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Vacant rates relief’s for business property changed in the Budget – what are the implications?

With effect from 1st April 2008, empty relief for industrial buildings will cease after 6 months and on offices full rates will be payable 3 months after they are vacated. For those paying business rates, this is a marked change, last attempted in the early 1970s. Some commentators believe that companies will need to increase provisions in their accounts for surplus property by up to 15%.

The main effect may relate to a shrinking in availability of larger properties. Developers will be reluctant to build large units that they cannot let quickly and so will tend towards smaller lot sizes or re-lets. Developers and owners may demolish or damage buildings which otherwise might be let on a short-term basis although there are initial signs that ‘constructive vandalism’ of this form may be controlled within the emerging legislation. With existing buildings, the move may drive down rents as occupiers seek to recover some costs, if they are able to sublet at lower than passing rent. Restrictions on subletting will become a more political issue as a result (see RICS Code of Leasing Premises in England and Wales).

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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What is the RICS Code of Leasing Premises in England and Wales? If landlords and tenants don’t use it what has the Government threatened to do?

The Code is the property industry’s guide to best practice when landlords and occupiers draw up leases. It is presently voluntary and is drafted with smaller businesses in mind. The trigger for the latest re-drafting was the finding by Reading University that the continuing lack of awareness of property issues among small businesses has been the reason why many occupiers have been unable to negotiate the most advantageous deals. The intention of the Lease Code is to ensure greater flexibility and transparency for occupiers and landlords alike. Model heads of terms are included for the first time.

The Government is believed to be looking at how the new Code is used in practice and if the take up is any greater than with previous Codes. One area where the Government has indicated it may act is on leases that restrict subleases to passing rather than market rent. This is less of an issue during buoyant markets, but can be a significant problem during any down turn. It is perhaps worth noting that it was a Conservative government that acted on privity of contract, and which introduced the 1954 Landlord and Tenant Act. So tenant friendly legislation can come from all sides of the political spectrum!

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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What is IAS37 and how does it affect me?

Historically, surplus property was considered only an operational cost. IAS (International Accounting Standard) 37 will force companies to explicitly account for surplus property in their balance sheet and make provision for such liabilities. FRS 12 and IAS 37 have run in parallel for some years, but the European Union has adopted IAS 37, giving member states the option to make it mandatory or voluntary. The UK has decided to make it voluntary with a move to it being mandatory in the next 5 – 8 years.

The need for explicit accounting may increase the gearing of a company and decrease its share price if there are additional liabilities. It is anticipated that the trend towards shorter leases with greater flexibility will continue. Other solutions include outsourcing non-core space requirements and more design flexibility so that space is used more efficiently. In addition, it is likely that greater emphasis will be given to property issues at board level.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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My factory was built in 1997, surely I don't need an Asbestos Survey?

Asbestos Containing Material (ACM) can to be found in some building products up to 1999.

ACM's are unlikely to be present in buildings erected immediately before this date because of industry awareness but a survey and report is still necessary.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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I do not employ disabled people; do I need to have a Disabled Access survey?

In general terms, the Disability Discrimination Act (DDA) requires that all occupiers have a Disabled Access Survey and the recommendations contained within will need to be actioned in order to facilitate Disabled Access to the occupier or their services.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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I bought my property on the open market for £1million, is this the amount I should be insuring it for?

No! The insurance Valuation for any building will need to reflect the current rebuilding cost in the event of a total loss. This cost has no direct relationship with the market value of a property. The rebuilding cost could be more or less than the market value.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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I have a Fire Certificate for my premises but have not had an inspection by the Fire Officer for some years. Can I just leave it at that?

Fire Certificates are no longer issued by Fire Officers and they will not now generally inspect. The onus is now on all property owners/employers to undertake a Fire Risk Assessment that deals with safeguarding life - means of escape, emergency lighting, fire alarms and fire fighting apparatus.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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Should I keep my building Fire Certificate now there are new Fire Regulations?

Yes – the changes to the Fire Regulations were to reduce red tape. The way this was done was to make those who own or occupy a property responsible for fire risk assessments and leave the Fire Brigade to putting out fires and dealing with fire prevention. In fact the Fire Brigade will now charge you for undertaking an assessment.

The duty for ensuring compliance with the law, is now placed on a ‘responsible person’ who might be the employer in a workplace, or the owner, occupier or manager of a building. This person will have to assess the risk of fire and take reasonable steps to reduce or remove them. This makes the whole process more proactive, which in fire safety terms is a good thing.

Having an old Fire Certificate and also carrying out the evacuation plans prepared under the old regulations will show that you are acting responsibly and therefore we believe certificates should be kept.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues

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I have a break clause in my lease. It also contains a covenant to give vacant possession. I am clearing the premises but I may not have time to get rid of everything before the break date. Can the landlord just clear out my rubbish and send me the bill?

No! A break clause in a lease that requires vacant possession means that the tenant needs to ensure that all possessions, fixtures and fittings and licensed alterations are removed from the premises by the break date. Licensed Alterations may remain by agreement with the Landlord but may be subjected to a dilapidations claim if not left in repair.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues

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My lease is coming to an end. Over the years I have improved the premises by adding office partitions, air conditioning and a canteen/restaurant facility for my staff. At the end of the lease will the landlord reimburse me for improving his premises?

No. The Landlord can ask for any alterations or additions to be removed and the resultant damage made good. A Tenant may be able to negotiate for desirable alterations to remain but it would be unlikely for compensation to be paid for these, and they will probably need to be handed over 'in repair'. A landlord or another tenant may not view what is perceived valuable by a previous tenant in quite the same way.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues

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I have a freehold building that is currently occupied but is about to become vacant. What actions should I be taking?

The following is not exhaustive but gives an idea of the issues that need to be considered:

• Have a plan for the shut down and to indicate how the site will be managed whilst vacant and who is responsible.
• Make sure that the building’s insurers are notified and a routine inspection plan is put in place.
• Have nominated key-holders and seek the advice of the Police and Fire Brigade.
• Do a risk assessment for the building and those getting access to it both lawfully or by trespass
• Secure the buildings and consider demolition if they do not add value to the land.
• Protect the site against fly-tipping and gypsy encampment.
• Remove all refuse, flammable material and unnecessary furniture or furnishings from the building and site
• Consider retaining and maintaining sprinkler systems, automatic fire protection systems, fire hoses and burglar alarm systems if already in place in conjunction with your insurers.
• If water supply is kept ensure frost protection
• Secure all boundaries effectively.
• Consider on-site security
• Take appropriate action on any tanks, sumps, pits, transformers or asbestos containing materials

For further information on this subject we have adapted the LPC Vacant Premises Checklist

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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What is Energy Certification and what are its implications?

Following the issue of an EU directive, the UK government plan a requirement that Energy Performance Certificates are produced for new buildings by 1st January 2008 and all buildings upon sale or rent at some stage during 2008 (1st October 2007 for domestic buildings). Indications are that ultimately all buildings will be required to display Energy Performance Certificates.

These EPC’s will rate the energy performance of a building in much the same way as electrical goods such as fridges and freezers are now.

As energy consumption and efficiency progressively becomes more of an issue a relatively poor energy rating could well affect capital value or ability to let.

It is therefore recommended that an assessment is made of the energy performance rating and scope for cost effective improvement measures.

These FAQ’s are not intended, and should not be used as a substitute for obtaining professional legal or other advice. They are intended only as a general overview of topical issues.

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