Are you looking for independent commercial property advice?

Occupiers everywhere are taking independent commercial property advice on how they can operate their business going forward and how their commercial property overhead fits into their business plan as the corona virus lockdown is eased by the U.K. Government.

The March quarter rents may have been paid or short term rental relief may have been agreed with the landlord. There are a lot of businesses that are “waiting to see” if the government protection from forfeiture for business tenancies (under s82 of the Coronavirus Act 2020) will be extended beyond the current end date of 30th June 2020 before deciding what to do next. Some landlords are also waiting to see how things progress over the coming weeks before committing to a particular course of action.

Government legislation (in terms of help with business rates and protection from forfeiture) may have helped many businesses but there are still a huge number of business occupiers with years left on their leases that feel that their “Pre-Covid” rents need to be reduced for their business to remain viable.

independent commercial property advice

What should businesses do?

The answer is to take lease advice on your commercial lease agreement from a specialist.

Irrespective of their current rent payment or arrears situation all business types are being asked to observe social distancing rules in the workplace and for their customers and visitors for the foreseeable future. This not only changes how businesses operate but it fundamentally changes the financial viability of a lot of businesses.

Rental payments that seemed to be at the right level at the beginning of 2020 may now seem unsustainable for a large number of U.K. commercial property occupiers. Properties that were historically fit for purpose may no longer be suitable and even if they are they may require significant physical changes to be compliant with government legislation.

This is an unprecedented situation for both landlords and tenants. This event is unlike the technology crash at the turn of the millennium and the financial crash of 2008. I worked in commercial property through both. People who say they know how this will turn out, how long it will last and when the property market will start to recover should be challenged. Everyone is struggling to see a clear path forward and no-one has a crystal ball.

What is clear is that this affects all businesses and is not limited to once sector. Office, Retail, Leisure and Industrial business tenants are all affected in one way or another and to varying extents and all should be getting lease advice.

Occupiers can’t be expected to have all of the answers and their time is best spent on what they do best – running their business. Landlords also have restrictions placed on them by lenders, shareholders and are also subject to financial constraints so cant be expected to shoulder all of the burden of this crisis themselves.

There are options however and all is not lost!!

Far from it in fact this firm is currently providing independent commercial property advice and assistance to businesses on a wide variety of solutions which includes:

  • Negotiating short and medium term rent concessions such as a full or partial deferral or abatement.
  • Negotiating landlords financial contributions towards tenant alterations or a tenant refit. Works may required to the business premises. These can be costly and securing a financial contribution from a landlord helps to ease the financial burden of the reconfiguration.
  • Negotiating the surrender of lease(s).
  • Navigating upcoming lease expiries to mitigate exit costs.
  • Ensuring that occupancy costs are minimised during 2020 to include Service charge, Business rates, Insurance and utilities.
  • Exercising or leveraging break options (you may have seen the recent RICS talk that I gave on this subject).
  • Partial or full lease disposal through a sublease, business sale or lease assignment.
  • Lease restructuring via a deed of variation, surrender and re-grant or through a reversionary lease.
  • Referral to insolvency specialists to advise on options such as administration, CVA, pre-pack agreements and liquidation.

It is worth pointing out that the number of commercial lease agreement restructuring scenarios available are vast, limited only by the parties imagination and the willingness of both the landlord and the tenant to find a “win win” solution to a shared problem.

The specific solution or solutions for you will depend on your business and we would seek to come to one ore more solution that aligns your property needs with your business plan.

Some of the options listed above can be pursued together initially with one or more dropping out as the situation changes ultimately leaving you with what becomes clear to you as the best option for your firm. For example you may progress down one route such as a controlled exit but decide to change track at a later date and pursue a lease regear. Alternatively on detailed investigation it may become clear that there are opportunities to leverage lease terms to your advantage in negotiations. Also there may be more than one solution to the problem. You may require a short term solution to see you through a set period of time with a further medium or long term solution also required to safeguard your business.

What ever your ultimate goal for obtaining workable solutions for your business it is imperative that you get lease advice and have a viable strategy and approach the landlord in a professional and co-ordinated and well thought out manner.

The scene is now set for landlords and tenants to engage in a meaningful, transparent and open dialogue.

Here are some tips for you or your advisor:

  • When asking for help with the rent, consider asking for help for an initial period (however long you feel you can reasonably justify) to be reviewed at the end of that period. This way you avoid tying yourself into a set timescale which may not be long enough to keep your business sustainable. Landlords generally want to retain good tenants and will be concerned about downward market rental movement on any reletting, void periods and empty properties.
  • Tell your landlord what you intend to do in return for their co-operation, even if it is just saying that you will keep the business solvent and start trading again as soon as it is safe to do so. Do you intend to make up any rental shortfall at a later date? Will you agree to add additional term on to the end of your lease? Are you looking for the landlord to simply forgo or credit the rent for a period of time? What the landlord is able and prepared to do to help you will depend on the landlord’s position.
  • With the above in mind, consider your landlords needs and their situation when deciding exactly what to ask for. Many Landlords have loans and need to pay their lenders. Is your landlord getting help from their bank or the government? Has this been in the press or have you heard from other occupiers that they are getting help? Government may start encouraging leading banks to provide payment holidays for particularly affected landlords and so this situation is fluid.
  • Consider your landlords position and what might work for them. Is your landlord a private individual that relies on cash income from rent each month to pay their own bills or are they a property company with high levels of borrowing or are they a local authority or pension fund facing shortfalls?

You will see from the above that there is a lot to consider and this is why we advocate getting independent commercial property advice from a suitable qualified and experienced professional and not trying to tackle this on your own.

In our opinion it is important to ensure that whoever you turn to for lease advice that you check the following:

  • They have a verifiable track record of delivering lease consultancy advice to occupiers.
  • They are a chartered surveyor with property market knowledge and have experience in negotiating rents, re-gears, rent reviews and lease renewals with landlords property agents. They will either have MRICS or FRICS after their name.
  • They are able to provide examples of the lease advice work they have done and references/testimonials from clients.
  • They don’t have a conflict of interest with your landlord(s) this is less likely if they mainly or only act for tenants or occupiers. Ask them if they have recently worked for your landlord or are expecting to work for them in the future.
  • They put their service offer in writing and provide you with a fixed fee or capped fee for working for you and don’t work solely on a “no win no fee basis” which can in our experience result in a less than optimal result for the occupier.
  • They are suitably qualified and have adequate levels of professional indemnity insurance.
  • They can work seamlessly alongside your commercial property solicitor to ensure that that any alteration to your commercial lease agreement is suitably documented.

The key message to take away from this article is that if you face financial difficulties as a result of coronavirus, you should obtain independent commercial property advice as early as possible and not just rely solely on your solicitor or your in house team to advise you. By acting early you will have the best opportunity to be able to implement the option or options that are best for your business in plenty of time.

RICS : Code for leasing business premises in England & Wales 2020

On the 11th May 2020 I presented an online seminar to 750 people on the new RICS Code for Leasing Business Premises.

This was a new experience for me talking to people from all over the world from behind a computer screen. There was no visual feedback mechanism and I just had to hope that my message was getting across. My message was simple “This code is good for landlords and tenants”.

As I explained in my talk I am in favour of this publication which contains mandatory provisions for the first time. I am in favour because my background was managing commercial property for and on behalf of major landlords and I have seen some of the difficulties that un-represented occupiers have found themselves in because they signed up a lease without fully understanding the implications of all of the clauses that they had signed up to. This code also benefits landlords and their agents because they will benefit from securing tenants that have fully considered the implications of signing a lease.

Some examples I have experienced: An unrepresented tenant that didn’t realise that VAT was payable on their rent and they couldn’t afford to pay the 20% extra each quarter. An unrepresented tenant that thought that they didn’t have to pay any Service charge or Insurance during their rent free period. An unrepresented tenant that didn’t realise that they had inherited the disrepair and maintenance obligations when they took on a full repairing and insuring lease of a dilapidated premises. These situations are of course bad for the tenants but also a major problem for landlords and their agents who may have to relet their premises at great cost if tenant such as these don’t work out .

One reason I set up McNeil Commercial was because I felt sorry for these occupiers and others who didn’t benefit from getting good independent advice from a RICS member before signing a lease.

I understand how much business owners put into running their own businesses. My family have all had their own businesses at one time or another, my grandfather had television shops in the 1970’s, my mother and uncle had their own businesses (various) which included a fish and chip shop, a general store and insurance brokerages and so I appreciate how difficult it is to run a business and that one thing businesses all hate is nasty surprises to do with their properties.

code for leasing business premises

This 1st edition code for leasing business premises was published on 1st February 2020 has the status of a professional statement. It is effective from 1st September 2020 and applies to lettings of premises in England and Wales to tenants who will carry on trade, professional or business activities. There are some exceptions to the code for example it doesn’t apply to agricultural lettings or to premises that will only be used for housing plant and equipment (such as electricity transformers or telecoms) or advertising media (such as advertising hoardings). It also doesn’t apply to premises that are intended to be 100% sublet by the tenant, or to premises being let for a period of less than six months.

Here are some of the mandatory requirements contained in the new RICS professional statement:

  • Negotiations over the lease must be approached in a constructive and collaborative manner.
  • A party that is not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of the code for leasing business premises and must be recommended to obtain professional advice.
  • The agreement as to the terms of the lease on vacant possession letting must be recorded in written heads of terms, stating that it is subject to contract and summarising as a minimum the position on each of the various constituent aspects contained in the professional statement.
  • At a lease renewal or extension, the heads of terms must comply with clause 1.3 of the code except for any terms that are stated to follow the tenant’s existing lease subject to reasonable modernisation.
  • Negotiations should aim to produce letting terms that achieve a fair balance between the parties having regard to their respective commercial interests.
  • The landlord, or its letting agent, will be responsible for ensuring that heads of terms complying with this provision are in place before the initial draft lease is circulated.

The remaining provisions of the lease code indicate what should be good practice. These cover matters that should be discussed between the parties and their agents in negotiations that lead to heads of terms and also matters that need to be covered by the parties solicitors to get the heads of terms into a final lease. Heads of terms are in my experience four or five pages long and even where the heads of terms are comprehensive in scope and detail there is still a lot of work for the solicitors to do to translate that basic agreement into a final lease which may be 50 pages or 150 pages or even longer.

The objective of this latest RICS publication is to improve the quality and fairness of negotiations on lease terms and to promote the issue of comprehensive heads of terms that should make the legal drafting process more efficient. Comprehensive heads of terms should result in the legal process progressing far more smoothly.

I have seem lots of examples of leasing transactions getting bogged down with solicitors because a tenant was unrepresented and basic matters were simply not discussed with the landlords agent prior to solicitors being instructed. Delays often result in solicitors fees being higher than anticipated and completion of the lease taking far longer than it should. Solicitors end up negotiating basic terms that should have been done by a tenant and landlord (or their agents) before the solicitors get involved. The new code, will in my opinion, help to prevent this from happening going forward and that is a good thing for both landlords and tenants.

Comprehensive heads of terms help to ensure that a prospective tenant knows what they are getting into. For example I was brought in to assist a business at a very late stage when they were in the process of taking on a lease of shop premises. The business owner said to the building owner that they were interested in taking a lease and the building owner landlord didn’t even provide them with heads of terms but instead sent them a 50 page lease and asked them to sign it!

No discussions had taken place between the parties (and neither were represented by RICS members) other than agreement about the lease length, the amount of rent payable and that the tenant was to get 3 months rent free. The business owner called me and asked me “to cast an eye over the lease to check everything was ok and above board”. Of course this call immediately rang alarm bells (as I have experienced this situation several times before) and I quickly explained the various onerous obligations and liabilities that the landlord was trying to offload onto the business owner via the proposed new lease. Once I explained what this meant for the business owner he quickly put the brakes on the transaction so that we could do proper due diligence about what he was about to sign up to before he instructed solicitors.

An important point to remember is that this new statement and code do not prescribe the outcome, but seek to make it fair and balanced by identifying the terms that are usually important and encouraging both parties to obtain advice from property professionals.

This enables negotiations to proceed properly so that each party can make an informed decision about whether to proceed on the terms that they negotiate. I say to my clients how do you know how much rent you are prepared to pay on a premises whether it is office, retail, industrial or leisure when you don’t know what the other lease terms are? I try and negotiate the rent as the last item i.e. after I have negotiated all of the other lease terms. The rent is a function of all of the other lease terms, it may be higher on a shorter or more flexible lease or lower on a lease that has more frequent rent reviews or where the tenant is being asked to do more in terms of maintenance or where other property occupancy costs are higher than normal.

The lease code and the accompanying template heads of terms and checklist should be used as a reminder for negotiations before the grant of a new lease and also at the time of any lease renewal. Both the template heads of terms and the checklist cover the minimum items that need to be discussed, considered and negotiated between a prospective tenant (or their agent) and the landlord (or their agent). They are designed to assist RICS members in ensuring that landlords, tenants and guarantors who they are advising have a clear understanding of the commitments that they are entering into.

As I say above I welcome the introduction of the new code which in my opinion will balance out negotiations and make the process smoother and more efficient and help to mitigate nasty surprises.

The above requirements represent a basic extract and summary from the document. A full copy of the code for leasing business premises can be found via this link on the RICS website: https://www.rics.org/globalassets/code-for-leasing_ps-version_feb-2020.pdf

Lease acquisition and lease consultancy are key services provided by McNeil Commercial Limited so get in touch by email : info@mcneilcommercial.co.uk or by phone 07914245609 if you have any questions about how we can help.

Occupier Tips Coronavirus 24th March

The UK government last night (23/03/2020) introduced measures to be included in the emergency Coronavirus Bill currently going through Parliament.

The bill is to ensure that commercial tenants who cannot pay their rent because of this pandemic will not be evicted for at least three months. Commercial tenants will still be liable for the rent after that period. The government is also “actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them”. Many commercial landlords are already setting a great example by working closely with tenants and offering rent deferrals or holidays. Communication with their landlords is key for occupiers at this time.

Here are some things to do:

  • Keep detailed records about how this global coronavirus emergency is affecting you and your business on a day by day basis. Specifically, with regard to property, you should record operational issues such as closing times, dates of different government actions and their impact, loss of trade, implications on staff, employees, customers, suppliers etc. etc.
  • Check your lease for a force majeure clause or a rent suspension provision. If there are none then the rent will generally be legally payable in accordance with the lease unless the Landlord agrees otherwise. Landlord remedies for non-payment of rent include statutory demand, issuing proceedings or CRAR. Forfeiture for non-payment of rent is off the table for the time being following last night’s announcement. HOWEVER, landlords have moral and ethical considerations, and those taking a strict legal stance against tenants that can’t pay the rent during this difficult time may come under public pressure.
  • Check your lease for keep open clauses, break options and whether conditions apply to any tenant option to break. Establish when your lease expiry date is and consider implications on notices.
  • Communicate often with your landlord and act fairly and reasonably.
  • Communicate with other occupiers that share the same landlord and find out what they are doing. Consider whether a joint approach is advisable.
  • Keep a detailed written record of all contact, conversations and correspondence with your landlord in case of a dispute.
  • Contact the Landlord and tell them specifically what you need to get you through this period. You might need a:
    • Rent deferral or holiday with the rent being paid back over a set period of time say two years.
    • Part rental payment for a specific period.
    • Rent free period with no payback.
    • Rent reduction to next lease event.
  • When asking for help with the rent, consider asking for this for an initial period (however long you feel you can reasonably justify) to be reviewed at the end of that period. This way you avoid tying yourself into a set timescale which may not be long enough to keep your business sustainable. Landlords generally want to retain good tenants and will be concerned about downward market rental movement on any reletting, void periods and empty properties.
  • Tell your landlord what you intend to do in return for their co-operation, even if it is just saying that you will keep the business solvent and start trading again as soon as it is safe to do so. Do you intend to make up any rental shortfall at a later date? Will you agree to add it on to the end of your lease? Are you looking for the landlord to simply forgo rent for a period of time? What you ask for will depend on your own business and its specific situation. What the landlord is able and prepared to do to help you will depend on the landlord’s position.
  • With the above in mind, consider your landlords needs and their situation during and after the coronavirus when deciding exactly what to ask for. Many Landlords have loans and need to pay their lenders. Is your landlord getting help from their bank or the government? Has this been in the press or have you heard from other occupiers that they are getting help? Government may start encouraging leading banks to provide payment holidays for particularly affected landlords and so this situation is fluid.
  • Consider your landlords position and what might work for them. Is your landlord a private individual that relies on cash income from rent each month to pay their own bills or are they a property company with high levels of borrowing or are they a local authority or pension fund facing shortfalls?
  • Consider an open book policy with the landlord showing all your sales/costs and how this coronavirus pandemic and government shutdown is affecting your business. Ask them to do the same.
  • Consider whether a lease re-gear is an appropriate option at this time and ask for outstanding rent reviews to be settled at a Nil increase.
  • Ensure that you don’t pay your local authority inadvertently by standing order or direct debit if your property is in the retail, hospitality and leisure sectors regardless of rateable value because business rates discount is 100% for 2020/2021.
  • Ensure that any agreement with your landlord is appropriately documented and seek your own commercial property legal advice in advance of finalising/agreeing.
  • Check all insurance policies and with your Insurance advisor for business interruption cover.  If premises are closed, ensure insurers’ requirements for empty premises are complied with.
  • Know your options when it comes to Insolvency and speak to a licenced insolvency practictioner for advice if you think that this may be an option for you.

Coronavirus