In 2011 CBRE reported at the World Retail Congress that 40% of Europeans shops on-line. For their 2012 report they identified that 82% of the UK adult population shops on-line. 

So does this mean that we no longer need high street shops?

Well, the view of RPS is no, rather we should we applying a different approach to the way we use our high street and when we use it.

For example;

House of Fraser has opened their new buy and collect concept store in Aberdeen. Here shoppers can shop on-line while in their store by using HoS terminals.

Tesco have built their first drive-Thru store in Baldock. Here customers can collect their groceries previously bought on-line (think about ordering as you leave the office or on the train home).

There are two examples of what is known as click & Collect stores that is linking the bricks and mortar of the high street with the technology in people’s pockets or purses.

The effect is to be able to have smaller requirements for floor space and therefore a retail strategy that reduces costs and provides a competitive edge.

According to analysts only 3.8% of food sales where made on-line, 7.7% on clothing and total sales equated to 7.9% of the UK’s total retail spend. This is expected to grow to 20% or £63bn by 2020.

Therefore the importance of a retailers strategy in its IT applications will become just as high an issue as is the location and rental. Retailers that don’t embrace technology to market, sell and deliver to their customers are likely to find things tougher.

HMRC will be applying VAT to self -storage unit from October 2012, under measures that were announced in the budget this Spring. This could add 20% to user’s bills.

At present, the use of self-storage units is exempt from VAT because it is treated as a Licence to occupy land, similar to commercial property rents.

Therefore self-storage units have been treated in the same way as the rental of commercial property, and thus exempt from VAT. The government now wants to bring it in line with other forms of storage. If you are a VAT registered business using self-storage then you will simply offset the VAT charge in your quarterly returns.

But for domestic and non VAT registered users the effect could be an extra 20% on their outgoings.

There are also issues around the definition of self-storage, if self-storage is to be classified as something other than commercial property space. It is possible that this tax change could be part of a wider push to reduce property taxation and VAT anomalies. The British Property Federation are concerned that this definition could be expanded to industrial units with a subsequent application of VAT to all Licences and leases of commercial industrial property. The BPF are actively seeking clarification and assurances from HMRC that this will not be the case.

Landlords beware……

Earlier this year the Ministry of justice began a consultation intended to discuss the way landlords recover rent arrears from tenants, and specifically the use of bailiff action. The pivotal issue for commercial property landlords and their management teams is the potential for enforcement of the provisions to abolish distress for rent and to replace it with a procedure known as CRAR. This will immediately change the process by which goods are seized or controlled on the implementation of recovery of rental arrears by way of distress.

The Ministry of Justice could implement the CRAR proposals as early as October 2012.

The key aspects of CRAR are as follows;

• Only authorised Enforcement agents who are trained and certified can exercise CRAR requirements on recovery of arrears.
• Only proper rent can be recovered (plus VAT & interest). Service charge or insurance premiums etc are not included.
• The CRAR requirements apply only to commercial properties and not mixed-use. Therefore landlords may seek separate leases for the commercial and residential elements of a property.
• The minimum amount that can be recovered via the CRAR rules, the net unpaid amount, is not to be below the equivalent of 7 days arrears.
• Landlords will be required to serve a notice of enforcement on the tenant giving 14 clear days’ notice (as opposed to 7 clear days for other debts) before instigating CRAR. However court consent for earlier action can be sought if it likely that goods will be removed.
• Taking control of goods can be done by either removing and storing securely off the premises, a controlled goods agreement, or securing goods on the premises.
• Entry can only be by a door or other usual means. So windows can no longer be used. And only between 6am and 9pm (except for businesses trading outside these hours).

There has been a very long history of CRAR going back to 1998 so there are no assurances that these changes will actually get to implementation. But if they do it will significantly curtail a landlord’s ability to recover rents (and amounts reserved as rent) and our opinion is that this will lead to a significant increase in the use of rental deposits and guarantees.

In the UK a brownfield site is defined as “previously developed land” that has the potential for being redeveloped. It is often (but not always) land that has been used for industrial and commercial purposes and is now derelict and possibly contaminated.

Brownfield sites have become increasingly popular in recent years, especially in places where demand for residential and commercial property is high. & the new NPPF makes reference to this & this new planning policy is committed to developing brownfield sites as a priority. Known as suststainable development.

All brownfield sites need to be assessed before they can be redeveloped. This involves an analysis of the soil, groundwater and surface water through testing for hazardous compounds;

Asbestos, oil / petrol, chemicals, Japanese knotweed.

Any development plans must be made compliant with current regulations. Special licenses are required to reclaim brownfield sites and strict environmental regulations can be prohibitive for developers. If the environmental assessment is positive and supports the redevelopment, the next step is remediation.

Remediation

Remediation of a brownfield site is the removal of all known contaminants to levels considered safe for human health. Redevelopment can only take place after all environmental health risks have been assessed and removed. Remediation can be expensive and complex, and this needs to be seriously considered before purchasing brownfield land.

In the last few years several new remediation technologies have started to emerge. These are proving to be relatively low-cost compared to traditional processes, with the benefit of protecting and preserving the environment:

• Bioremediation uses the natural processes of indigenous bacteria, microorganisms, plants, enzymes and fungi to destroy or neutralise toxins and contaminants.
• Phytoremediation uses plants to store contaminants in their leaves and stems (bioaccumulation). Some contaminants such as heavy metals can be harvested and mined for reuse (phytomining). With phytoremediation,
• In-Situ Chemical Oxidation injects oxygen or chemical oxidants into the contaminated soil or water to destroy harmful compounds.

Environmental searches and contaminated land

As understanding of the importance of land contamination has increased, so it has become more common for solicitors to make enquiries about land contamination.

Legislation (Environmental Protection Act 1990) places certain duties on Local Councils and land owners regarding contaminated land, and this has made it much more likely that possible contamination is considered when property is bought or sold.

Although not a statutory requirement, environmental searches are frequently carried out by conveyancing solicitors to identify contamination that might affect the property being offered for sale. These environmental searches are most often provided by commercial organisations and are supplied at various levels of detail, ranging from provision of purely factual information through to detailed interpretation of findings.

Generally the searches include a study of old historical mapping, land use records and other information that might indicate matters of potential concern.
As a result of these searches the provider may issue a certificate that the site appears to be at minimal risk of being affected by contamination. Alternatively if contamination is suspected a certificate may be withheld, but a warning issued that contamination may be present. This is not a guarantee that contamination is actually present, nor is the issue of a certificate a guarantee that no contamination is at the property.

Find out more;Contact the Contaminated Land Officer at the local authority. The Contaminated Land Officer holds information on many sites in your area. It is possible that they may have records of the former uses of your property, how any contamination was tested and details of any remedial work undertaken to make the land safe.

It might also be beneficial to contact the Council’s Planning Department and Building Control Department.

In addition you can contact the Environment Agency, a body that addresses pollution incidents and has powers to enforce clean-up of environmental damage.

NHBC & contaminated land; Guidance for the Safe Development of Housing on Land Affected by Contamination. Check their website.

Contaminated land is covered under their warrenty; BUT check & recheck the wording, what is and what is not covered. Don’t assume anything. If you’re really worried speak with you legal team, speak with the developer or get extra insurance cover.

Useful contacts;

www.defra.gov.uk

www.cieh.org

The following are the notes taken from our recent talk at the Thames Valley Property Forum on 24 April 2012 held at Apex Plaza, Reading.

So we don’t apologies that this is a Thames Valley focused view on what and how the NPPF will impact on our commercial property options and opportunities.

So the National Planning Policy Framework (NPPF) is now here and the government will expect us to work within its wrapper.

The view from RPS is that the priority is having Local plans in place. This is essential:

The 12 month window in the transitional arrangements won’t help those authorities who aren’t already well on the way to producing their local plans. Those arrangements will really only benefit a handful of councils who can make quick adjustments to already approved or advanced plans.

For those wrestling to come up to speed with the complexities of setting their housing requirement, the application of the presumption in decision taking will really be their only way forward. And that will require some complex and potentially difficult decisions, if they are to avoid the appeal process that will draw resources away from their plan-making function. Those resources are not so easily available especially with ever tightening purse strings on local government costs.

From our understanding the argument on the Presumption on Sustainable Development ( that’s the argument from Protection of Rural England and National trust that we will concrete over of green valleys) doesn’t wash. Our reading is that the presumption will only take effect if no plan is in place.  So LA’s need to plan. All businesses need to plan, why shouldn’t LA’s?  I don’t have much sympathy with any business (and that is how we should look at our LA’s such as Reading / Oxford / Slough plc) that doesn’t have a plan in place.

So you need to look at the NPPF as plan led system to decision making. And it’s all about timing;

Research shows that over 87% of people agree that better quality buildings and public spaces can improve quality of life.(Ipsos Mori (2009)).

And developers are aware of this. But they need 3 things;

The Finance.       Planning Consent.        A market that wants to buy.

And here confidence is everything.

The NPPF, can’t be prescriptive, that needs to come from ground level LA’s and local neighbourhoods.  However, we have some concerns that the loss of so much detail. With the Planning Policy Statements (PPS) being replaced by a 50 page document this gives more scope for interpretation. Interpretation leads to uncertainty and possibly legal challenge. Without clearer guidance on the process required, mistakes, delays and increased costs all seem somewhat inevitable. So watch out for challenges and arguments!

That will make developers nervous. They already argue that the time it takes for decisions to be made is too long and that S106 / CIF are as good as a tax in all but name!

But he NPPF does open up a number of opportunities for developers to explore. This includes;

• A brownfield first policy;
• Five year housing supplies with 20% buffer;
• Limited support for infilling in the green belt;
• Any Council with a Local Plan older than 2004 looks vulnerable to planning appeals;
• We also understand that the majority of planning circulars remain, which provides a degree more certainty than expected.

At RPS we think it’s a genuinely positive time to be in the commercial property and in the Thames Valley;

Look at what’s on your doorstep;

Reading Station improvements

CrossRail

Heathrow rail link

Brakes moving into the Sutton Business Park 500 jobs

Ikea moving into Calcot, 400 jobs

The Olympics!!!!!

 So please don’t think that the NPPF doesn’t affect you! Clearly if you’re a landlord / developer you’ll want your finger on the pulse (and a very good planning consultant and planning lawyer on your side together with deep pockets to pay for them).

 But how will it affect your business planning?………….. Consider these questions;

Where will your future staff come from, where will they live, will they be suitably trained, how much will you need to pay them to enable them to live here?

How reliant is your business on transport links & hubs? (Tesco’s obviously link Reading’s important enough!)

Think Schools, shops, doctors / dentists surgeries, leisure, car parking, tourism, sport, manufacturing, support services.

 Planning for the Thames Valley brings jobs, it brings Income, it brings growth, it brings tax revenue and it brings better service.

So the NPPF has to deliver. It has to deliver for growth & regeneration and in a wrapper of good design, environmental protection and a growing population. It’s not easy!

So please be aware of what your local authority is considering.  Get behind your profession and group organisations such as the TVCC to get the changes in place that will support your business.

Although buyers of commercial property are responsible for carrying out all the due diligence required prior to purchase, sellers too need to be aware that they can be under a duty to disclose defects and to be aware of the consequences if they do not.

In all ‘arm’s length’ property transactions buyers are advised, and often employ specialists, to identify as much information about the property as they can. This is often done by searches; investigations and the use of CPSE’s (Commercial Property Standard Enquiries) are often use as a tool to tease out those issues.

If the property is sold with Full Title Guarantee it will be implied that ‘the property is free from all incumbrances except those that the landlord does not and could not reasonably be expected to know about’.

Therefore the seller must disclose latent defects or irremediable latent incumbrances on title. (a latent incumbrance is a deficiency in the seller’s title affecting ownership or the right to deal with the property).

At RPS we recommend that sellers of commercial property plan for the sale of their property well in advance and to prepare a ‘clean’ property both in appearance and documentation if delays in sale or future claims are to be avoided. Contact any of the RPS team if you require further advice.

Reference; ‘Caveat Emptor’ EG 19/11/2011

Tenant’s lease break options are becoming more commonplace, and so are the disputes challanging the vailidity of these breaks.

An arument that seems to returning like an uninvited relative at Christmas is that vacant possession has not been given at the date of the break option.

Tenants leaving goods and equipment within properties have been known to invalidate a break option. As has the tenant staying within the premise after the break date to complete repairs & decorations set out in the dilapidations schedule. All the work and effort in notifying the landlord, paying all sums to the break date (or beyond if required) therefore failed due to non-compliance with the simple rule that the tenant must provide vacant possession.

However, in cases that have gone to court, the landlords claim that vacant possession was not provided due to a few possesssions being left have failed. but why take the risk?

 So here are our notes to avoid costly mistakes;

• Take professional advice, and from an RICS surveyor
• Read the lease……then re-read the lease
• Plan well ahead and don’t assume things
• A common sense solution to an issue, that is not in compliance with the lease terms, WILL require the consent of the landlord (and not just his agent).

With so may tenants preferring shorter and shorter leases, saying they prefer the option of flexibility, then it becomes even more important to keep on top of lease expiries.

for some time now RPS have been pushing for both tenants and landlords to approach each other at an early date to consider and to negotiate a new lease on expiry of the current occupation; A Reversionary Lease.

If you are planning on such an agreement here are our notes on what to keep an eye on;

Security of tenure; Is it part of your strategy for the lease to be inside or outside the protection of the LTA ’54 when it comes to security of tenure? If outside then make sure you meet the strict requirements and timetable to avoid getting it wrong.

Rent review;If the reversionary lease does not commence for some time then consider a rent review on day one to ensure the reversionary lease makes market rent.

Legal & Regulatory Updates; Remind your professional team that the new lease make reflect all legal and regulatory changes that have been instigated since the original lease commenced. (LTA Covenants act 1995, Fire Regulatory Order).

Security; Ensure that rent deposits, bank or personal guarantor agreements, are carried over to the new lease. This could include a rent deposit ‘top up’ if required.

Alterations / Repairs; How should these be documented? Perhaps the obligations can take effect on expiry of the reversionary lease?

Linkage;The legal team must make sure that both the existing and reversionary leases are fully linked (assignment, sub-letting) and that on forfeiture (if required) will effect both leases. this should also include any associated documents / agreements such as licences.

Formalities; All associated formalities such as SDLT, Land Registration requirements must be maintained.

As usual, RPS Ltd, have the experience and skills to help you through to a successful lease and get the best deal for your business.