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 during the COVID-19 pandemic.

The quarterly 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 further 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 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 the solution should align 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.

Last updated 5th January 2021

Lease consultancy 10 killer tips: Commercial property for rent

We have been busy providing lease consultancy advice and assistance to businesses looking at commercial property for rent during the COVID-19 Pandemic. In the last quarter of 2020 we have negotiated terms and secured offices, industrial and retail properties for occupier clients in Bath and Bristol and share below some killer tips for getting a great deal.

bath city centre during COVID lease consultancy commercial property for rent
  1. Use a surveyor that has access to off market information and knowledge of market rents to prepare a shortlist of available options and negotiate comprehensive heads of terms on your behalf.
  2. Negotiate exit flexibility through tenant friendly alienation, break and business disruption clauses.
  3. Negotiate mitigating provisions for repairing, maintenance, decorating, reinstatement/dilapidation obligations.
  4. Negotiate mitigating/limiting provisions for occupancy costs, business rates, insurance, service charge and utility costs. 
  5. Negotiate a deposit payment with release provisions. (Avoid personal guarantees at all costs).
  6. Negotiate Landlord and Tenant 1954 Act protection.
  7. Negotiate landlords works, capital contributions and rent free provisions.
  8. Negotiate environmental/contamination liability exclusions and property energy efficiency matters. 
  9. Consider and mitigate for future potential legislation changes and for implications in terms of cost and impact on business.
  10. Use a surveyor to prepare a schedule of condition, pre-acquisition survey and a specialist to assisting with space planning and fit out.

These lease consultancy tips above are a great starting point when negotiating terms on a commercial property for rent whether that is an office, retail, industrial or leisure property.

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 of the new code 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. Primarily these problems were 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.

Latest update:15th December 2020

Commercial Property Service charge disputes-can you afford to ignore them?

Disputes with tenants over commercial property service charges are a headache that most landlords dread. These are all too often evident at this time of year, as new budgets are issued and reconciliations are prepared. However, service charge expert, Jamie McNeil, maintains that landlords benefit most from happy and speedy resolution of service charge disputes.

An unresolved dispute, no matter how minor, has the potential to seriously affect the operation and reputation of a Landlord. For example, opportunities to get empty units off your books may be lost if unresolved disputes mean you are unable to disclose accurate service charge information to a prospective tenant. 

It may also delay or affect your ability to sell a commercial property, as it cannot be truly “ready for sale” if service charge disputes exists, or historic service charge reconciliations have not been completed.

Tenants in dispute, withhold money as they wait for clarification of issues or resolution which often leads to cash flow problems for landlords. 

Perhaps most seriously, Landlords reputations can be irreparably damaged. Landlords who have lost the goodwill of one tenant may never do business with that tenant again. 

Most successful public-facing businesses understand the value of good service. If handled well, a disgruntled customer with a complaint can quickly become a loyal customer who recommends the brand to others.  Although acting in a B2B environment, there are good reasons for commercial property landlords to also adopt an equally proactive stance when dealing with disputes.

commercial property service charge disputes

In addition to helping avoid some of the potential problems mentioned above, transparency and speed in conflict resolution will enhance the confidence of your stakeholders and shareholders. It will also help ensure accurate property valuations and importantly in our current acutely competitive market, it will promote loyalty from tenants.

The benefits are good, the downside bad and achieving resolution is easier than perceived. So why are many companies bogged down in protracted service charge disputes with landlords? The answer is often that many landlords are simply unaware of the extent of the dispute until it has already dragged on for some time and caused problems.

Many commercial property landlords outsource property management to management agents. While many agents are proactive and responsive to disputes, not all are. Disputes can be time consuming and a hassle to deal with. For some agents, it is easier and more cost-effective to ignore complaints or drag the matter out in the hope of a change in circumstances that will see the matter get resolved by default. After all, it is not their reputation or bank balance at stake, and they can always claim they are waiting for instructions so why should they spend valuable hours on sorting out problems that might just go away in the end?

As a landlord, it is your responsibility to make sure your agent is acting in the way that you want them to. The introduction of frequent and strict service charge performance measures linked to the management fee is one way to ensure your managing agent gets the message. And although it will take a little bit of time and effort to ensure a smooth operation, the benefits it will bring are surely worth it.

Note to editors

Jamie McNeil is a Chartered Surveyor with 25 years’ experience advising the UK’s largest and most successful commercial property landlords. He has extensive experience in the setting up and running of service charges and dealing with service charge disputes. Jamie founded McNeil Commercial, to assist both landlords and tenants in relation to service charge matters.

Jamie McNeil

Director

McNeil Commercial Ltd, 7 Chelsea Road, Bath BA1 3PD

T  : 01225 427 267
M : 07914 245 609

E : info@mcneilcommercial.co.uk

W: www.mcneilcommercial.co.uk

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.

Last updated 15th December 2020

Coronavirus

Is the service charge percentage correct?

10 things a business occupier can do to check whether their share of the service charge is correct ( the service charge percentage ).

There are different methods that landlords use to split service costs between the various occupiers whether in a building, shopping centre or on an estate but the most common by far is the floor area basis.

busy shopping centre service charge percentage

This is where the share payable (by a unit or occupier) is calculated by dividing the floor area of a particular unit by the sum of the floor areas of all the lettable units to arrive at a service charge percentage share payable . 

Your lease will specify how the service costs are to be split by the landlord so check it to ensure that the landlord is allocating costs to your premises correctly. 

Check:

  1. The landlord is using the sum of all of the lettable parts (not just the sum of the units that are actually let). Check that they don’t miss any vacant units or lettable parts and if they do question it. Check the arithmetic.
  2. Income-generating activities are contributing a fair share towards the service costs that they benefit from. If not why not?
  3. The floor area figures used by the landlord against your own measurements and those of other occupiers for accuracy. The landlord should be able to substantiate his figures by providing a copy of a measured floor area survey (ideally completed by an independent third party specifically for service charge purposes). 
  4. That the landlord has not mixed methods of measurement for example that they are not mixing NIA and GIA floor areas.
  5. That the floor areas are up to date to take into consideration recent tenant alterations such as expansion of a particular unit.
  6. Whether your lease specifies a fixed or capped service charge percentage and whether the percentage can be varied.
  7. Whether there is more than one percentage in your lease. 
  8. Whether the Landlord should use different schedules. Is it appropriate for there to be several schedules and if so which service costs should be included within each schedule and which units should be picking up a share of each schedule?
  9. How has the landlord arrived at splits between schedules and are they fair reasonable and are calculated in accordance with the lease. (Where the landlord is using different schedules it is common, but not always correct, for the landlord, rather than the provider/ supplier, to manually split certain costs between these schedules).
  10.  Check if the landlord has used weighting and if weighting is appropriate. What weighting bands have been used and are they correct? Finally is weighting being applied correctly?

The above are some of the basics with regard to checking the service charge percentage or apportionment and the list is by no means exhaustive.

Further recommended reading:  

Service Charges in Commercial Property. 1st Edition available from the RICS :

https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/service-charges-in-commercial-property-1st-edition/

Written by:  Jamie McNeil Bsc Econ (Hons) Dip. Surv. MRICS. FCIArb.

Director at McNeil Commercial Limited www.mcneilcommercial.co.uk.

Date: 8th December 2020