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Wednesday 14 March 2012
This article looks at ways in which, in the current economic climate, property owners can achieve more income out of their property. Primarily aimed at landlords, this will also be of use to tenants and owner/occupiers.
As a landlord, are you making the most of your investment and maximising the income it generates. For example, whether you have commercial premises or a student house, have you thought about use of the roof space?
An easy example is telecommunications installations. It has long been commonplace to see telecommunications equipment installed on tall commercial buildings and it can generate useful additional income, but there are legal issues to be aware of – particularly the impact of the Telecommunications Act. This legislation can give the telecoms operators additional rights over and above any rights which may arise as a result of the lease of roof space, and can make it difficult to make them remove the equipment at the end of the lease.
A feature which is currently becoming more commonplace is the installation of solar panels on roof space and this could become a feature on student properties. I have been consulted several times about this and the things to be considered include:
• Mortgage lender’s consent;
• Landlord’s consent;
• Ownership of panels vs. Leasing of roof space;
• Access and Maintenance;
• Remove and Replace provisions – loft conversion, etc.
If done properly, installation of solar panels might enhance your property’s value as well as your green credentials, but get it wrong, and it could end up costing you more in the long run.
In a similar vein, consider unused land for telecommunications masts. Negotiated properly, these leases can generate additional income from previously unused land.
What about advertising? If the property is in the right location, advertisers will pay for space – often without there being any adverse disturbance of ongoing activities on the site – think about gable ends, boundary walls, etc. There are, of course, planning issues which must be addressed but, again, done properly, an additional revenue stream can be generated.
Landlords of retail premises might consider “meanwhile leases”. These are temporary leases which can be used to deal with a seasonal need such as “pop-up” Christmas shops and similar. It is important to do it properly so as to avoid being unwittingly landed with squatters.
Other ways of protecting revenue for landlords can include:
• Rent Reviews – always ensure that rent reviews are handled properly and on time. Failure to do so could lead to lost income or below-market rent.
• Service Charges – Landlords should check that they are charging everything to the Tenant that can be fairly and properly charged. Make sure that you are not making repairs to the property which properly fall within the tenant’s obligations. When was the lease last checked against what is being charged?
• Are leases still current? – If expired, is there an opportunity to renegotiate terms – revised rent, longer term, break penalties, etc.
Just as we have looked at these issues for landlords, tenants can just as easily take a look at their own situation and consider whether they are paying for dead space. If that is the conclusion, consider doing something about it. Check the lease – see if it allows sharing or subletting and, if it does, set about finding someone to share the cost. Always do it properly though, and with the approval of the landlord, as to do otherwise can lead to trouble for a tenant, and this is all about maximising income not reducing it. Unauthorised sharing or subletting could result in a costly action being brought by the landlord but, when done properly, it can bring in some valuable income.
Another area where it might be possible for a tenant to improve the cash position is by re-gearing. Re-gearing is essentially the renegotiation of lease terms. So, a tenant might consider approaching the landlord and seeking a rent reduction, more flexible terms, such as more frequent break options, or even some other incentive, such as a rent-free period. It is a tenant’s market and, if you don’t ask you don’t get. However, it is better if there is some event around which negotiations can take place – such as a lease renewal or an upcoming break date.
Beware of traps though – particularly with the exercise of break clauses as it is easy to make a mistake which might fundamentally jeopardise the tenant’s negotiating position.
Tenants should also consider whether everything is in order from their perspective.
As per Landlord but in reverse:
• get good advice on rent review. Stand your ground and drive a hard bargain.
• Service Charge. Scrutinise everything against what the landlord is properly entitled to charge. Ask for a breakdown of generic costs. Make sure things are not being overcharged. Savings are possible if service charges are challenged properly.
Owner/Occupiers are not under the same constraints as tenants. They are generally free to do what they want within the constraints of the law and the planning process. So consider letting parts of premises which are unused. The same principles as described earlier apply – telecoms/solar panels/ advertising spaces.
It is always, of course, open to owner/occupiers to consider a complete redevelopment of the site to a completely different and more profitable use. This might be a brave move in the current economic climate but could be a better return in the long run.