Author Amanda Timcke

Issue Summer 09

Pub IoD

How can landlords and tenants work together and avoid hidden risks to property owners and occupiers?

We can all see an increase in vacant commercial properties on our high streets and retail parks and landlords need to be open to ways of minimising this impact on themselves and their tenants.

Empty shops mean property owners have to contend with no income and the continual payment of business rates, hence they are reluctant to release tenants from ongoing obligations. Tenants may find that landlords stung by these overheads are less inclined to permit more flexible lettings, so working together now for the long term is a better solution for all.

Professionals are increasingly advising clients, in all sectors, on methods to streamline their business and operational requirements for these leaner times.

The idea is not to ‘cut losses’ or reach a point of no return, but to balance competing interests so that Company Voluntary Arrangements or pre-pack administrations can be avoided wherever possible. Open dialogue and negotiations will prevent such issues, which can otherwise damage reputations and business relations.

Struggling tenants are increasingly pushing themselves to the limit on quarterly rental payments, whereas more flexible terms could be agreeable to both parties and swiftly documented. Examples of flexible terms include monthly rent payments, slashing service charges by reconsidering the heads of expenditure or refocusing the provisions of services. Restructuring leases so that stronger guarantees are given to landlords may also achieve lower rental payments. Think long term not short.

In harsher climates, many of these concerns can be combated and dealt with by ensuring you have continuous professional legal and surveying advice.

Documenting any agreed concessions is essential. Remember, lenders would need to be kept informed where there is a potential to otherwise breach banking covenants.

One issue for landlords to consider is that insurance companies and underwriters are becoming more and more concerned about their exposure to the risks against which they insure.

Remember, buildings insurance is a precondition to any form of lending, without which you breach banking conditions. These concerns have been partly highlighted by those retreating or falling from the insurance market and the increasing problems with flooding. Insurers also remain concerned about the higher risks posed by fire.

There has been a 16 per cent increase in UK fire losses over the year, and insurers are increasingly imposing duties on property owners to keep premiums low, or to permit cover. Some of these are ‘common sense’ but landlords and tenants must be aware of them and comply if they wish to take advantage, as it can become more costly for a landlord to manage a building than an occupying tenant.

However, empty properties are potentially more prone to vandalism and damage by burst pipes. Failure to comply with any policy condition can render insurance void. Remember, uninsured loss issues could be worse than non-compliance and management is the key.

In harsher climates, many of these concerns can be combated and dealt with by ensuring you have continuous professional legal and surveying advice.

Amanda Timcke, Solicitor

Commercial Property Department

Tel: 01284 762331

Email: amanda.timcke@ashtongraham.co.uk

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