What does the Market Rent Only option mean for pub tenants?

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What does the Market Rent Only option mean for pub tenants?

 

Around 12,000 pub tenants in England and Wales are ‘tied’ to their landlords. Under legislation announced last July, the government says that they no longer have to be. We take a look at the Market Rent Only (MRO) option and what it means for tenants.

Background

The tenants of tied public houses were formerly required to buy the majority of the beer they served from a particular pub company or brewery. They were also under an obligation to pay the rent which the pub company demanded, regardless of the level of income the pub provided.

As part of a new code of practice, which was introduced in July of 2016, tenants in England and Wales now have new rights and levels of protection which enable them to take advantage of information about any tied deals on a prospective pub, as well as the ability to move to a ‘free-of-tie’ tenancy and a fair assessment of their rent.

Pubs Code Adjudicator

Six pub companies own around 500 tied pubs in England and Wales – these are the pubs which will be affected by the new code. The government has appointed Paul Newby as the country’s first Pubs Code Adjudicator in an effort to improve the relationships between the chains and their tenants in order to assist the latter in getting a fair deal in both their supplies and their accommodation.

Under the new code, tenants have the right to opt for an MRO, effectively ending the ties with the breweries, and request an MRO option when their leases are up for renewal or the rent is to be reviewed. The current ‘benefits’ for tenants are that they pay lower-than-market rents (dry rent) but pay a premium to their suppliers for the products they sell (wet rent). Critics of this system argue that tenants are paying a disproportionately large amount of wet rent which may not offset the amount they save on the dry rent they pay, and that if rents were reflected in the open market, they would actually be saving money.

Trigger points

Tenants whose rent review or lease renewal falls after the introduction of the code can now request an MRO option – this is known as the trigger point. However, it is not retrospective and those tenants whose review/renewal came before July 2016 will not be eligible to apply until the next review/renewal. Similarly, tenants of landlords who own less than 500 pubs will not be eligible to request an MRO although this is being considered as an option for the future.

The purpose of introducing the MRO option is to align pub tenants’ right to those of ‘traditional commercial tenants and remove the interference from landlords about how their business can be conducted. The landlord’s responsibility for insuring the building remains unchanged.

The government have brought in these changes in order to halt the closure of many pubs over recent years – an impact that has repercussions on the immediate community as well as on the wider economy.

If you’re a tenant of a pub and would like clarification on the new code, or are seeking to opt for an MRO, speak to one of our team. Our independent, specialist chartered surveyors can offer you guidance and support in all aspects of this matter.

 

Written by: Paul Gagan on Tuesday 08/11/2016

 

Commercial Property – Landlords Need to Prepare

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Commercial Property – Landlords Need to Prepare

 

A particular concern is the volume of older style industrial units and warehouse buildings which often have an F or G rating.

Steve Hawkins of Barker Storey Matthews now part of Eddisons , Peterborough office, comments ”Landlords really need to get hold of the situation sooner rather than later. It may be the case that leases extend beyond the deadline date, but the problem will not go away.

“It is more than likely that tenant responsibility under a lease will not extend to energy improvements, so landlords need to account for this work – and the associated costs – when the building is vacated and put back on the market to let or sell.

“At first, it may seem a rather daunting task, but I have seen one example where a simple solution of installing de-stratification fans in a warehouse building in Peterborough significantly improved the energy rating.”

Improve Energy Efficiency

Other relatively low-cost solutions to improving office buildings include replacing light fittings with LED units. The price of these fittings has come down drastically in the last few years, making this a feasible solution for many landlords.

Hawkins added “Part of a refurbishment in one Peterborough office building involved an ingoing tenant requesting LED fittings as an extra fit out. The cost of the fittings over the standard price was covered within 18 months of running the building. It goes without saying that if the cost of the fittings has now come down to match the standard lighting, it makes sense to improve the energy rating of the building as well as reducing the running costs.”

Other energy improvement solutions for industrial buildings include overlaying and insulation of roofs and replacing heating systems. Older buildings may benefit from replacement windows, too. However, larger projects may need more project management and cost control skills in order to achieve energy efficiency by the April 2018 deadline.

The Barker Storey Matthews now part of Eddisons Building Surveying department (based in Peterborough) can provide comprehensive advice and an initial consultation prior to any formal commitment.

Contact David Park or Ian Beesley on 01733 233445 today.

Infographic: The Rise of Luxury Student Accommodation

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Infographic: The Rise of Luxury Student Accommodation

A month on from Freshers’ Week frolicking, students at universities up and down the country are now settling down after the initial whirlwind of new friends, a new city, and a new place to call home. But what exactly does this new home consist of?

Ian Harrington, building surveyor and fit out specialist at Eddisons, says; “Student accommodation is not ‘one size fits all’. There is now a wider choice than ever before when students choose their term-time accommodation; from traditional university owned cluster flats, to luxury city centre studios, however each of these comes with its own (potentially high) price tag.”

Eddisons have looked into what today’s students can expect from their accommodation. We consider what factors are deemed important when choosing accommodation, and how much the average student can expect to pay for the privilege.

From The Young Ones to the more fortunate ones, we present the current state of university accommodation and the range of students catered for. It seems there’s been a shift from digs to bigwigs…

Written by: Ian Harrington on Wednesday 26/10/2016

Barker Storey Matthews, Peterborough: The Challenges Faced by Smaller Companies When Acquiring Commercial Property

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This week, Cameron Park, based in the Barker Storey Matthews now part of Eddisons Peterborough office, discusses the challenges faced by businesses that are looking to acquire new commercial property.

Barker Storey Matthews now part of Eddisons, Peterborough: The Challenges Faced by Smaller Companies When Acquiring Commercial Property

 

The BBC has recently reported that smaller companies here in the UK are not receiving the funding required to grow to a global size.

Funding has, for some time, been an issue within the UK as many investors look to dispose of their share of a business well before it can grow to the size of a Google or an Uber.

It has been suggested that one of the main reasons for this is that tax breaks available to investors are only a benefit if the investor exits when the company is smaller. Investors are essentially incentivised to exit from an investment earlier than they would do if they were based elsewhere around the globe.

This highlighted to me one of the many challenges that small businesses face in modern times. Acquiring commercial property is another example of these challenges and can be a stressful process throughout. This is especially true in a buoyant market where availability is low and prices and rents are rising.

Inexperience
Many occupiers rely solely on themselves or one of their colleagues/employees to acquire commercial property on behalf of the company. This usually involves someone who has limited experience in identifying the type of property that is required – which can result in a number of issues being missed.

If the wrong type of property is sought then the company could not only acquire a property that does not suit their requirements but they could also be faced with a liability they are unable to dispose of, especially if they pay too much or commit to unattractive lease terms.

Seek Advice

The solution is to take advice from a commercial property professional / chartered surveyors , ideally before the search for a new premises starts. They will be able to advise on the nature of the property that will be most suitable for the business as well as lease terms which reflect a company’s specific operational requirements.

As an example, if the company is growing, flexibility needs to be built into the lease agreement to account for expanding operations and needs.

Other pitfalls associated with occupying commercial property could be missed if advice is not taken on such things as lease break clauses, rent free periods or other inducements, schedules of condition to avoid substantial dilapidations, liabilities at lease expiry, etc. Good advice is never expensive, and the rewards of speaking with a professional prior to this process will far outweigh the expense incurred should your acquisition of property go wrong.

For further advice regarding the acquisition of commercial property, please contact one of the agency teams at any of our four offices (Peterborough, Huntingdon, Cambridge and Bury St. Edmunds).

We are able to advise on all property matters across these locations and the surrounding areas. Alternatively, give us a call here at BSM Peterborough on 01733 897722.

Rent Reviews Why Should You Use A Chartered Surveyor

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Rent Reviews are typically found in commercial leases typically for industrial and warehouse units, office buildings and retail premises as well as leisure and other peripheral property types.

Rent Reviews Why Should You Use A Chartered Surveyor

 

Landlords want to see rents keeping up with market values during the terms of a lease and in many cases rents are often reviewed at 3 or 5 year intervals, although there is no hard and fast rule as to when a rent review should take place. Generally the review periods are often agreed between the parties at lease commencement.

The Rent Review clause in the lease will define how the new rent is to be calculated, and will set out the assumptions (length of lease, use, state of repair etc.) and disregards (goodwill, tenants improvements etc.) that are to be made. The assumptions and disregards that are to be made are generally similar across most commercial leases, however slight variations can have a significant impact on the rent calculation.

Whilst most rents are reviewed to a Market Rent which is assessed by reference to comparable transactions, other rents can be reviewed to pre-agreed fixed amounts, or by reference to RPI (Retail Price Index).

The majority of Rent Review clauses require the rent to be reviewed on an upward only basis i.e the new rent is to be the higher of the Market Rent or the rent passing immediately before the review date, however it is possible (where the tenant has managed to negotiate it at lease commencement) for rents to be reviewed on an upward or downward basis, although this is often strongly opposed by Landlords (except during weaker market conditions where tenants hold a stronger negotiating position).

A question Barker Storey Matthews now part of Eddisons are often asked is ‘How can a Landlord serve a rent review notice increasing the rent from a review date that was years ago?’ The short answer is that, unless the lease states to the contrary, there is usually no time limit for a rent review notice to be served, meaning that even if a rent review date was 4 years previous to the date notice was served, the rent review is still valid and capable of being negotiated. In these instances it is particularly important to seek advice from a Chartered Surveyor. Barker Storey Matthews now part of Eddisons keep a comprehensive database of transactions which can be referred to in order to support a case (on behalf of Landlords or Tenants) in such instances.

A word of warning – some rent review clauses state that ‘time is of the essence’, and will set out an explicit timetable for the service of rent review notice and the requirements for the Tenant’s response. Where a lease states that time is of the essence, it is vitally important that both Landlords and Tenants ensure any timescales defined in the review clause are met. Barker Storey Matthews now part of Eddisons are happy to review leases and provide further advice on this point if required.

It is often the case that Landlords and Tenants alike believe they do not require a Chartered Surveyors assistance to agree a Rent Review, but all too often we come across situations where Landlords or Tenants have been financially disadvantaged as a result of not seeking professional advice at the appropriate time.

For Landlords, a well negotiated Rent Review can result in an uplifted rent, which in addition to improving the cash flow that is received from an asset, can in turn have a positive impact on the capital value of the property.

For Tenants, a poorly negotiated Rent Review can have a detrimental impact on the performance of the business resulting in increased overheads, and can also have a knock-on effect on the Business Rates payable on the property as the Valuation Office will have regard to the rent being paid under a lease at the point of assessing the rateable value of a property.

Contact one of Barker Storey Matthews now part of Eddisons specialist rent review surveyors to discuss your requirements or for an informal discussion: http://www.bsm.uk.com/rent-reviews-lease-renewals-arbitrations/

Ways to create better workspaces

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Ways to create better workspaces

 

It’s common knowledge that a well-designed and effectively-planned workspace enhances work quality, improves well-being amongst staff, and increases productivity. If your workspace is in need of an overhaul, or if you’ve outgrown it, you might be tempted to search for bigger and better premises. But did you know that there are a number of extremely cost-effective ways to improve what you already have, without the hassle of moving? We take a look at how you can achieve it.

Before you begin

It can be hard to evaluate a workspace when it’s busy and thriving but overcrowded and inefficient. Find a time when employees aren’t there and try to view your premises objectively. Could a lick of paint and a rearrangement of the floor space be enough? If you need more floor area, do you have the capacity to expand? What is your budget for the work you’re considering and could it work harder for you?

Of course, you could do the work yourself, hiring in sub-contractors to build, decorate or generally renovate but, when you’re running a business full time, it can be difficult to justify spending the time on planning the project and implementing it. It can also be hard to see past what’s already there and to imagine the changes which need to be made. This is where you should seek the assistance of independent experts who can see the space with fresh eyes and offer solutions to your problems.

Things they may suggest include:

Extend and expand

If shortage of space is your problem, and you have the potential to expand, it can be considerably cheaper to create more room, rather than moving premises. A good building surveyor will be able to advise you on how to maximise your floor space through additional building work, can assist you in applying for planning permission, and even suggest reputable contractors who can do the work for you.

Better lighting

Studies have shown that poor lighting in an office, warehouse or factory can result in eyestrain, headaches, fatigue and even depression amongst workers. It certainly reduces productivity, and Health and Safety legislation makes ‘suitable and sufficient’ lighting a requirement for safe working conditions. Good lighting is one of the most important elements to consider when planning refurbishments or new building works, and if you can’t get as much natural light into the building as you’d like, think about high-performance, low-energy lighting which will not only increase productivity but also save you money.

Temperature

Having a workspace at the wrong temperature not only reduces productivity but can also lead to illness and absenteeism among your workers and increase the number of errors they make. Getting it right, therefore, is vital. The optimum temperature for an office, for example, is between 21-23°C (70-73°F), so it’s important to have a modern, efficient heating and ventilation system installed.

Noise levels

Open plan offices without adequate acoustics can lead to a 66% drop in productivity, as well as increase stress levels, and absenteeism. In fact, the EU estimates that £34 billion is lost each year due to excessive and unwanted noise in the workplace. Acoustic ceilings, flooring and wall panels can be highly-effective in reducing ambient noise levels and increase efficiency as well as workers’ well-being.

So, before you move, think about how you can improve! Our Building Project and Consultancy team can offer you creative and cost-effective ideas for enhancing your workspace, whatever your budget. Get in touch today for advice and information about your commercial or industrial project.

 

Written by: Ian Harrington on Thursday 08/09/2016

 

 

Five key elements of Health & Safety Compliance when surveying a building

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Five key elements of Health & Safety Compliance when surveying a building

 

Compliance with health & safety legislation is vital to ensure a safe workplace. If you’re a commercial landlord or a prospective tenant, you may be surprised to learn that your building surveyor will be putting health & safety issues at the top of their survey checklist. We take a look at the five most important elements they’ll be on the lookout for.

Fire risks

We all know that fire kills but there are some simple steps to help prevent fires starting. Building surveyors will be looking to conduct a Fire Risk Assessment which will firstly identify the potential for a fire to occur and secondly the scale of the consequences of such a fire. The surveyor will look for what preventative measures you have in place in your commercial building which can reduce the risk of fires starting in the first instance. This will comprise identifying fire hazards and anyone at risk, identifying whether fire alarm systems are in place and establishing whether signage is adequate.

Public health

A natural, fibrous rock asbestos was formerly widely used to insulate and fire-proof buildings. In 1999 it was banned after links were established between it and potentially fatal lung diseases. Surveyors must pay particular attention to the suspected presence of asbestos in older buildings due to the serious nature of the threat it poses when inhaled, particularly during removal. Its presence may also have implications for the insurance of commercial buildings.

A building surveyor will also be on the lookout for the potential for Legionnaire’s Disease – a lung infection which is spread through water droplets in air conditioning systems. Of particular concern will be any cooling towers or evaporative condensers, dry/wet cooling systems, and hot and cold water systems.

Energy conservation

It is estimated that commercial premises in the UK are responsible for 10% of the greenhouse gases our country emits. This is not only bad for the planet, but bad for commercial landlords’ and tenants’ bottom line too – there is thought to be the potential to collectively save up to £1.6 billion annually with energy efficient practices. A surveyor will note if a building has sufficient wall and roof insulation, whether the windows are energy efficient and whether the space is adequately air tight, in order to assist in the choices landlords and tenants can make.

Accessibility

The Equality Act 2010 set out the rights of people with disabilities, which include the provision for equal access in places such as shops and cafés, and when renting land and property. Employers are required to make ‘reasonable adjustments’ to ensure that disabled people can access the same services as non-disabled people. Of particular interest to commercial building surveyors will be the provision of access into a building, whether there is specific car parking allocation for disabled people, if the floor surface is suitable, whether there are ramps or handrails, if doors are wide enough to accommodate a person in a wheelchair, etc.

Gas and electric

Whether you’re investing in commercial property directly or are leasing premises from a landlord, the safe and efficient provision of a gas and/or electric supply will be fundamental to your business. A surveyor will, therefore, establish whether such services are provided to the premises.

The professional body for commercial building surveyors, RICS (The Royal Institution of Chartered Surveyors) takes Health & Safety very seriously, both for its members and for the customers they serve. The rules and regulations are there to ensure the safety and well-being of everyone who deals with commercial property, in whatever respect. If you need guidance or advice on any aspect of a commercial building survey, get in touch with one of our professional and highly-qualified RICS members.

 

Written by: Joseph Fitzsimmons on Wednesday 03/08/2016

 

What is a chattel mortgage over machinery, plant and equipment?

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What is a chattel mortgage over machinery, plant and equipment?

 

In Shakespeare’s The Taming of the Shrew, Kate is described by Petruchio as “my goods, my chattels”. These days, thanks to the Married Women’s Property Acts (1870, 1882 and 1893) women are no longer regarded as property, but how can this archaic word assist business people in the 21st century. We find out more about chattel mortgages.

What is a chattel?

Chattels are defined as items of personal property which are movable and are distinct from items such as land or buildings. In a business context, this definition might include goods, furniture and other items which are capable of being moved, as well as fixtures, plant, equipment and trade machinery.

What is a chattel mortgage?

Chattel mortgages are loans which are secured by the goods themselves rather than by property, as in a traditional mortgage. In a chattel mortgage, the lender holds a ‘lien’ which enshrines their legal right to sell the items if the debtor defaults. The lien holder is the organisation which provides the loan and, at the end of the loan period, when the amount is paid in full, the lien is released.

Businesses may make use of chattel mortgages to take out a loan, for example on new machinery or commercial properties, using other chattels as security. This would allow the business owner to use the machinery or property without the added burden of a lien.

For the lender, a chattel mortgage is advantageous because, in the case of the loanee defaulting, the goods under the lien may be seized and used to pay off the debt.

Why consider a chattel mortgage?

Chattel mortgages may be considered a business transaction and, therefore, depreciation and other tax efficiencies may be claimed by taking one out. In addition, the interest rate may be lower than on an unsecured loan, saving your business money and assisting with cash flow.

If you’d like more information about a chattel mortgage and whether one is suitable for your business, talk to a member of our team. Our experts can offer you advice and information about what the best course of action is for you.

 

Written by: Tony Hirst on Tuesday 26/07/2016

 

How are business rates calculated on a new commercial property?

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How are business rates calculated on a new commercial property?

 

Business rates are the financial contributions made by occupiers of non-domestic properties towards the essential services and facilities provided by local council to their residents. We take a look at how business rates are calculated on all commercial properties.

What are business rates?

Until March 2013, the money received from non-domestic rates was pooled at a national level and then redistributed by the government, depending on the size of the adult population of the area. Under legislation in 2013, local councils were authorised to retain around half the business rates collected in their area, but received less in direct government assistance. This was done to incentivise the councils to improve their local economies. The collected money is re-allocated by central government to local authorities directly, through a grant system. It is central government, not councils, who set the amount of business rate which is paid.

How are business rates calculated?

All properties have a ‘rateable value’. This figure is set by the Valuation Office Agency (VOA) and represents the rental value which a commercial property would have on the open market at a given date. The next revaluation of business rates in this country will take place in 2017 and will reflect the state of the economy as of April 2015 among many other factors to establish how much business rates will rise by.

To estimate how much a tenant of a new commercial property would have to pay in business rates they would have to search for their property on the VOA’s website by postcode. This will give them the rateable value of the property in question. This figure is then multiplied by a ‘multiplier’ – the number of pence per pound that they will have to pay in business rates subject to transitional relief.

Currently the multipliers are 49.7p for Standard businesses and 48.4p for Small businesses. (Businesses which have a rateable value of under £18,000 per year are classed as Small businesses.) This figure will give them the amount they must pay in business rates before any deductions for relief.

Relief

From next year, businesses which occupy a single property with a rateable value of £12,000 or less will pay nothing in business rates. This should be an automatic process via the local council but in some circumstances tenants will have to apply for it. The government expects that currently 60,000 businesses pay no business rates because of this exemption. There is also what’s called ‘tapered’ relief on properties whose business rates are up to £15,000.

Queries

The VOA has a free help service through which tenants can query the rateable value of the properties they occupy. Details can be found on their website. The Royal Institution of Chartered Surveyors (RICS) also offers advice through their qualified Ratings Surveyors.

At Eddisons we offer advice and guidance on every aspect of business rates, from establishing how much you’ll pay to challenging a ratings decision. If you need more information on any aspect of business rates, contact a member of our team.

 

Written by: Craig Newton on Monday 25/07/2016

 

Understanding commercial rent review disputes and the Calderbank Offer

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Understanding commercial rent review disputes and the Calderbank Offer

 

In the course of commercial property letting, it is sometimes inevitable that a dispute may arise regarding the rent – either from the side of the landlord or the tenant. We examine the most famous rent dispute in an effort to understand how such disagreements can be resolved.

What is a Calderbank Offer?

A Calderbank Offer is an offer made ‘without prejudice, save as to costs’ in order to settle a dispute without incurring extra costs and the possibility of a full trial. The term stems from a divorce case in 1975 in which the judge decided that in a case of litigation, where the winning party has refused an earlier settlement, the losing party may present the details of the offer as evidence towards costs.

The implications this has in commercial property rent disputes are that if the winner of such a dispute is awarded less costs than was previously offered, the losing party may be able to pay a reduced amount of costs to the winning party.

How does this affect commercial property rent review disputes?

Rent reviews can be a bone of contention between landlord and tenant. They typically take place every three to five years – historically this period of time was seven or 14 years. However, with the shorter terms of modern commercial leases, usually between 10 and 15 years, rent reviews now occur more frequently.

The rent review clause in the lease will set out when the reviews will take place and how the new figure will be arrived at, what procedure will be followed and how any disputes, if any, will be dealt with. The most common method of recalculating a commercial rent is revaluation in the open market.

The Royal Institution of Chartered Surveyors (RICS) publishes a voluntary Code for Leasing Business Premises in England and Wales which aims to promote the values of fairness and negotiating commercial leases on the basis of informed choices, for both landlords and tenants.

The review will be based on the open market value of similar properties, on similar leases, in the local area. In some cases, the lease will stipulate that the rent will be increased, ‘upwards only’ which allows the landlord to increase it by the agreed amount. However, if, during the course of his or her research, the tenant discovers that the local market value is actually lower than the increase being asked for by the landlord, negotiations may take place.

This is where the Calderbank offer is of particular relevance to commercial property. If, during the course of negotiations, a tenant makes the landlord an offer of a reduced rent via a negotiator (usually an independent surveyor), in line with local market values and this is at first refused but then later accepted by the landlord, the tenant can use the first refusal both to argue their case and to claim any subsequent costs.

Commercial rent reviews can be fraught with difficulties and create an atmosphere of anxiety and disharmony between landlord and tenant. In order to avoid such a scenario it is essential that before the tenant signs the lease it is professionally examined to ensure that the clauses are fair and reasonable for both parties.

For advice and information on any aspect of commercial rent reviews, either from the perspective of a tenant or a landlord, contact the Eddisons team. Our highly-qualified, independent RICS surveyors have extensive and current experience on a wide range of matters relating to what can be a thorny issue.

 

Written by: Steven Jones on Wednesday 13/07/2016