Property Investment- student accommodation

This is my first post about Property Investment. I don't purport to know much about Investment but shall have a stab at it.

I was very interested to read this article at www.propertywire.com:

http://www.propertywire.com/news/global-news/student-accommodation-investment-property-201211077120.html

If I were looking to Invest, in the UK commercial property market, which factors would influence me?

• An independent currency?
• Stable governance?
• A growing or at least sound economy?
• Assets which guarantee strong footfall and strong covenants?

Assuming the above is satisfied what specific assets would be of interest?

• Shopping centres/ leisure & retail developments? Yes.
• Office blocks with reputable Tenants? Definitely.
• Student accommodation? Why not.

The above article makes clear that student accommodation is an attractive asset class for (increasingly) International Investors. Why? student enrolments have continued despite the economic downturn. Students are also mobile and willing to come to the UK from abroad. The UK has world class universities. The article states that 2012 investment, in student accommodation, will have exceeded some $3bn.

One would assume that prime central London assets such as 'The Shard' or 'The Cheesegrater' etc would be the most attractive option. This article shows investment in student accommodation will continue to grow.

Well- that wasn't too hard!

Squatters- they fought the law and won?

Today's post concerns something of great importance to Landlords and Tenants.

Last year, the law with regards to 'squatters rights' was changed. s144 of the Legal Aid and Punishment of Offenders Bill (LASPO) makes it a criminal offence for people to squat in residential property. If a person is found guilty of squatting in a residential property they may be liable for a fine of up to £5000 or six months imprisonment.

However, the law does not apply to commercial property. Squatting in commercial property remains a civil matter. The Landlord will have to apply to court for a possession order. The order must then be enforced by a court Enforcement Officer.

Why is this important? given the troubles on our high street many commercial properties are lying empty. There is a housing shortage in this country. The Landlord will not want to go to the expense of having to get a possession order from the court and waste time trying to remove the squatters.

This is no doubt a controversial matter which polarises opinion. To some, many in fact, the squatters are trespassing on private property. To others, they are merely making use of derelict property and it is the responsibility of government etc to provide adequate housing provision. Whatever view you take, the problem is a nuisance for your average commercial Landlord.

What can be done about it? In an ideal world, Landlords will have nice rent paying Tenants in their properties. However, this is not always possible. If the Landlord does have an empty property they should make sure it is securely locked. It may be wise to invest in an alarm system. The Landlord should visit the property regularly (at least once a week). The use of signs ('do not trespass- private property') may also be useful. The Landlord should therefore try to make the environment unappealing for potential squatters.

Until and unless the law is changed the commercial Landlord will have to remain vigilent. Squatters are a nuisance. Following the above steps will save the Landlord both time and money.

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UK Property- a safe bet?

I was very interested to read this article on the PropertyWire website (http://www.propertywire.com/):

http://www.propertywire.com/news/europe/uk-commercial-real-estate-201210317098.html

The crux of the article states that the UK commercial property sector will not recover until 2023. This does somewhat contradict other articles I have read which argue that the UK's commercial Real Estate sector remains resilient due to the UK's perceived 'safe haven' status. There are clear reasons for this- an independent currency, stable governance, prime assets (particularly student accommodation and landmark skyscrapers) in the City of London. Undoubtedly, the market remains below pre-recession levels. Rents will probably continue to grow, in the London market, throughout 2013.

However, the most important part of the article that struck me was the fact that:

'High vacancy rates are set to become a huge issue for the commercial real estate and construction industries as recovery remains elusive, threatening profits and presenting new risks associated with empty sites and buildings. Adequate security and regular checks are recommended for property owners in this situation to mitigate the increased risks of burglary, arson and water damage. However, despite vacancy issues and the growing trend of ‘mothballing' developments to save ongoing costs, there is still an appetite for the right kind of development. The City skyline is a prime example of that, with builds such as The Shard in London demonstrating that certain projects, particularly mixed use developments, are still going ahead.'

As explained before, empty properties are a nightmare for the commercial Landlord. They are sitting there- not making profit and attracting empty property and business rates. However, should the situation occur it would prudent for a Lawyer to advise their Landlord client to make sure their property is secured and is regularly checked.  The Landlord should have an up to date Insurance policy. The property should have an alarm (ADT etc) and any front gates should be locked. The Landlord should visit the property at least once a week. If the Landlord client has an empty property, which is then burgled and damaged, this could result in extra expense. It is the Lawyer's job to save their Landlord clients a few pennies!

The article also shows the attractiveness of prime assets in the central London market- the Shard, the Cheesegrater, the Walkie Talkie etc. Whilst activity remains depressed, in other parts of the UK, central London will continue to see growth. A safe bet after all!

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Service charge drafting- wide off the mark

Today's post concerns something of crucial importance to Landlords and Tenants. It will review the case of Campbell v Daejan Properties Limited (Campbell). Campbell was a 2012 case. It illustrates the need for a well drafted service charge clause, at the outset, when the parties enter into a new Lease.

Campbell was the Tenant. Daejan was the Landlord. Campbell owned a Lease in a Maisonette in a 5 storey house. When Campbell entered into the original Lease, it was agreed that she would contribute 40% towards the maintenance costs of the 'premises.' This did not change when her Lease was renewed. Daejan later carried out some works to the property and stated that Campbell was liable to contribute 40% towards works carried out on the property as a whole and not just the Maisonette. Campbell argued that she was only liable in respect of works carried out on the Maisonette only and not the whole building.

The Court of Appeal eventually ruled that 'premises' meant the Maisonette and did not include the whole property. The court stated that the Lease should be taken as read and that the court would not interfere in what was, essentially, a private bargain made between contracting parties. The court would only intervene in circumstances where it was obvious that the parties had made a mistake. The court also ruled that Daejan could not recover their costs through the service charge.

What does this mean?

For Landlords- there is no presumption that the Landlord will be able to recover 100% of their costs through the service charge. The court is unlikely to correct any drafting errors in order to support the Landlord's commercial intentions.

For Tenants- the Tenant should be equally cautious of any drafting errors, at the outset, when entering into a new Lease with the Landlord.

The conclusion is that Lawyers should go through the Lease thoroughly with their clients. The service charge clause should be precisely defined depending on the intentions of the respective parties. A failure to get this right could (as was the case in Campbell) result in Litigation- a waste of time and money for both the Landlord and Tenant.

Precise drafting and establishing the parties' intentions will prevent the Lease becoming wide off the mark! It will also save a few pennies in the long run!

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British Land- every cloud has a silver lining

They say that every cloud has a silver lining. In the final quarter of last year the economy contracted by 0.3%. The services sector shrank. Consumer demand remains depressed as wages lag behind prices.

So what's that about good news? Well I was interested to note that British Land (BL) has posted strong growth in its recent Q3 management statement. BL's occupancy rate stood at 97%. This is important as Landlords do not want empty, unproductive, rates attracting property. Remember!

BL's Chief Executive, Chris Grigg, states that 'the business continues to perform well in markets which remain tough overall. We've continued to see good demand for our properties, which means our occupancy remains high and our developments are now significantly pre-let well ahead of completion. While we remain cautious about the near-term environment, we are confident that British Land is not only defensive in today's challenging markets but also well positioned to deliver future growth from existing and new investments.'

So no horsemen of the apocolypse yet. Let's hope that BL's bullish confidence can be maintained in the face of continuing economic uncertainty. However, for the smaller commercial Landlord the nightmare of business and empty property rates remains. Until and unless these problems, are resolved in a future budget (wishful thinking), some Landlords will see that silver cloud (and crucially that important pot of gold) sooner than others.

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The Government's Green Deal

As promised, my post today will focus on the Government's Green Deal which was officially launched yesterday (yes I know I am a day out!). I have never been particularly green fingered and I must confess, somewhat guiltily, that my eyes usually start to glaze over as soon as anything 'green' or environmental is mentioned. It's not good. The Earth's resources are not infinite. We do need to harness alternative sources of energy today for the sake of our children's future tomorrow. To that end, it is important that any land and buildings are energy efficient.

Whence- the Green Deal! This was introduced by the Energy Act 2011. It is meant to encourage property owners to carry out energy efficient works (e.g. the installation of solar panels, double glazing etc). The property owner will enter into a contract with a Green Deal provider. The works will be carried out by an accredited Green Deal installer.

Now - the important part. The provider will recover the costs of the deal through the property owner's Electricity bills. The idea is that the expected financial savings from the energy efficient measures should be equal to or greater than the repayments that are made over the course of the Green Deal plan.

So what's this got to do with property? Well what happens if a property owner enters into a Green Deal plan and then leaves the property? Will the subsequent owner be bound to make the repayments under the plan? What if they don't want to? Will a Landlord of residential and (especially) commercial premises be able to stop their Tenants entering into a Green Deal plan? (despite the potential savings in the long run and the satisfaction that comes with saving the planet! well partly...). Could new Leasehold covenants emerge where the Landlord will try to stop the Tenant entering into a plan? No doubt the Green Deal will form part of the pre contract enquiries in residential conveyancing and the Commercial Property Standard Enquiries (CPSE) for commercial conveyancing. It is for that reason that practitioners must be aware of the scheme and its purpose.

Will the scheme deter potential buyers and lessees? As stated before, it is important that Landlords attract Tenants (and thus income) for their properties. We will have to wait a bit longer before the potential effects, and benefits, of the scheme are realised. For now it appears that the commercial interests of Landlords and Tenants must be balanced with the wider humanitarian goal of saving the Earth's resources.

A noble goal if ever there was one. Well- for those interested at that sort of thing at least!

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Quarterly rent days

During my LPC, I took an elective option in Commercial Property and whence my interest in the subject was born.

We learnt about the quarterly rent days and were taught a method for remembering them. Unfortunately, I seem to have forgotten that method! The only date I can remember is- the 25th December. So one of the quarterly rent days falls on Xmas.

Browsing through the British Retail Consortium's (BRC) website I was interested to learn that this rather archaic practice dates from the dark ages when the King would send his agents on horseback to collect rent payments from his Tenants. Times may have changed, but the practice of quarterly rent days remain.

The practice remains unpopular with Tenants. Along with business rates (which can be higher than rents in some places), quarterly rent payments remain problematic. According to the BRC's website, most Landlords have moved to accepting monthly rent payments. After all, no Landlord wants to be landed with an empty property! However, the practice does still exist. Given the troubles on our high streets, and our stagnant economy, I wonder whether or not this ancient practice should be abolished altogether.

As stated in a previous post, the Government recently commissioned the Portas review into high street regeneration. The Government stated that it would accept all of the report's recommendations. Whilst the big out of town retail developments appear to present a problem, the problems of business rates and quarterly rent days are still a bug bear for many Landlords and Tenants. If the Government wants to inject some life into our moribund high streets then it could do no worse than to cut business rates in the next budget and abolish the practice of quarterly rent payment days altogether.

A business rates cut and the abolition of quarterly rent days certainly present some food for thought.

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Business Rates Relief

My next post concerns an issue which is a pest for your average Commercial Landlord- business rates.

As I have stated ad nauseam in this blog, Landlords hate empty properties. That said, they may hate business rates a little bit more. According to the www.gov.uk website, business rates are taxes that are levied on non domestic Commercial properties, to pay for local services. Business rates are an issue that keep cropping up. In some areas they can be higher than rents- whence the fact that they are a complete nightmare for the Commercial Landlord. The next business rates re-evaluation is not set until 2017.

In the meantime- what can be done? As a Commercial Property Lawyer, I would make sure to advise my Landlord client of any applicable reliefs. After all 'every little helps' as they say.

The first relief is the Small Business Rate Relief (SBRR). You can only get SBRR if:

• You only use one property
• Its rateable value is less than £12,000

Until 31st March 2014, the Commercial Landlord (satisfying the above) can get 100% relief from business rates if the rateable value of their property is £6,000 or less. The rate of relief will gradually decrease from 100-0% when the rateable value of the property falls between £6001-12,000.

What if the Landlord has two properties? He/she can still get SBRR if the rateable value of each of the other properties is less than £2600. The rateable value of the properties is added together and the relief is added to the main property.

As you can see, the SBRR is likely to apply to very small low value properties. The Commercial Landlord who owns larger properties may wish to look at Enterprise Zone Relief (EZR) if s/he is looking to relocate to an Enterprise zone. The list of Enterprise zones can be found on the www.gov.uk website. The practical effect is that the Landlord will be eligible for 100% business rates relief for 5 years up to a maximum of £275,000.

As stated, Landlords loathe empty properties. However, they can get Empty Properties Rate Relief (EPRR). You do not have to pay empty property rates for up to three months. After this time, most properties will have to pay full business rates. However, some properties are eligible for further rate relief. They are:

industrial premises (eg warehouses) are exempt for a further 3 months

listed buildings - until they are reoccupied

buildings with a rateable value under £2,600 - until they are reoccupied

properties owned by charities (only if the property’s next use will be mostly for charitable purposes)

community amateur sports clubs buildings (only if the next use will be mostly as a sports club)

The Landlord will need to contact his/her local council once the property becomes vacant. Other reliefs are available for charities etc which can be found on the above website.

Business rates are a thorny issue for many Landlords. The Government is not likely to lighten the load anytime soon. The prudent Commercial Property Lawyer should assist their Landlord client to alleviate this burden.

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Triple dip on the way?

For my next post, I thought I would write about the general economy. This is of interest to both Landlords and Tenants. The buying, selling, renting, leasing etc of Commercial property depends on a strong economy.

The recent news established that the economy contracted by 0.3% in the last quarter of 2012 (more than the 0.1% expected by the city bigwigs- who said they know everything or anything!). This was after the 1% growth delivered by the Olympics boost. Are we in recession yet? Are the horsemen of the apocolypse riding towards us? The simple answer- no. Could we be soon?- possibly.

A recession is defined as 'two consecutive quarters of negative growth.' Put simply- if the economy contracts again in the first quarter of this year we will be back in recession and up the proverbial (to put it nicely...).

All sections of the economy- manufacturing, construction and services have posted negative growth. The services data is particularly worrying as the services sector comprises three quarters of the economy!

We now know, from the Autumn statement, that George Osborne's sums are badly out and that the belt tightening will continue until (at least) 2017.

So what's the problem? Wages are lagging behind inflation (currently at 2.7%). Wages are being held down in both the private and public sector. Welfare is being cut. If people have less to spend then, simply, they will not spend. They won't buy lots of nice stuff in the shops. Shops won't make a profit. They won't expand and take on staff. They go bust and yes, you guessed it, the Landlord is left extending his/her begging bowl to the administrators. A rather Dickensian scene- 'please sir can I have some more rent?' (well OK not quite...)

This lack of consumer demand appears to be lost on politicians of all colours. No amount of tax cuts or stimulus spending can force companies and consumers to spend. I do not dispute the need for austerity or rather I do not quibble with the idea that tough decisions must be made. But as long, as consumers tighten their belts then the economy will not grow! A stagnating economy is of no use to your average Commercial Landlord who relies on tenants in its properties with a strong footfall and timely rent payments.

About time, for the sake of all Landlords, that our politicians woke up and smelt the coffee.

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Break clauses not broken hearts!

My third post concerns something of mutual importance to both Landlords and Tenants- the operation of break clauses under the lease (pay attention!).

As I have stated in a previous post, there is nothing worse for a Landlord than an empty (or void) property. Empty properties mean no Tenants. No Tenants mean no rent. No rent means no income. No income means a pretty screwed Landlord. It also means lots of boarded up shops on our high streets. Everyone loses out.

Therefore, in this climate your average Commercial Landlord will feel rightly peeved when a Tenant wants to break the Lease and walk away from the property. Most Landlords will scrutinise the Lease carefully and be looking for any opportunity to thwart the Tenant.

This point was demonstrated in the recent case of Avocet Industrial Estates Ltd (Avocet) v Merol Ltd (Merol). Avocet was the Landlord and Merol was the Tenant. In this case, Merol could not break the Lease and walk away unless it had paid 'all sums due' under the Lease. This included any interest on any late payments made by Merol under the Lease. Avocet argued that the Lease was not broken because Merol owed Interest arrears under the Lease. It should be noted that Avocet had not made a formal demand for the interest previously.

The result? The court ruled in Avocet's favour. Merol was liable for a hefty interest bill regardless of the fact that Avocet had not made a formal demand as per above! Merol could not operate the break clause and was stuck in the property!

So what lessons can the Landlord and the Tenant learn from Avocet and Merol's travails?

Landlords- make sure that Lease clauses regarding payment of 'all sums', in relation to a break clause, is drafted as wide as possible. If the Tenant does try to walk away from the property, try to ascertain whether or not the Tenant is liable for interest under any late payments they may have made in the past. When you enter into a new Lease with a Tenant, you should record all payments that the Tenant makes. That is the method of payment and the date. Enter it into Sage, MS Money, QuickBooks, whatever suits you.

Tenants- it is very important that you also keep records of all payments that you make under the Lease. Record the date of payment and the method. Try to get a receipt from the Landlord if you can. Keep the receipts. Make records in MS Money, Sage etc.

By following these steps, Landlords and Tenants will avoid the heartache and aggravation of litigation. If both parties can point to evidence, as to when and how payments were made, this will avoid those costly words- 'see you in court.' Litigation is a waste of time and money for both parties. If it is time to say goodbye, a good Lawyer will want to see an effective operation of the break clause and not broken hearts and bank accounts! I know I would! But then- I am not a Lawyer. Yet...

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Trouble on the high street

I remember, as do alot of people, the first CD (remember those things!) I ever bought in HMV (in the good old days before YouTube). I bought the Mendelssohn and Brahms Violin concertos (a bit of culture!). Unfortunately, HMV recently joined those lists of great names who have had to call it a day and bring in the administrators. It's a shame.

Alot of people would blame the Internet. They are right- partly. Vibrant high streets are important. Landlords want a frequent footfall. Empty properties are bad for the Landlord. Empty properties mean no rent. No rent means no income. No income means a very unhappy Landlord! Worse the Landlord has to deal with empty property and business rates to boot!

The Government has recognised that something needs to be done and commissioned a report from Mary Portas (AKA the Queen of Shops to some of you) into high street regeneration. The government has recently stated that it would adopt all of the report's recommendations...

The report sets the big out of town retailers firmly in its sights. These big bad developments are partly to blame for the woes on our high streets. The Portas report recommended relaxing the rules concerning changes of use in property and recommended that the Secretary of State for CLG (Communities and Local Government) should be able to decide the fate of big out of town retailers.

My view? Yes the Internet presents a challenge. Items can be bought, sold and delivered with a click of the button. Does this mean the end of the high street with boarded up shops and irate Landlords? No. People still enjoy the shopping experience. People like to walk into shops- touching, tasting, smelling, listening- you get the picture. Moreover there are some services that cannot be bought over the Internet- you cannot have your hair cut online! (at least not yet...)

The solution- I have no doubt that there is alot of merit in Portas' report. However, the Government should be doing more to support small and medium sized businesses on our high streets by cutting business rates. The next business rates re-evaluation is not set until 2017. This is an issue that continually crops up. In many areas, business rates can be higher than rents. I am not saying that this is the magic bullet. But cutting business rates would deliver a vital shot in the arm for our ailing high streets. The Government should take note. Everyone would benefit from a business rates cut- Butcher, Baker, Candlestick maker and yes even Pasty makers Mr. Osborne!

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Recovery of rent for Landlords

This is my first blog post. I am a recent LPC graduate with an interest in Commercial Property law. I have started this blog in order to give Commercial Property law enthusiasts (yes they do exist!) the lowdown on the latest law.

My first post concerns a proverbial bogey man for your average Commercial Landlord- the recovery of rent once administrators have been appointed (not very flashy- but still...).

This is topical when you consider the recent troubles on the high street- HMV, Jessops, Blockbusters...whose next? With the economy heading towards a triple dip (touch wood), and consumer spending remaining muted, the ugly spectre of Insolvency will continue to rear its ugly head for many retailers.

The problem for Landlords lie with two cases- Goldacre v Nortel (Goldacre) and X Leisure v Luminar (X Leisure). Goldacre established the basic principle that rent must be treated as a 'priority expense' if the administrator continues to trade from the premises once the business has been put into administration. This means that the administrators must put the Landlord's rent claims before anything else- including their own remuneration.

Fine- all well and good. But what about rent arrears that occur before administration?

This point was answered in X Leisure. In this case, it was established that rent arrears prior to an administration were not to be treated as a priority expense. Therefore, the Landlord must get in line with the other unsecured creditors and be grateful for their meagre share (if indeed they get anything!).

The upshot is that most administrators will now be appointed after the quarterly rent day and receive the benefit of a rent free period. In short- the Landlord loses out!

As stated above, the economy looks set for another nosedive. The practical effects of Goldacre and X Leisure will continue to result in restless nights for Landlords.

The solution- it's hard to say until another case comes along and Goldacre and X Leisure are blown out of the water (wishful thinking!).

Some have argued that the payment of rent should fall on a 'pay as you go' basis and that there should be more co-operation between Landlords and administrators. If a Property is particularly (or has the potential to be) lucrative then the Landlord could grant the administrator a rent free period in return for payment of the last quarter's rent. A bit of quid pro quo so to speak. At the moment, the Landlord seems to lose everything but the shirt on his/her back. A bit of co-operation between the two parties wouldn't go amiss.

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