capita symonds real estate five-in-5 presentation

Welcome to the ‘Five in 5’ breakfast seminar

Tenants fighting hard: s18 defence to cap dilapidation liability

Paul Watling - Section 18 of the L&T Act 1927

— What is a S.18 Valuation?

— Who instigates it?

— What are the time scales?

— What properties?

The basics


Key principles

— Diminution in value of Landlord’s reversion

— The ‘two limbs’ proviso

— Cost

— Supersession

— Repairs / Reinstatement / Redecoration

— Loss of rent

— Extended voids

— Professional fees

What are the items of claim


Value in repair Value in existing stateDiminution in the value of the Landlord’s reversion

Valuation objective


Dilaps Claim£3m

Dilaps Claim£3m

Value in Repair£10m

Value in Repair£10m

Value in Disrepair£8m

Value in Disrepair£5m

Diminution£2m

Diminution£3m

=–

— Supersession

— Landlord’s intention

What can the tenant do?


Influencing factors


Supply and Demand in the sector

Attitude of prospective tenants

Attitude of prospective purchasers

Will repairs enhance lettability?

Negotiation

Court

Mediation

Resolution



Lease renewals in a difficult market

Timing is everything!

Paget Lloyd - Lease renewals in a difficult market

— Falling rents

— Adverse evidence

— Vacant space

— Occupier uncertainty

— ‘Desperate’ Landlords

— Interim rent favours tenants

— Statutory renewal process slow and costly?

The Challenges


The need for


— Early Section 25 notice

— ‘Front Load’ proceedings

— Issue lease with Section 25 notice

— Deal with disclosure as soon as possible

— Gather valuation evidence early and exchange

— Early and sensible CalderBank / part 36 offers

— Solicitor Selection

— Principal to principal contact

— PACT

— The cost!


Always remember...

Solicitors: Dealing with proceedings / directions £20,000

Surveyor: Expert’s report £12,500

Solicitors: Pre-trial work and liasing with Counsel £12,500

Counsel: Trial brief fee £8,500

Surveyor: Expert’s court fee £7,000

Disbursements: Court fees, notices & expenses £5,000

VAT: £13,000

TOTAL: £78,000

The ‘bill’ please


A T e n a n t E s q .


Scheme or scam? Eliminating business rates on empty space

— Minimising rates cost is legal

— Evading payment of rates is not!

Empty rates: scheme or scam?

Chris Grose - Scheme or scam?

— Occupation by a charity

— Squatters

How to manage empty rates avoidance




Squatters

— RV £379,000

— Squatters took illegal occupation

— Saving once evicted £205,000


— Squatters

— 6 week occupation / 3 month vacation

— Unoccupiable by law property



— Property has to be unoccupied by law

— We all know when occupation would be prohibited by law

— BUT case law states that a Prohibition Notice has to be issued

— Some local authority insist on seeing such prohibition notice

— How do you occupy illegally a building to get a prohibition notice?




— Squatters

— 6 week occupation / 3 month vacation

— Unoccupiable property

— Unfinished property



— Completion Notice

— Effective Date on Empty Units changed from Nov 2011 to Sept 2012

— Saving £149,000

Keep clear of empty rates evasion


— Bogus occupation




— Claiming charitable use




— Claiming charitable use

— Tenant an off shore company

— Tenant arranged in liquidation/receivership



Taking out of rating


Don’t be sure....

— Entry in 2010 List for Fenced area is Shop & Premises RV £1

— Danger - When redeveloped Completion Notice not required

— Danger - No empty rate exemption on completion



— ie an ongoing case. RV reduced from £297,500 to £1 during works.

— Reinstated on practical completion of developers fit to RV £342,500

— Still requires occupiers fitout

— Take as long as possible to refurbish - leave evidence of contractors onsite.



Empty Rates Review — Public Sector paying over £50million in empty rates

— Review announced

— 6 MPs on panel

Localism — Local authorities keeping additional rates generated

— Base year 2011/12

— Comes in April 2013 – potentially more aggressive on schemes and scams, and uncompleted buildings

What’s coming?


Spaceless growth? The agile agenda

is just part of the equation.

The ‘physical’ workplace...

Alan Dornford - Spaceless growth

Intelligent planning & design...


Shifting work patterns...


(Johnson Controls 2010)

Mobile

2002

5550

3035 36

45

20

20

3020 18

20

25 3040 45 46

35

2003 2005 2006 2007 2010

Home

Office

?

But Space utilisation is out of sync...


BCO 2009 - up to 50% under utilised

Public Sector – it’s not sustainable...


£7bn+ targeted savings

83% of high-end designer handbags are fake

£25bn p.a. running costs

30% less efficient than best practice

Who’s leading the way?


Early adopters

Late adopters... Big precedent setter

It’s a culture thing...


So what?


Flexibility — Leases — Demises

“Landlords that provide us with huge flexibility will be the ones that we turn to”

IBM 2012

Performance — Building services — Infrastructure

“Maximising utilisation means that building designers will need to take into account the implications for the capacity of the building in terms of air handling, toilets, kitchens, reception areas etc”

IPD2012

Awareness — Up to date Occupier Trends


Cutting to the chase: practical implications of EPC Ratings

— Present situation

— Practical considerations

— Why it really matters

Enlightening Presentation Content

James Dunne - Cutting to the chase: practical implications of EPC Ratings

— 80% reduction in CO2 emissions by 2050 (from 1990)

— Property is a key target for reduction

— Unlawful to let poor scoring properties by 2018 (2015 in Scotland)

— EPC is a pre-requirement for marketing a building

— EPC is for the property not the occupier, the fabric not the operation

— EPC last for 10 years

— c. 20% of buildings at ‘F’ or ‘G’ level*

Energy Performance Certificates


* Source British Property Federation

— Minimum letting standard not yet set

— Assessments have got more stringent – a continuing trend

— Will the Green Deal be real and relevant?

— Industry lobbying for clarity and a ‘Carrot & Stick’ approach

— Future tax implications?

Eternally Pursuing Clarity


— Actual costs of works

— Payback period

— Knowing the future costs

— Timing of refurbishment and improvements

— Service Charge recovery?

— Easy wins

— VAV vs VRV

— Know your system

— Lights and Lamps

— Auto sensors

— The sum of the parts…

Economic Practical Changes


Emerging Pricing Consideration


— Direct value impact

— Factored into cash flows

— This is not just a tertiary problem

— Portfolios being benchmarked

— Occupier awareness

— Consider implications before marketing and purchase

— Reduce obsolescence

— Increase liquidity

— From unwelcome cost to performance boost?

— EPC are here to stay

— They are becoming more relevant and more stringent

— Plan now to protect value

— Analyse possible works and consider future implications

Expert Pithy Conclusion


This is now a real investment consideration

Questions

capita symonds real estate five-in-5 presentation

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