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.    
 

April E Newsletter

Welcome to our fourth e newsletter of 2011.

The budget was delivered last month but we look at what it means for property. Costs, collaboration and energy are also covered in this edition. People talk about working with the property manager and we open with a view on how working with them can result in lower budgets. We review the possibility that EPC’s may contain stronger teeth in an attempt to ensure recommendations are undertaken and also we examine the idea that DEC’s may replace EPC’s. There have also been a couple of worrying reports about how companies are performing in these difficult times and it’s not all good news. Do your liabilities continue once your lease has been assigned? We look at this question which isn’t straightforward.


Collaboration from occupiers will lighten operational costs

The latest RPI figures indicate inflation is falling but commodity prices remain strong and this situation continues to apply pressure on the property manager to maintain service charges at a reasonable level. Property Solutions, a Commercial Service Charge Consultancy is due to publish their most up to date report on service charges. This report, researched by Kingston University, suggests that tenants require greater transparency and accounting procedures from their property managers who manage approximately £4.06bn of annual expenditure on behalf of the occupiers. We ask, are costs the sole responsibility of the property manager or does some of the responsibility lie with the occupier?

Occupiers accept that service charges are wholly controlled by the property manager but what influences their decisions on how they budget monies and how do they prioritise projects? It’s relatively simple; external factors such as the retail price index, new legislation and commodity prices have a huge effect on annual expenditure and many have seen these impact costs over recent years. Of late, we have seen financial pressure on service charges from such issues as the heightened awareness of asbestos management and more recently the civil unrest in the Middle East, impacting on energy prices; this latter element affects every element of the service charge budget as it is such an integral part of transport.

Older buildings suffer from disrepair and obsolescence and so in these situations repair or replacement costs become even greater.

Many property managers are focusing on energy monitoring where costs can be saved through collaboration with the occupiers. Simply changing your working behaviour could reduce energy consumption and save up to 15% in costs. By turning off lights and office equipment, when not being used, is the simplest way to reduce wastage and we know of one property manager who is using their security guards to take photographs of the building at night to identify occupiers who leave their lights on.

So as an occupier how can you collaborate with the property manager? The property manager needs to understand how your organisation works and what is important to your business, so work with them and re-state these. Form a working party with other occupiers to see how you can introduce working practices that may have a positive impact on costs, for example look at when the building is occupied and judge if the heating/air conditioning times are set properly. With landfill costs increasing, try and look at increasing the recycling rates, and reduce the amount of tonnes of waste that is sent to landfill. Think about water, use optimisers or ‘hippo’s’ to reduce the amount used.

Overall working with your property manager will enable a stronger working relationship to be established and this will lead to more benefits being created. Shy away from being obstructive as this will not assist the relationship and is more likely to damage and future goodwill.

If you’re unsure about any of this do call TAP and discuss any points you may have.



Government support for Energy Performance Certificates (EPC’s) gains momentum

Alongside another Article in this edition about Display Energy Certificates, we observe that the EU Directive (EPBD) is being recast and must be implemented into National Law by July 2012 and take effect from January 2013. Following a Labour Government consultation which finished over a year ago it was interesting to see how a new Coalition Government would react to the 140 respondents to the initiative entitled, ‘Making better use of Energy Performance Certificates and data’.

However it seems that both Brussels and Westminster are keen to give greater ‘teeth’ to EPCs and encourage higher rates of compliance.

The consultation was not all focused on EPC’s however, notably because the Directive also covers wider regulation for energy reduction in domestic and commercial properties, and accordingly the Coalition has identified, inter alia, 5 areas for further consideration:

Wider freedom of information .i.e. to make all EPC data freely available, including the energy rating and recommendations for individual properties.

Inclusion of EPC data in all advertisements about a particular property

Extending the EPC net to include homes in multiple occupation and certain holiday lets

Extending the requirement for DECs into the private commercial property sector (see separate article)

The mandatory requirement to have air-conditioning reports lodged on the EPC register. This falls short of requiring the need to have regular boiler inspections too, which should be encouraged but remain voluntary. That being said, one has to assume that such inspections are very likely to become mandatory too.
Much of the above will be enforceable under the Energy Bill, which is introducing The Green Deal (.i.e. Energy efficiency measures funded by savings in energy bills) and the support that the Coalition is making does indicate that amongst other measures, it will be giving EPCs greater clout, enabling far more transparency into those properties which will need to be improved, perhaps even before they are capable of becoming lettable or re-lettable.


Businesses need assistance more than ever......

Firms showing signs of financial distress have increased by 15% this quarter according to the most recent Red Flag Alert Report from Begbies Traynor, Corporate Recovery Experts. The Report identifies that 186,554 firms are suffering from "significant" or "critical" financial distress in the first quarter of 2011, in contrast to 161,601 at the same point last year.

The Report monitors those elements of a company that may result in financial woes and highlight the leisure sector as an area that is experiencing most risk. The cause of such problems seems to be down to the public reducing their discretionary spending in these areas. The number of firms which have seen an increase in financial distress in the leisure and cultural sector has risen by 60% and the service sector has seen a 61% increase.

Factors such as significant numbers of redundancies in the public sector linked with high fixed costs is contributing heavily to this situation and it is now time for landlords and property managers to be aware of this issue and where possible provide greater support than they are already doing.




As expected, Display Energy Certificates (DEC’s) are proposed to become mandatory, PERHAPS ultimately replacing EPC’s

The Government and respected Property bodies such as the BPF and the UK Green Building Council (UKGBC) are calling for this inevitable regulatory evolution in a focused attempt to stimulate, measure and publish energy reduction in the UK’s non-domestic building stock.

To date DECs have been mandatory in public buildings of over 1000 sqm since 2008, but as they are formulated to record actual energy usage, as opposed to the more generic notional parameters of an EPC, it has been viewed as an inevitability that the DEC’s relevance would supersede its predecessor, and voices are now getting louder for their widespread implementation.

Such a rollout will not happen swiftly however and commentators anticipate a ‘soft start’ in 2012 such that sufficient time is given to measure and collect data and the production of Certificates in perhaps 2012/3; moreover, its proposed that results maybe treated as confidential initially so that benchmarks can be established and thereafter, akin to the CRC league table, the results will become widely available for scrutiny of both Landlord’s and Tenant’s energy usage/reduction.

Compliance costing is another factor for Occupiers and Landlords alike but the UKGBC can see a developing scenario of very low cost compliance once measurements are directly linked to Utility metering data thereby allowing mass participation at low cost. This however is unlikely to be widespread until at least 2015. In the meantime, a growing need for more qualified assessors will emerge to implement policy; and such policy is anticipated to come via the Energy Bill which is currently passing through Parliament.

So, barriers to entry certainly exist, but the DEC ball appears now to be rolling and the UK’s drive toward a low carbon economy will appear in the ‘stick’ that the authorities will introduce for non compliance…as yet we have yet to hear about enforcement and sanctions.



The Budget 2011; what’s in it for the TAP audience?

Billed as a Budget for Growth, this year’s announcements contained the usual mixed bag of news for property occupiers, owners and investors.

Short of listing every measure in detail, we have identified some that will touch business and property:

A 5 year extension of the Business Premises Renovation Allowance, whereby 100% tax relief is available on the Capital Expenditure incurred on bringing buildings back into business use. This was originally a temporary measure which was due to expire in 2012, and is now extended to April 2017.

A 1 year extension to the Small Business Rates Relief from October 2011 whereby eligible ratepayers with an RV of £6,000 or less receive 100% relief, and those with RVs of between £6,001 and £12,000 receive relief on a sliding scale from 100% to 0%.

The creation of 21 new Enterprise Zones nationwide which will benefit from Rate Free occupation for a fixed period of time.

Four annual 1% reductions in the main rate of Corporation Tax, taking it down to 23% by 2014

Smaller company (profits of less than £300,000) Corporation Tax reduction to 20% from 2011.

A moratorium on new domestic regulation for Start-ups and SMEs with less than 10 employees for the next 3 years.

Research and Development tax credits for SMEs will rise to 200% this month and up to 225% in April 2012.

Oh, and let’s not forget the £100m set aside for pothole repairs!

These measures were all well received by the industry and small businesses; however the glaring concern for many was the lack of any U-turn on the Government’s stance on Empty Property Rates. The decision to slash the threshold for empty rate exemption on vacant properties with an RV of less than £18,000 to only £2,600 remains an enormous burden for many businesses to bear and pre Budget expectation that this measure may be re-thought was short lived.

As with all Budgets there are winners and losers but the general scope of tax reduction and simplification (both in taxation and bureaucracy) should help stimulate some much needed confidence back into the business community, with obvious advantages for the ownership and occupation of property.


Question & Answer –
Does my liability end when I’ve assigned my lease?

We recently received an enquiry about this very subject. The question came after the tenant had trawled the internet for the answer but was confused by what they had learnt.

The question is, once I’ve assigned a lease do my liabilities cease or is there a chance I may become liable again should the new occupier default?

A lease assignment is the legal process of transferring a lease from one business or person to another. It is a transaction that is driven by the tenant and is subject to the consent of the landlord. Turning to the question, and assuming the lease agreement doesn’t say otherwise, the simple answer to this question is yes the original tenant will remain liable should the new tenant fail to meet their contractual obligations. However, if we look at this in more detail we can introduce the Landlord and Tenant (Covenants) Act 1995 as this Act loosened the grip of the original Landlord and Tenant Act 1954 (Pt II).

For any lease granted before the 31st December 1995 a (an Old Lease) the liability of the original lessee will continue until the lease expires regardless of how many times it is assigned. However, any lease granted on or after the 1st January 1996 will be subject to new rules which were designed to restrict any on-going liability by introducing an Authorised Guarantee Agreement (AGA). This AGA (between the landlord and the current lessee) commits the out-going lessee to ‘guarantee’ the performance of the leasehold covenants for the duration the assignee holds an interest in the lease. Once the assignee has assigned the lease the original tenant’s liability stops. Although it seems complex it proves to be a better situation as an original tenant could see his liability being curtailed whereas under the old rules his liability remained in place for the term of the lease.

If you are faced with this situation and would like to discuss your specific circumstances please call us on 0800 865 44 50.

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.