticism of EPCs and DECs only a few years ago by the property industry as yet another piece of EU Red Tape, it is ironic that the private sector is now calling for such mandatory
measures.  As the letter says, “Unfortunately, a voluntary approach to take-up in the private sector will not work, because without a level playing field there is a reputational risk for those businesses that voluntarily adopt certification and achieve poor ratings.’’

As Liz Peace of the BPF observes, “Savings of between 5 and 30% can be made through simple no and low cost changes to the way a building is managed and occupied.  A rating based on actual energy use will highlight these opportunities, which could otherwise remain hidden.’’

Additionally, Paul King of the UK Green Building Council adds, “It’s very simple - if you don’t know how much energy you are using, you cannot manage it.  We’ve simply no idea how our buildings, up and down the country, are actually performing, so mandatory A-G ratings are the crucial first step in helping businesses understand and reduce their energy use…Government needs to listen to the property industry - this is something that will cut carbon, cut energy bills and create new market opportunities in green technologies.’’

TAP remains of the opinion that mandatory DECs are on their way, and as we have already suggested, it can do little harm to start introducing measuring methodology now, in order to be able to assemble backdated usage data which will undoubtedly be requested as benchmarking information.

TAP can direct you to experts capable of assisting with this procedure.



Lowering costs may not always be the answer...

Trying to balance the cost of a service with the value it provides isn’t always easy.  In the current climate the tendering of contracts, to seek the lowest possible price, can occasionally undermine the standard being delivered and according to a recent survey undertaken by Lockton, an international insurance business, there is a suggestion that, when it comes to building works, cutting costs can increase project risk and reduce quality.

The survey interviewed a number of medium to large building contractors who primarily specialise in commercial fit-out and refurbishment projects.  The results found that many are busier than they have
been in the last 2 years but because of the tough economic conditions the quality of the projects being finished in the next 24 months will be compromised.  Why?  Because many believe ‘short-cuts’ have to be made to support the quicker delivery times and cheaper prices. 

A number of issues were cited as being of concern such as risk of injury to others, especially when the property is occupied, exposure to harmful substances (and in a few cases asbestos was referred to), solvency of the main contractor, lack of clarity in the client specification, and general pressure to have a fixed price contract.

Overall it seems that whilst people are looking to achieve lower prices for services they aren’t always thinking about the potential risks associated with ‘cutting corners’.  Remember, value for money isn’t always about having the cheapest contract in place.  Please speak to us if you feel concerned about how a contractor is performing or the potential risks associated with reducing the cost of a contract.


Question & Answer
With my new premises, should my IT infrastructure be based in The Cloud?

Establishing new business premises involves a vast range of choices and in an established business, many operational functions are taken for granted; however moving premises can throw up choice which may impact on working practices or floorspace usage.  The locality of the IT infrastructure need not be present within your workspace anymore and can be housed in what’s commonly known as ‘The Cloud’.  There is no clear definition of what is meant by this phrase but its common traits tend to be that it’s off-site, on-line and is paid for as part of a service with flexible costings based upon what you need and when.

One of the leading industry analysts, Gartner, describes it as ‘’A style of computing where massively scalable IT-enabled capabilities are delivered as a service to external customers using internet technologies’’.

Such an approach can lead to significant working efficiencies with staff all being able to access files and data from anywhere in the world, with negligible back-up, maintenance and storage worries and peace of mind from a business continuity perspective.  It is anticipated that costs maybe as little as 10% of your current on-site costs but this depends on your requirement.  Current examples that many are familiar with include Google G Mail, photo storage on Flickr and of course Facebook, all of which form part of a virtual desktop for individuals and their employers.

Topical language talks about the Public Cloud which refers to off-site data storage facilities that are usually provided by third parties on an ‘’as required’’ basis and the Private Cloud where there exists on-site pooling of available computing facilities, the latter of course still requiring maintenance, but resulting in reductions in equipment, energy consumption and the ability to decommission old equipment.

Typically, Cloud based projects are cheaper, quicker to deploy and offer greater flexibility.

Are there any drawbacks?  Understandably, there is a perceived loss of control with the Public Cloud and questions about data security, limited redress in the event that things do go wrong, with cancellation of the contract being almost the only sanction and the fact that residual systems (if you have them) will still need maintenance and transitional attention.  The first of these (data security/loss) is the most frequently raised however some would argue that with the regular automatic back-ups (and reputational pressures of the 3rd parties involved) data is more secure here than it might have been whilst resting on individuals under conventional operations.

For Private Clouds there still exist issues with the physical conditions prevailing in one’s building; namely, sufficient air-conditioning for equipment cooling, provision of multiple data cables and secure routes, access arrangements to data rooms, Landlord consents for new infrastructure, cabling, antennae, plus the whole issue of re-instatement when you move out again.

In summary, The Cloud (in whatever form) is both for now and the future and modern businesses need to constantly question the best route for themselves to allow for flexibility and mobility, but also to creat business efficiencies that were perhaps not possible when a company was originally formed.    
 

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.

September E Newsletter

This month we consider public sector action and the potential implications for business following rallying calls from the recent TUC Conference;we draw further attention to the CRC debate and highlight the 30th September deadline;we then highlight the shrinking length of the average UK commercial lease and see who this news is good for before introducing a HSE website which shows how better management in this area can benefit the small business.


Our Q and A this month deals with Assigning a commercial lease and touches on some of the legalities and commercial aspects associated with such a disposal method.



Brace Yourself for Disruption

The Unions and Government have opposing views on how to resolve the country’s financial deficit and this may lead to severe disruption in the coming months. As a business, it is important to plan for all eventualities and this situation is no exception. We are thankful that we have been given plenty of warning and this should give you enough time to plan ahead.

With the prospect of widespread strikes looming, many of those services we take for granted are likely to be interrupted leaving many of us severely inconvenienced. Whilst we can only guess what services are likely to be affected, we nevertheless would do well to try and plan how our businesses will cope faced with the prospect of having to do without, for example, a reliable postal service. How will we receive payment of our services, how will we pay our rent or service charge, will our staff be able to reach their place of work, will we have to have more of our staff working from home if the transport network isn’t working? People and businesses will need to carry on and it is now that businesses may wish to dust off their contingency plans and review how they will continue performing the services for their clients.

Managing Agents and Property Owners may also struggle to maintain and service their buildings. Difficulty in sourcing parts, manning the security desks, attending to breakdowns and so on, all impact on the operation of a building. It is clear that people will use their best endeavours to ensure services continue to be provided but it is also worthwhile reviewing your own plans for such circumstances. Communication will be key to ensuring people are aware of what is happening to the building or where businesses struggle to meet their commitments. This is the case for both the property manager and occupier.

Sometime ago The Government, through their website www.direct.gov.uk issued a Business Continuity Management Toolkit which outlines how a business reviews their operation. By applying these principles a plan can be drafted to deliver a strategy that will improve resilience against any potential disruption. We have a link to the Toolkit on our site so please feel free to contact us if you are not a subscriber and would like a copy e mailed.




Service Charges - The Question of Repair or Improvement

One of the most contentious subjects in the property management profession surrounds the thought that the Landlord gradually improves his property, at the expense of the Tenant, by replacing elements of the building with better items, thus improving his property. When it comes to spending the service charge, the actions of the Property Manager will always be questioned; certainly in these austere times.

But how do we know what items of expenditure are right and appropriate? Within a building, the service charge expenditure is governed by the contents of the lease contract between the Landlord and Tenant. However, examples of appropriateness is shaped by case law and a recent case centres on whether it is right to replace single glazed windows with double glazed units. Although it is a case that relates to residential leases the principal will apply to commercial practice.

The case of Craighead v Homes for Islington Ltd & Anor [2010] involved a block of 21 flats where the windows had come to the end of their useful life and required replacement. The Landlord replaced the windows and by installing double glazed units increased the costs by 13%. The tenants challenged saying that the Leases only allowed for the recovery of service charge expenses for the renewal and not improvement of the properties. However, as this was a residential case the dispute was heard by the Lands Tribunal and their Upper Chamber decided it was appropriate for these problem units to be replaced and did not deem it as an improvement.

On many occasions it is appropriate to consider whether the increase in efficiency of an item warrants any additional costs and in many instances it does.




CRC - What's the next stage?

Landlords across the country are trying to ensure, where it is necessary, that they have registered for the Government’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. The deadline for registration is the 30th September. But whilst they are heading towards the Registration deadline day, what will happen next? This is just the first stage, the next stage is to reflect on annual energy usage and develop a policy of using power more efficiently.

The scheme measures success in 3 ways; using an absolute matrix, where companies are judged by how much they have reduced their energy consumption, a growth matrix where consideration is given to how companies have grown and an early action matrix where consideration is given where an effort has been made before the start of the scheme. The outcome of this combination leads to the results being published in a league table and rightly some companies will take their league position very seriously.

Property Managers have begun looking at ways of improving energy management. Consideration, up and down the country, will be given to new energy efficient ways of managing property but even then the Property Manager can only really influence how the common parts perform. Examples are already being identified such as the RPS Group plc where they are testing a new retrofitted lighting control system in their London office. It is suggested that this will help to reduce the electricity costs of lighting by up to 70%. Each occupier will be encouraged to be aware of their energy use and through such management tools as the ISO 16001 will be reminded of the need to alter behavioural change.

There is already enough published material available which identifies areas where office occupiers can look to reduce their energy consumption such as upgrading switches in meeting rooms to reduce consumption when not in use, or network more people to less printers to reduce printers standing idol. The Carbon Trust estimate that through simple office management, occupiers could reduce their annual energy consumption by up to 20%. At these levels it is worth thinking about.

This is a huge and topical issue; we have the documents on our system and if you would like copies e mailed then please contact us.




Shorter Leases: for whose benefit is this?

In its Annual Lease Review, the British Property Federation (BPF) and the Investment Property Database (IPD) have recently reported that since 1999 average lease lengths have almost halved from 14.3 to 8.6 years.


The study takes in details of some 91,000 tenancies representing a rental value of £6.3bn and the recent result shows the 8.6 year figure to be the lowest ever recorded. Furthermore the study also saw an increase in the percentage of leases of 5 years or less, rising from 66% to 72%.Now only 10% of leases are set for terms of 10 years or more.

The retail sector saw the largest % fall from 6.5 years to 5.4 on average, followed by offices(5.4 to 4.7 years) and then industrials(4.6 to 4.0 years) but this was also set against a backdrop of increasing incentive packages as Lessors have had to further induce tenants into vacant space.

Not great news for the Landlord/Lessor and generally good news for the tenant community, but as a response to the downturn this is predictable and is evidence that deals are being done and that fewer small businesses are being adversely affected by property constraints in the downturn.

But do tenants really get up and move on when their short lease expires or are they actually using the opportunity to renew with their existing Landlord on the same or better terms? More often than not, if the space still works for them the Tenant stays and renews rather than face the disruption of moving for the sake of modest and debatable savings. Some of the larger Landlords such as MEPC publically state their retention rates (MEPC claim 91%, and are looking to further improve on this) and much of this is down to active management and integration with their Tenants (customers).

So whilst the overall picture is of lease term reductions, many transactions occur between the same leasing parties.

But whilst a Landlord is keen to retain occupancy of his space, the impact of shorter leases is harder felt by an Investor/Developer Landlord who requires longer leases to attract development funding and/or show long term income commitments to valuers. The UK Investment market was the envy of the world for decades by boasting 25 year leases with 5 yearly upward only rent reviews an an Industrynorm, but now, as this Report shows, a Landlord would be fortunate to secure a new lease term even containing a rent review. He may circumvent this issue by negotiating stepped or fixed uplifts and incentive packages to dissuade tenants from exercising break clauses, but the overall message illustrates a potentially more mobile working community with whom Landlords need to engage in order to secure their longer overall retention within a specific building or Estate.




Does Health & Safety benefit your business?

We at TAP are always looking for ways to help organisations and have identified a website operated by the Health & Safety Executive dedicated to explaining how cost effective managing your health & safety is to a small business.


The website is titled ‘Better Business’and the site has been designed to offer general guidance across a number of areas that may have an impact on the working environment of a small business. Each page has a link through to a useful site that provides more information around the subject and,together with their manned Helpline 0845 345 0055,it is a useful number for any business.

Don’t worry if you feel your organisation is too large;the HSE also have a website for larger companies.

If you have any questions regarding Health & Safety and would like to speak to a consultant who specialises in a particular field then please feel free to telephone us on 0800 865 44 50 and we will be happy to refer to one of our Partners.



Question & Answer

Lease Assignment - What is it and how do I go about it?

Assume that your business no longer requires the premises it operates from and is looking to dispose of the lease. You have been unable to surrender the lease and have restrictions on subletting and the only remaining option is to assign (or transfer it) to another company. Selling or transferring a lease is known as ‘Assigning’ and effectively means that you transfer all the current liabilities to another company. It does require your Landlord’s consent and will be conditional on finding a company who is acceptable, in all ways, to the Landlord. However, assigning the lease does not fully remove you from all residual liabilities.

Similar to applying for consent to sub-let a premises,the Landlord will need to be supplied with sufficient information about the new prospective assignee that will support their financial credentials, which will include sight of accounts, various references from accountants, bank and current Landlord. Furthermore they will require comfort in knowing the occupier will not be using the premises for any immoral use or conduct any business that may be seen as a nuisance to other occupiers in the building. It is therefore important to cover these aspects in detail when applying for consent. Depending on when the Lease was granted you may also be required to commit to an Authorised Guarantee Agreement (AGA). This means your business agrees to ‘guarantee’the future obligations of the new tenant.

Once consent has been given and the Licence to Assign, and AGA (if necessary) has been signed by all parties then whilst that tenant occupies the property and meets their financial and leasehold obligations you are effectively released from your leasehold obligations. However, depending on when your lease was granted (Pre or post the Landlord and Tenant (Covenants) Act 1995) then your responsibility may continue and in a circumstance where the new occupier cannot afford or fails to comply with their obligations you will be called upon to ‘step in’and remedy the situation.If Assigning a Lease which was granted before 1995 then your responsibility will continue until the Lease has expired, although should the tenant fail to meet their reinstatement obligations then you may have to meet that obligation. However, if the original Lease was granted after 1995 then there is a possibility that should the company, (who you assigned the Lease to) assign it again, then your future responsibilities may fall away as the Act limits on-going liability. Following a recent case,this release also applies to Sureties who now cannot be obliged to guarantee the performance of the original lease.

Assignment is therefore the effective sale of your lease to another acceptable party and the price(‘consideration’) of that sale is often referred to as a Premium…or reverse premium…dependant upon the level of current rent passing compared to the prevailing market rent at time of assignment;therefore you,as an assignor may actually have to pay to sell your lease if your ‘passing ‘ rent is above prevailing market levels. For further details, call us on 0800 865 44 50.