The Decline in Commercial Property Rents is Easing: RICS
Survey
Tenant demand in aggregate has increased for the second
consecutive quarter. The pick-up in activity has been most pronounced in the office
sector followed by industrials. By contrast a small majority of surveyors are still
reporting that demand is slipping in the retail sector. The investment market has
passed a major turning point with yields falling and capital values rising quickly.
The combination of a near zero base rate (0.5%) and £200bn of additional liquidity pumped
into the credit market appears to be pushing investors along the risk spectrum in search
of a higher return.
Commercial property yields still compare very
favourably against equities and bonds on a relative valuation basis. However, over
the last couple of months the differential between the yields on these to other asset
classes and commercial property has begun to narrow. The latest IPD figures show
capital values continuing to rebound strongly.
Although rents are still thought likely to fall over
the next quarter, the net balance of surveyors reaching such a conclusion fell to just
20%. (RICS Monthly Economic Chartbook January & February 2010)
Whether these national trends will be reflected locally
still remains to be seen. Activity in the retail market has been strong in January.
(Brandon Simms)
Avoid The Courts - Lease Renewals Made Simple
When a commercial lease comes to the end of its
contractual term, negotiations start for a new lease. If these negotiations are not
conclusive the courts get involved. There is another way - PACT [Professional
Arbitration on Court Terms - Ed]. This is a flexible service for the process,
making it quicker, cheaper and more efficient than the courts. All the terms of the
new lease can be determined by a surveyor or solicitor acting either as an arbitrator or
Independent Expert without involving the courts.
Refer to the RICS Dispute Resolution Service www.rics.org/drs for the appointment of an
experienced Arbitrator or Independent Expert, or consult Brandon Simms professional@brandonsimms.co.uk, who is
a trained PACT Arbitrator and Independent Expert, who will be pleased to discuss the
process with you.
The Master of The Rolls, Lord Neuberger says of PACT.
"It is refreshing to see a scheme which embraces the principles of ADR [Alternative
Dispute Resolution - ed] in such a positive way."
All Change In The Courts - Watch those Protocols
The Civil Procedure Rules introduced in April
2000 following the Woolf reforms have changed the way that surveyors and the Courts
interact.
A protocol for dilapidations has been
published. This encourages both the Landlord and the tenant to have detailed
discussions before starting proceedings. The Landlord has to justify any claim with
costings and the Tenant has to provide a valuation if he wants to use the diminution of
Landlords reversion argument. The use of electronic means for producing schedules
etc is being encouraged.
Special arrangements are being introduced to
deal with applications under the Landlord & Tenant Act 1954 and other similar
legislation e.g. Leasehold Property (Repairs) Act 1938. When making an application
for a new lease under the 1954 Landlord and Tenant Act your Chartered Surveyor will have
to be ready to prepare the expert's report in a much shorter timescale.
Unfortunately the costs are still front loaded. Instruct your expert early.
The S.25 Notice now has to include details of the terms for the new lease. These
terms have to be proper and considered.
The Third Party
Brandon Simms has been an Independent Expert and Arbitrator for many years. All
third parties have to be monitored to make sure that they are up to date. He
continues to be on the RICS President's panel of suitable appointees and regularly
receives appointments as an Independent Expert or Arbitrator to resolve disputes, usually
on rent reviews. With the declining market more disputes are being referred for
independent Determination or Award.
Your Business Premises - Free advice from RICS
The RICS has published a CD to help businesses
looking to move, improve, sublet or run their premises more efficiently. The disc
includes detailed information and is an expert guide to making the most of your business
premises. Copies are available from the RICS at www.rics.org.uk
or visit www.propertyinbusiness.co.uk
Rateable Values have changed - Is Yours Correct?
On 1 April 2010 the rateable values of all commercial property have
changed. This will directly affect the rates paid by occupiers and by owners with
empty property over the following five-year period. The rate liability is fixed by
multiplying the rateable value by the appropriate business rate multiplier fixed each year
nationally, subject to adjustments for any reliefs.
Rateable value is based on what the Valuation Office Agency's (VOA)
assessment of the rental value of the premises on 1 April 2008. At that date some
parts of the property market were beginning to stagnate after a period of growth.
The industrial sector will probably see the least change but for all property types the
market will no doubt have changed dramatically since the valuation date in 2008.
Getting the assessment correct will be a challenging exercise for rating professionals but
occupiers, and owners with empty property, should appeal if they think the figures are
wrong. Don't forget that the special, politically motivated, relief for empty
property expires on 31 March 2011. Check your rateable value at www.voa.gov.uk/business_rates/index.htm
.
Following this new valuation and the new rate in the £ special
transitional arrangements will phase-in significant increases or decreases in your
business rates bill over the next 5 years.
Small Business Rates Relief is available for ratepayers with a single
property with a rateable value up to £18,000. If you applied for this relief in
2005 - 2010 you should not need to do so for 2010 but it is worth checking with your
billing authority. The calculation uses the small business multiplier for 2010/2011
40.7p instead of the standard one 41.4p. There is a calculator at www.businesslink.gov.uk .
Commonhold and Leasehold Reform
In leasehold flats and houses the Act is
designed to give people reforms that make it easier to buy their freeholds, and - for
those who do not want to buy - better options for managing their own homes with greater
protection against abuse. Leasehold Valuation Tribunals (LVTs) are receiving an
increased number of applications particularly disputing service charges.
The residence test and other restrictions have
been abolished. Marriage value is disregarded where leases have more than 80 years
to run. If marriage value applies it will always be split 50/50. The
requirements to form Right To Manage (RTM) and Right to Enfranchise (RTE) companies are
detailed in the regulations.
The price to pay for a new longer lease or to
purchase the freehold is still a difficult valuation. The Lands Tribunal is deciding
cases each of which may change the way the valuation is prepared. Make sure that
your adviser is up to date. As Brandon Simms is a chairman valuer of LVTs he is
always fully in touch with new decisions.
Caps On Again but Watch the RPI!
The Rent Acts (Maximum Fair Rent) Order 1999 introduced
from 1st February 1999 a "cap" on Fair Rents based, usually, on inflation
(measured by changes in the Retail Prices Index - RPI) plus a standard percentage .
If the rent has not been registered since 1999 the standard addition is 7.5% in all other
cases 5%. Landlords who carry out expensive repairs or improvements can apply to
avoid the capping but the tests are strict.
Objections to new registrations are heard by Rent
Assessment Committees. Even if the rent is capped an appeal will trigger a
recalculation of the inflation figure based on the date of the hearing which is usually
the effective date of the new rent. From the tenant's point of view the 2 year
cycle, when the landlord can apply to the Rent Service for another increase, is also
delayed.
The current economic climate has caused unusual
fluctuations in the RPI so the capping calculation will vary significantly from month to
month. The timing of the application for rent registration or an appeal may be
critical to avoid being stuck with an unusual rent for two years.
Commercial Energy Performance Certificates
Any commercial property that is available to
let or is for sale or assignment requires a Commercial Energy Performance Certificate
(CEPC). If there is to be no change of occupier, perhaps when a lease is renewed
under the 1954 L & T Act, then a CEPC is not usually required. There are also
other exemptions. Many companies have been set up to provide these CEPCs but make
sure you are dealing with a qualified Assessor and not just a middle man. Get a
quote first as the costs vary considerably.
