The importance of timing & planning for dilapidations

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Commercial Property:

Dilapidations – a question of timing, and seeking the right advice at the right time can reap rewards for both landlords and tenants and maximise the ability of the parties involved to seek or defend against damages for alleged breaches.

A lease is used in most instances to formalise the agreement between landlord and tenant, the content of which will have implications for both parties throughout the term of the lease and at lease end. It is therefore of critical importance that the context of the lease is clear and concise and represents the requirements of the parties.

A prospective tenant should therefore seek advice from an experienced building surveyor to assess condition prior to entering into any lease agreement to minimise risk and avert potential claims. This is particularly relevant in the current commercial climate, where the majority of leases are for shorter terms.

The condition of the premises at commencement of the lease can have significant bearing on dilapidations claims. It is a common misconception among tenants that they are not obliged to repair, maintain or replace building components or landlord’s fixtures that were in poor condition at the outset of their tenancy.

Equally, the context of a Full Repair and Insuring lease does not imply a new for old policy and a tenant is not obliged to go beyond the standard of repair identified in the lease.

The wording of lease clauses and their inherent meaning can be complex.  An experienced surveyor will be able recognise the merits and deficiencies of a lease and put this in context for their respective clients.

Most commercial leases will prescriptively identify the standard of repair within the repairing covenant of the lease. In most instances, this will place a burden on the tenant to “put the premises into repair or keep in repair”.

Broadly speaking, even if the demised premises are in poor repair at commencement this is not the standard to be maintained. Rather, the tenant is further obliged to maintain to a prescribed standard – often “good and substantial or good and tenantable condition, irrespective of the cause of damage”. The latter removes the landlord’s obligations to repair.

The standard of repair can be varied within the lease by a Schedule of Condition, most often in favour of the tenant, often requiring the tenant to return the premises in “no better or no worse condition” than evidenced in the schedule of condition.

It is therefore equally important where a schedule of condition is annexed that it is accurately reflective of the condition on the date of the inspection and identifies the whole of the demised premises.

Tenants should be aware that where alterations or additions are made to the demised premises these will be subject to the same repairing obligations as that of the existing premises. Alterations are subject in most instances to specific direction at the end of the term to either retain or remove.  Tenant fixtures and landlord fixtures are, in most cases, treated differently at the end of a lease and can have a bearing on the claim.

The expertise of a chartered building surveyor can be invaluable to both landlords and tenants where claims arise, particularly at the end of the lease term.

A landlord’s surveyor should endeavour to identify breaches and take cognisance of alterations to the property and prescribe the remedy required to resolve each breach. An estimate of cost should also be provided in order to establish the value of the claim.

An experienced building surveyor will have the ability to strategically assess the most viable options for the landlord to minimise future risk once the premises reverts, while ensuring the landlord receives “best value” from the outgoing tenant.

By equal measure, a tenant-appointed surveyor will be able to consider the merits of the landlord’s claim and minimise exposure for the client. In some instances, this may go beyond simply negotiating the claim line by line and an element of commercial awareness can go a long way to reaching a favourable settlement.

The best time to appoint a building surveyor? As soon as possible. Once appointed the surveyor will be able to make an assessment of the type of service required and provide strategic advice to the client.

This advice can be invaluable in minimising risk prior to the commencement of a lease for landlord and tenant alike. At lease end, the appointment of a chartered building surveyor can be the difference between a good and bad outcome for the client.

By Kenny McDonald

Kenny McDonald is an associate in Building Surveying Consultancy in the Glasgow North office of DM Hall Chartered Surveyors.

https://www.dmhall.co.uk

Facebook: https://www.facebook.com/DM-Hall-Chartered-Surveyors-LLP-168316039915372/

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – The importance of timing & planning for dilapidations | LandlordZONE.

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Landlord Show Addresses Key Landlord Issues

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National Landlord Investment Show:

The next National Landlord Investment Show addresses key issues plaguing landlords in 2018 coming up at Olympia on 15 March.

The National Landlord Show arrives at Olympia on Thursday 15 March to give advice via complimentary seminars, leading suppliers and two landlord debates where you can get advice from accountants, estate planners, mortgage brokers, councils and financial advisors.

Why are landlords easy targets?

As landlords have become easy targets to fill the Government’s coffers by using taxation hikes, it’s essential for any investor or potential investor in property to understand the market fully. With Corbyn describing himself as a socialist and with landlords in his sights, the instability of the Sterling currency and Brexit, the potential threats are both numerous and serious.

Also, the show will discuss opportunities such as licensing and how standards, demand, rents, and profits can all rise. Now that the tax changes and other regulation are likely to affect unprofitable landlords, and many leaving the market, it’s essential for all in the BTL market to see their investments as a business, not a side-line or hobby. Knowing how to react to the change afoot is a priority for all involved buy-to-let.

The National Landlord Investment Shows at Olympia brings together the diverse landlord community of up to 4,000 active investors to solve these problems as a community.

The Council Landlord Debate

The UK’s largest council debate will allow landlords to ask questions to five London councils. Visitors will be able to join a complimentary panel hosted by some of London’s councils to find out about the checks, fees, standards and procedures in each London Borough. Attendance at the panel is complimentary and on a first come, first served basis.

The Expert Property Panel, launched in 2017, is also returning to the March show and is expected to host 450 + landlords and investors at what is the UK’s largest series of landlord debates.

This open panel debate focuses on tax and how landlords can manage their taxes and finances effectively; the afternoon session covers local councils – understanding their processes, legislation and differences in each borough.

Speakers this time include: Tony Gimple, Founding Director at Less Tax 4 Landlords, Emma Cox, Sales Director for the Commercial Property Finance Division of Shawbrook Bank and Russell Conway, Senior Partner at Oliver Fisher Solicitors, who is regularly featured on LBC Property Hour. The most recent speaker to be announced is Jim Haliburton, MD of HMO Daddy. Marie Parris, CEO of George Ellis Property Services, will once again present.

Shawbrook Bank attests to the importance of the education at the event, “Shawbrook is proud to support the Landlord Investment Show for 2018. We have worked together for a number of years and it has always been important to Shawbrook to partner with organisations that support an educational approach designed to shed light across a variety of important topics including the economic environment and the regulatory landscape”

Visitors can register for the show at landlordinvestmentshow.co.uk

For exhibitor enquiries, please call 020 8656 5075 or visit

landlordinvestmentshow.co.uk/exhibit

About Landlord Investment Show

National Landlord Investment Show is the UK’s leading property investment exhibition, providing solutions, networking and advice for new seasoned and investors in the buy-to-let market. Established in 2013 and operating in property hotspots throughout the country, it has now run 54 shows successfully, and has provided property investment solutions for over 20,000 landlords in the last 12 months alone, a growth of 31% since 2015.

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Why did the IFS issue the report “The decline of homeownership among young adults”?

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The Institute for Fiscal Studies issued the Briefing Note “The decline of homeownership among young adults” on 16 February.

It contained findings, but did not make any recommendations. The key findings were:

• Today’s young adults are significantly less likely to own a home at a given age than those born only five or ten years earlier.

The post Why did the IFS issue the report “The decline of homeownership among young adults”? appeared first on Property118.

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New Energy Regulations could scupper mortgage renewals

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MEES & Mortgage Renewals:

Private landlords hoping to fix their mortgage rate ahead of any further increases in bank base rates, and those who rushed-in to buy using soon to expire two-year fixed rates to avoid the new 3% surcharge back in April 2016, could find their plans scuppered by the new Minimum Energy Efficiency Standards (MEES).

The regulations, which are due to take affect from April 1, 2018, and according to Property Master, the digital start up that uses algorithms to match the requirements of individual private landlords against the entire buy-to-let mortgage market, they could prevent landlords getting mortgage renewals.

The new MEES rules, set to come into effect in less than six weeks’ time, will force landlords to ensure their entire rental properties are in line with the new standards.  This will require their properties having an energy rating of at least an E.  Failure to comply with these new rules will mean that the property will be illegal to rent out on a new tenancy, and this could affect property and property portfolio valuations for mortgage renewal purposes.

“Lenders granting new finance deals will typically require properties to be revalued and we should prepare for value to be affected by fears some landlords will encounter void or empty periods as they rush to upgrade their properties or that some properties will no longer be able to generate a rental income because the landlord has not made or put in place plans to raise a property’s energy rating,” said Angus Stewart, Property Master’s Chief Executive.

Mr Stewart continues:

“This could be a particular problem for portfolio landlords as they will need to ensure all their rental properties comply with the MEES rules even if they are not seeking to remortgage every property they have.  Having just one property with a below standard MEES rating could prove to be a problem for some landlords looking for a new finance deal.  Landlords who have a fixed rate which is soon to expire or who just want to get a good deal ahead of any forecast bank base rate cannot risk ignoring the April MEES deadline.”

Landlords failing to comply with the new MEES rules could potentially also face substantial financial penalties in addition to potential void or empty periods.  The penalty for renting out a property on a new or renewal tenancy for any period of fewer than three months will be in breach of the MEES Regulations will be equivalent to 10% of the property’s rateable value.

The fine is subject to a minimum penalty of £5,000 and a maximum of £50,000. After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.

These new rules will apply to new tenancies and to tenancy renewals and landlords will be required to ensure compliance before the lease is granted or renewed.

An estimated 20 per cent of non-domestic properties are thought to be in the soon to be illegal ‘F’ and ‘G’ energy efficiency rating brackets.  Works that may improve the rating include upgrading the boiler and improving insulation but in some cases improvements to the fabric of the building may be necessary, which could be costly.  There are a limited number of exemptions to the MEES rules, for example, if consent to upgrade the property is refused by a third party such as a local authority.

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