The practicalities of exercising or negotiating your break clause

The practicalities of exercising or negotiating your break clause

 

Sometimes either a landlord or a commercial tenant will need to break a lease early. We take a look at negotiating a break clause and how they can be exercised to everyone’s satisfaction.

What is a break clause?

When drawing up a commercial lease both landlords and tenants need to consider the inclusion of a break clause which allows either party to end the lease early. The break clause is a provision within the lease which is agreed to by both landlord and tenant, when the lease can be broken, with neither party facing a penalty. It can be on a specified date or dates (usually after a specified period of time into the lease) or it can be on an ongoing or ‘rolling’ basis. Tenants must give at least two months’ notice to their landlord that they intend to break the lease. Landlords can only break the lease with the agreement of the tenant.

Pre-conditions

Tenants can end their lease early if the landlord agrees and providing they meet certain pre-conditions which are specified within the lease. Pre-conditions may include that they are up-to-date with rent and associated payments such as service charges, buildings insurance premiums etc., that they have not breached any covenants within the lease, and that they must give vacant possession as well as reinstating the premises to the condition it was in when they took possession. Tenants may be able to pass the lease onto someone else, or sublet whilst still being responsible for paying the rent. In some circumstances tenants may be able to pay a ‘break premium’ instead of complying with all the covenants.

Negotiations

When negotiating a lease, tenants should think ahead and make provision for the possibility of exercising a break clause which may include pre-conditions. Naturally, landlords may be reluctant to include a straightforward break clause, for the simple reason that they may face a period of vacancy and associated loss of earnings. It is, therefore, vital that tenants consult an experienced commercial lawyer before signing a lease which insists on stringent pre-conditions in relation to the break clause and consult them on any negotiations relating to the terms of the lease.

They should also ensure that, if they wish to exercise the break clause, they give their landlord sufficient notice, both to understand fully the precise terms of the pre-conditions (if any exist), but also to ensure that they are fully compliant with any requirements within the clause.

The exercising of break clauses is one of the most common causes of legal disputes between landlords and tenants and it can prove an expensive exercise for both parties. It is in your own best interests, therefore, to seek legal advice at negotiation stage with a landlord to ensure that the terms of the lease are reasonable and not skewed too far in their favour, should you need to exercise a break clause.

If you need specialist advice about a break clause within a commercial lease, talk to a member of our team. Our experienced negotiators can offer you confidential and current guidance and assist with the interpretation of any clauses which are causing concern.

 

Written by: Steven Jones on Monday 29/05/2017

 

Why Brexit uncertainty is affecting the price of farmland

Why Brexit uncertainty is affecting the price of farmland

 

Amidst the political and economic uncertainty which has prevailed in the UK since the referendum in June, one commercial sector has been impacted more than most. We take a look at how the price of farmland has been affected and ask whether it is a good opportunity for investors.

Falling prices

Here in the UK we’re lucky enough to be able to grow around 60% of the food our population needs, and agricultural land comprises almost 17.2 million hectares. However, farmers are increasingly under financial pressure due to a fall in commodity prices, the threat of a rise in interest rates as well as the uncertainty about future agricultural subsidies in the wake of the Brexit vote.

This has led to a decline in the value of farmland in some areas of the country. The South East and East of England saw falls of between -2.5% to -3% during the third quarter of 2106 which, combined with falls from earlier in the year, means that the total fall is between -3.6% and -7% for arable land specifically. This contrasts markedly with a 180% rise in average values over the last decade.

The average price of an acre of prime arable land in the whole of Great Britain is now £9,260, down -2.3%. In England it fell by – 2.5% to £9,360 per acre. In Scotland and Wales the price remained the same as the previous year at £7,940 and £7,500 respectively.

Supply

In Great Britain as a whole during 2016, there was a 3% increase in the amount of farmland available to buy, compared to the previous year. England saw a 1% decline, Scotland’s available farmland rose by 4% but it is in Wales that the most dramatic change has been seen. The Principality saw an increase of 43% in the amount of farmland being marketed for sale during this year.

Investment opportunities

For those looking to invest in farmland, it may be a good time to do so. Some farmers are genuinely suffering from the low price of the goods they sell and many others have faced delays in the payments they receive from the EU’s Common Agricultural Policy (CAP). In these circumstances, many wish to sell and are negotiating Farm Business Tenancies (FBT) on three-to-five year bases. This proves to be an attractive proposition for investors who can take advantage of lower-than-open-market values.

If you’re interested in diversifying your portfolio by investing in farmland, contact a member of our team today. Our experts can source a variety of farmland businesses throughout the UK and can offer advice and information regarding ROI expectations.

 

Written by: John Padgett on Monday 29/05/2017

Keep the faith – five UK chapels converted into commercial property

Keep the faith – five UK chapels converted into commercial property

 

In our increasingly secular society, many historic places of worship fall victim to dereliction and decay. Some, however, lead a full and successful second life outside the sphere of religion as they are repurposed for the needs of the 21st century. We take a look at five of the most successful chapel conversions in the UK.

Alma de Cuba, Liverpool

The former St Peter’s Catholic Church in Seel Street, Liverpool, was first built in 1788 and is now a Cuban-themed restaurant which opened in 2005. The fine conversion of Liverpool city centre’s oldest surviving church was undertaken by R2 Architects and had to be handled sensitively due to its Grade II listed building status. Many of the original features have been retained, including some of the 18th and 19th century stained glass, extensive decorative stone and marble work particularly on the altar, a first floor gallery and the king post roof.

Rook Lane Chapel, Frome, Somerset

Originally built in 1707, this Grade I listed building was closed in 1968 and left to deteriorate before it found its new incarnation as office space for the developers, architects firm NVB Architects, and an exhibition and performance space and wedding venue. A sympathetic modern extension houses a café and further office space, and today Rook Lane is a vibrant community arts venue set in a beautifully-restored historic building of great local significance.

Repton Park Health Club, Essex

This most unlikely conversion, from former psychiatric hospital chapel to health club, takes the concept of a spiritual healing to new levels. The floor of the nave of Claybury Hospital, which was first opened in 1893, is now a 25 meter swimming pool and spa area, and treadmill sessions take place beneath its gilded, barrel vault coffered ceiling.

Manchester Climbing Centre, Ardwick, Manchester

Inside this ordinary-looking red brick Victorian church lies a spectacular secret. The former St Benedict’s Catholic Church is now home to Manchester Climbing Centre which makes use of the height of the imposing building for its series of challenging indoor climbing walls. Originally built in 1880 to a design by J S Crowther, it was deconsecrated in 2002 but still retains many of its original features including an impressive rose window and vaulted ceiling.

Lyon and Turnbull Fine Art Auction House, Edinburgh

Once described as ‘the most beautiful saleroom in Britain’ the fine art and antiques auctioneers Lyon and Turnbull are housed in a Greek Revival style church which was built in 1821 by prominent Scottish architect Archibald Elliot. The church went out of use in 1991 and was converted into its current function in 2003. It retains much of its historic Regency charm which has been blended with a modern aesthetic to ensure this Grade A listed building survives for another 200 years.

While many people bemoan the dilapidation and deconsecration of our historic religious buildings, without the willingness of commercial organisations to preserve and convert them into accessible spaces, many would be lost to the ravages of time. We must be thankful that so many are still available for our enjoyment and enrichment.

If you’re looking for a commercial premises, whether old or new, to create a thriving business talk to a member of our team. Our experienced auction staff can offer you advice and information about forthcoming lots and our commercial team can provide guidance about change of use planning requirements.

 

Written by: Ian Harrington on Monday 22/05/2017

Understanding business rates when a property is empty

Understanding business rates when a property is empty

 

As the owner of one or more commercial properties, you’ll be aware that there are inevitably periods when your asset stands empty. Here we take a look at how business rates apply in such a situation.

Empty properties

Some properties, such as agricultural buildings, those used for training or the welfare of disabled people, and places of worship, are already exempt from business rates. All other properties must pay business rates when they are occupied.

If your property becomes vacant, whether it’s a retail outlet, residential home or office building, you are exempt from paying business rates for three months. However, at the end of this time, you will be required to pay the full amount of business rates to your local authority, as usual.

It’s important to note that the exemption from business rates applies to the property, not to the person who owns it, so if you sell your commercial property during the three month period of grace or buy one during that time, it does not begin again with the new owner.

Exemptions

The owners of some categories of buildings are able to apply for a further period of ‘empty property relief’ as it’s known. These include industrial premises (which can extend the exemption period for a further three months), listed buildings (until someone occupies the premises), buildings whose rates are less than £2,600 per year (again, until they are reoccupied), buildings owned by charities (if the next tenant is continuing the charitable theme) and buildings which are occupied by community charitable sports clubs (if the tenants continue to run a sports club).

In addition, since October 2013, unoccupied commercial new builds are exempt from non-domestic rates for a period of up to 18 months, provided it has been registered on the Ratings list before September 2016, in order to stimulate construction and thence the economy of the UK.

Applying for exemption

To apply for exemption you must contact your local authority or council and fill in an application form. They will then usually send out an assessor who will verify that the building is indeed empty and the exemption will then apply. The timing of your application is crucial as some local authorities will not allow you to backdate your application and will only grant exemption from the time you notify them. In order to maximise your rates-free period, therefore, it’s important to notify them as soon as possible, preferably before the building becomes vacant.

If you need guidance about applying for exemption from business rates, or any other matter relating to the subject, contact a member of our team. We can offer you advice and up-to-date information which may help you save money in the long run.

 

Written by: Craig Newton on Monday 22/05/2017

 

How to reduce vacant tenancy periods in commercial property

How to reduce vacant tenancy periods in commercial property

 

There are many reasons that you might wish to avoid vacant tenancy periods in your commercial property – loss of rental income is probably at the top of that list. But there can be more to worry about than simply losing money. We look at some of the risks and how you can avoid them.

The problems of vacant premises

Aside from the money that an empty property isn’t earning, there are also the risks of vandalism to the premises and squatters moving in. Finding an insurance policy when a property is vacant can also be problematic. Empty properties also contribute to the perceived deterioration of an area, particularly in a high-street setting, which may lead to a more permanent situation in which the property is either let at a reduced rent or is vacant permanently.

Commercial landlords with empty properties also face a double hit financially – not only is there no rent coming in but they are also liable to pay the full amount of business rates on properties which have been empty for over three months (non-industrial premises) or six months for industrial premises.

What can a landlord do?

  • If you’re having difficulty letting your commercial property, there are some tactics you can adopt;
  • You can consider offering prospective tenants a more flexible lease or reduce the rent to entice them to begin their tenancy
  • If your premises is large enough, you could think about splitting it into smaller units
  • Ask your local council about the possibility of applying for a change of use for the premises which may attract more potential tenants
  • Ensure that the rent you’re proposing to charge is competitive
  • Present the property to its best advantage – clean, dry, secure premises will be more of a draw to tenants than those which require high levels of investment at the outset of a lease
  • For residential properties you could consider short-term rentals or even becoming an Airbnb host
  • Rent your commercial property to a charity – not only will they gain a premises but they will also benefit from 80% business rates relief
  • If your premises are suitable, rent them to a Community Amateur Sports Club. They will also gain from 80% business rates relief
  • Occupy the premises yourself – use it to conduct business or simply for storage for at least six weeks and you’ll be able to claim a business rate rebate from the council

Of course the real secret to avoiding periods of vacant tenancy is to plan astutely in the run up to the end of a current tenant’s lease to avoid a lengthy and costly period of vacancy.

If you need assistance in finding suitable tenants, or want more advice about how to market your commercial property, speak to a member of our team.

 

Written by: Steven Jones on Monday 08/05/2017

 

Which UK areas are struggling to meet commercial property demand?

Which UK areas are struggling to meet commercial property demand?

 

The UK’s entrepreneurial spirit continues to flourish, with a remarkable 5.5 million businesses operating in 2016 throughout the country, over 99 per cent of which are SMEs. However, in some areas, the demand for commercial property outstrips the supply. We take a look at the areas where demand is high and what sectors are faring best.

Regional investment

The country’s regions are out-performing London in terms of transaction volume for the first time since 2013. In 2015, a total of £24 billion was invested in commercial property – the highest level on record. The reasons for this include an improvement in the UK economy as a whole last year, as well as rising occupier demand, mainly within the industrial and office markets. And while London remains a favourite with overseas investors, particularly within the prime market, the regions beyond the capital offer excellent investment opportunities. Manchester, Edinburgh, Leeds, Birmingham and Bristol are all performing well, both in terms of rent and availability.

Variations

Despite some of the major cities performing well, and meeting commercial property demand, others are failing to satisfy the needs of small and medium sized business owners.

Scotland in general, Edinburgh notwithstanding, has seen a decline in demand during the third quarter of 2016, according to RICS, with at least 12% of prospective business owners failing to have their office needs met.

Away from the capital, data prepared by Oxford Economics reveals that office job growth forecasts were strongest in Nottingham and this is confirmed by RICS’ UK Commercial Property Market Survey – Q3 2016, which shows that office and industrial space in Nottingham remains in high demand, outstripping current supply.

The East Anglian market is also lacking in industrial commercial property, particularly in the mid-Cambridgeshire area, where many commercial property owners are converting their properties to residential, to capitalise on the demand for housing rather than commercial rentals.

The North East is reporting a continued shortage of quality accommodation, particularly among the office and industrial sectors and analysts predict a further shortfall in the future if commercial property values continue to plateau.

In the North West (excluding Manchester) commercial property activity is reduced, especially in the retail sector, where many high streets are suffering due to out-of-town retail parks and shopping centres, leading to a decrease in rents. Although some areas of the North West are seeing an increase in industrials.

The industrials sector in Northern Ireland is currently strong, driven by internal investment, as opposed to overseas’, while in Scotland, excluding Edinburgh, uncertainty surrounds commercial property in light of talk of a second independence referendum.

In the South East, the housing shortage has led to an increase in residential development to the detriment of commercial, leading to a decrease in the availability of commercial properties, particularly industrial units.

Throughout the South West demand for prime commercial space is still outstripping supply and has led to an increase in interest from investors keen to maximise their returns on scarce resources.

The West Midlands has seen strong demand for industrial units and retail premises which contrasts with a sluggish office market.

Yorkshire and Humberside’s rural prime office and industrial market is reported as being under-supplied, increasing rental costs accordingly. Whereas Hull, which will be the UK’s Capital of Culture 2017, is seeing increased interest in small retail units as well as seeing a potential boost by virtue of its status as a renewables hub.

Our quick snapshot of the state of the commercial property market yields mixed results throughout the country, with some areas reporting increased confidence and others sounding a note of pessimism.

If you’re interested in investing in commercial property or wish to rent in any location in the UK, talk to a member of our team. Our highly-qualified and -experienced advisors can offer you advice and information to enable you to make an informed choice about your purchasing or rental options.

 

Written by: John Padgett on Monday 08/05/2017

 

What are the regional differences in office affordability?

What are the regional differences in office affordability?

 

It’s estimated that over 6.3 million people in the UK work in offices – a growth of over 8.7% in the last five years. However, supply of Grade A office space throughout the UK is at its lowest since records began. We take a look at which areas are responding to rising demand and how much it’s likely to cost if you want to rent office space.

Birmingham

Prime rents in the UK’s second city have averaged out at £32.50 per square foot (psf) during the second half of 2016, an increase of 5% on the first six months of the year, with demand for office space levelling off slightly. The city centre has approximately 11% of its Grade A office space vacant at the moment although around 619,000 square foot of new Grade A space is expected to be delivered over the next few months.

Bristol

The lack of supply of Grade A office space in Bristol continues to pose a problem for tenants seeking quality accommodation, and record low vacancy levels mean that rents will continue to rise from their current yearly average of £28.50 psf, possibly topping £30 by the new year – some analysts expect them to rise to £33 psf by 2020.

Leeds

Tenants seeking prime office space in Leeds city centre have a good choice available and can expect to pay rents averaging £27.00 by the end of this year. Tenancy rates fell by 45% on the second half of 2015, reflecting national economic fluctuations and uncertainty, post-referendum. Leeds, however, represents good value-for-money for tenants seeking prime office accommodation, when compared to other areas.

London – West End

Grade A office accommodation in the West End of London stayed at its record high of £115.00 psf despite a rising level of vacancies.

London – City

Prime rent for Grade A offices in the City rose by over 7% during 2016 and are now at £70.00 psf.

London – Docklands

Docklands remains attractive to tenants thanks to the quality of the accommodation and attractively-priced rents (£39.00 psf).

Manchester

With demand for Grade A offices in Manchester far outstripping supply it is anticipated that today’s rental of £35 psf will be surpassed by 2019 when it is expected to reach £40 psf. Investment activity remains high in the city and a number of new developments are in the pipeline.

If you need advice about sourcing office space anywhere in the UK, talk to a member of our team. We can help you in your search for the ideal location.

 

Written by: Anthony Spencer on Tuesday 02/05/2017

 

Why Buy-to-Let landlords are setting up as limited companies to avoid tax rises

Why Buy-to-Let landlords are setting up as limited companies to avoid tax rises

 

April 2017 sees the introduction of changes to the tax system for Buy-to-Let (BtL) landlords. In the light of these changes some are setting up limited companies in which to hold their property portfolio. We examine why they are doing this and whether it’s right for everyone.

What do the changes mean?

In 2015 the then Chancellor of the Exchequer, George Osborne, announced in his budget that he would be capping tax relief on BtL mortgages. His reasoning was that landlords who had built a property empire prevented first time buyers from getting on the ladder, exacerbating the housing crisis facing the UK.

The results of these changes, which will be phased in over four years, mean that BtL landlords who have properties registered in their own name will not be able to claim back as much mortgage interest relief as they did previously. This will increase their tax bills significantly if they are in the 40% and 45% tax brackets. Instead of being able to claim back 40% or 45% of the costs on their mortgage interest, they will, from April, only be able to claim back 20%.

Why set up a company?

If a landlord structures their property portfolio as a limited company, it will be exempt from this forthcoming cap and they will only be required to pay corporation tax on the company’s profits – currently corporation tax is at 20% but is due to fall to 18% by 2020.

Increasing numbers of BtL landlords are selling their property portfolios to companies which they have set up specifically in order to avoid paying the higher rate of tax.

The advantages of such vehicles include being able to claim the running costs of the BtL investments as ‘allowable expenses’ – offsetting the costs of any mortgage payments, wear and tear on the property, maintenance costs, letting fees and more.

Would you benefit?

A limited company in which to hold your commercial property may seem like a good idea but there are associated costs involved which may deter some people. Most notable of these is the possibility of paying capital gains tax on the sale if the value of the property has risen since its original purchase. This can range from 18% for a basic rate tax payer or 28% for a higher rate tax payer.

Stamp duty may also be payable on the purchase of the property by the company – since April 2016 this has also attracted a 3% surcharge on BtL purchases.

In addition, since the property has changed ownership from a person to a company, the terms of any mortgage will have changed too. This can mean that the company may face an early repayment charge, a fee for remortgaging as well as legal and valuation fees.

A limited company as a vehicle for your commercial property portfolio may work for you but will depend on your individual tax circumstances. It is vital that you seek professional advice before committing to such a process. If you need specialist accounting or tax advice talk to a member of our team.

 

Written by: John Padgett on Tuesday 11/04/2017

 

The dangers of leaving scaffolding and construction sites exposed

The dangers of leaving scaffolding and construction sites exposed

 

It’s estimated that theft from and vandalism to construction sites costs over £1 million every day in the UK. If you’re involved in development or redevelopment, here are the things you need to know about keeping your site safe and secure.

Construction sites are a magnet for thieves. Not only are most of these sites not sufficiently secured, but the rich pickings of plant, machinery and equipment more than compensates for the slight risk the robbers run. However, theft is just one side of the story of an insufficiently-secured site. Vandalism, squatting and petty crime can also occur through lax security, and the risk of someone getting injured or even killed is very high indeed.

The law is extremely clear about your responsibility to protect both those working on a construction site, and members of the public. Under Section 3 of the Health and Safety at Work Act, the three major issues involved are site access management, risk of hazards to the public, and protection of vulnerable groups – in particular elderly people and children. Tragically, each year, two or three children die because the access to a construction site was not secure enough.

Correct site management includes restricting access with the use of correct boundaries and strict authorisation, in order to prevent risks from falling objects, vehicles, strikes from scaffolding poles, insecure material stacking, openings and excavations, as well as the usual slips, trips and falls. In addition, it is vital that the site is properly secured at the end of the day, with the entrance to any excavations or pits closed off through barriers or otherwise covered. Vehicles should be isolated and immobilised, materials stored to prevent toppling, ladders removed and hazardous substances locked away.

Some multinational companies have the resources to hire overnight and weekend security guards. However, this can be prohibitively expensive for owners or developers of commercial property who are operating on a relatively small-to-medium scale. If you have an empty commercial property which may be at risk of vandalism, arson or theft, or if you’re currently in the middle of a refurbishment or construction project, you need a more low-key, cost-effective, site-specific solution.

One solution is to consider having a high-tech remote security system fitted, such as RemoteZone, which both protects the property and its contents and deters unwanted visitors. Using wireless Passive Infrared (PIR) detectors to link to a secure control box, RemoteZone can be controlled via your smartphone, laptop or device to provide instant access to information about security breaches, even on multiple construction sites.

For more information about how you can protect both your property and vulnerable members of the public, talk to a member of our team and ask about RemoteZone. Don’t leave site security to chance.

 

Written by: Charlotte Peel on Wednesday 22/03/2017

 

The EPC changes for commercial properties and what landlords need to know

The EPC changes for commercial properties and what landlords need to know

 

From 1 April 2018 the regulations regarding Energy Performance Certificates (EPC) for commercial property are changing. We take a look at what those changes involve and what implications they have for commercial landlords.

Proposed changes by the government’s Department of Energy and Climate Change, mean that up to one-third of commercial properties may not be able to be rented out after April 2018, if they do not make changes to reach minimum energy efficiency standards.

What do the EPC changes mean?

Currently, EPCs rate how energy-efficient a building is, from A (the most efficient) to G (the least efficient). However, from April 2018, it will be unlawful for a landlord to let a commercial property with an F or G EPC rating, unless there is a valid exemption.

These proposals are in response to government efforts to meet its carbon reduction targets – the built environment being one of the major contributors to greenhouse gases and thus to global climate change. In 2015 Minimum Energy Efficiency Standards (MEES) were introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and were designed to tackle energy efficiency within older buildings. Building regulations now ensure developers and builders construct both domestic and commercial properties which meet stringent energy efficiency requirements.

From April 2018

From this date, landlords wishing to rent out a commercial property or renew a lease must ensure that the building has an EPC rating higher than ‘E’. This has the potential to severely impact landlords whose property is not newly built and does not meet current building requirements. For example, the government’s own data suggests that 35% of non-residential properties which were EPC surveyed in 2015 achieved only an E, F or G rating indicating that many landlords could be affected by these new regulations.

Exemptions

There are, of course, exemptions to the new rules. These include listed buildings, temporary structures, industrial sites or workshops, and detached buildings with a floor space of less than 50m sq. Some vacant properties and buildings which are due for demolition are also exempt.

Penalties

If you fail to bring your property in line with the new EPC regulations, your local authority can serve a compliance notice on you requesting that you inform them of the steps you are taking to remedy the situation. If the information is not forthcoming, the Local Authority may serve a penalty notice of up to £5,000.

What steps you need to take

If you think your commercial property may contravene these new guidelines you should obtain an accurate EPC rating from a qualified and accredited energy assessor. If the results show that your commercial property has a rating of F or G, you should take steps to make it more energy efficient (simple changes like energy efficient light bulbs can make a real difference) before April 2018. Not only will this help with future EPC ratings, but the changes will have a positive incentive for new tenants to occupy the property, as well as saving money, and ultimately the planet.

For more information about the proposed changes, how they will affect your commercial property and how to obtain an EPC rating, talk to a member of our team. Our experts can offer you advice on the best course of action to take in your specific circumstances.

 

Written by: Ian Harrington on Monday 06/03/2017