 |
       |
Viewpoints
Business
rates update - revaluation 2010 Every five years the Valuation Office Agency (VOA) has a duty to carry out a revaluation of all rateable values in England and Wales and the next revaluation is due to come into effect on 1 April 2010. These will be assessed on the basis of values as at April 2008 and will remain effective for five years, unless changes to the property require a new assessment to be made. The VOA is set to publish the new rateable values later this year, in September 2009, allowing six months for occupiers to check that the valuation is based upon factually correct information, before coming into effect. Whilst the commercial property market was generally relatively poor as at the valuation date April 2008, the market was very much in a 'transitional' period with values falling throughout the year. The uncertainty in the market at that time should enable good opportunities for arguing on reductions. That said there have been increases in values since the last valuation date in April 2003 and numerous properties are likely to see an increase in their rateable values. Particular sectors in Shropshire which could see an increase include prime offices and prime retail, although a range of property could see an increase, depending on their location and general demand for the premises. The actual amount payable is calculated by the Local Authority and is determined by the multiplier which is set by the Department of Communities and Local Government. The present multiplier is 46.2p with a lower multiplier for small business at 45.8p and these are re-assessed every April. Once the new bills are issued in April 2010, special transitional arrangements will come into effect, to phase in the increase or decrease in the rates bill over the first four years of the list. Current business rate relief includes small business relief, (potentially up to 50%) available for properties with a rateable value less than £15,000 and additionally, empty rate relief allows the owner to receive three months relief from rates, with industrial buildings having a six months relief. Thereafter, owners of vacant property are now charged at the full business rate, which has been the subject of much discussion since its introduction in April 2008. Some limited assistance was provided for owners of empty small business premises, when it was announced in the Chancellor's 2008 Pre-Budget Report that properties with rateable values less than £15,000 would be exempt from rates for the Tax year commencing April 2009. Owners of vacant property should take advice to see whether the rateable value of their building can be reduced below this threshold, either by negotiating with the VOA or alternatively by dividing the premises into smaller parts. Temporary lets are also useful for reducing liability. Occupiers should consider reviewing their existing rateable value, as there are still potential reductions to be obtained under the existing rating list and savings can often be backdated. Additionally, the new rateable value proposed for 2010 should be carefully considered and a Chartered Surveyor can advise whether an appeal would be warranted.
Rents in the
credit crunch - caught between a rock and a hard place? The credit crunch and the recession are affecting tenants badly enough. But the ill effects of the current economic climate are compounded for landlords, because if a tenant goes into administration, there is a statutory moratorium which stops the landlord pursuing his usual remedies for non-payment of rent (like forfeiting the lease or sending in bailiffs) without the administrator's consent or the Court's permission. There can be other problems for the landlord too. In a relatively large number of administrations, the sale of the good bits of the company has been arranged before the administration even takes effect. There are often several advantages to these "pre-packaged administrations" but doing things this way can also mean that a third party is let into the premises in breach of the terms of the lease, possibly a third party who is totally unsuitable or unable to pay the rent. So what can the landlord do? Normally, he could forfeit the lease (although many landlords are understandably reluctant to do that in the current market) or ask the Court for an order requiring any third party to leave. But the statutory moratorium means the landlord can't do anything without the administrator's blessing or the Court's permission. Where the administrator won't consent, the Court must be asked to assist. In general terms, the Court is less likely to allow the landlord to take action if it would assist the purposes of the administration to allow the insolvent tenant to stay. Where the administrator is still running the company from the premises or needs to use the premises, the Court may well refuse the landlord permission to take action, although it can order the administrator to pay the rent (or part of it) in the meantime. If on the other hand the administrator doesn't need to occupy the premises in order to achieve the purposes of the administration, the Court will carry out a balancing exercise between the interests of the landlord and those of the creditors as a whole. In these circumstances the Courts have often favoured the interests of the landlord. And what about those cases where the administrator has let a third party into the premises in breach of the lease? Recent case law suggests that even then the Courts are willing to carry out the same balancing exercise. Either way, the landlord
may potentially be caught between a rock and a hard place. 'Potentially'
being the operative word. Because with prompt investigation of the purposes
of the administration, the question of whether there is a genuine need
for the company (or third party) to continue in occupation, and by careful
negotiation, results can be achieved or acceptable compromises reached.
Those discussions with the administrator need to be handled very carefully
though because it's frighteningly easy for a landlord to waive his right
to end the lease.
Empty
rates a blow for industrial market too Much criticism about the earlier decision to abolish tax relief on buildings empty for more than three months, focused on its impact on the office market, especially for speculative schemes. However, the greatest damage will be done to the industrial space sector, especially in the Midlands, which has previously seen the largest speculative shed schemes in the country. Whilst offices have lost 50% relief on empty buildings, industrial developers have lost a massive 100% relief. Until this year, this region's shed market was the most buoyant in the country and now developers will stop building industrial space speculatively on any significant scale, because of the cost if they were unable to find a tenant in time. We are also seeing former industrial buildings demolished, most spectacularly at the former MG Rover works at Longbridge, where 750,000 sq ft has been demolished. Our research, and that from elsewhere, suggested the region's shed sector was in relatively good health, when compared to other areas before the downturn really began to bite and empty rates came into play. Our data, to the end of the third quarter, inevitably showed a sizeable fall in the amount of speculative space under construction across the UK, but 50% of those schemes were underway in the Midlands. This is a clear indication of the confidence which developers had in this region's market. Whilst developers' appetite for speculative space has evaporated, some developers with existing second hand buildings to dispose of are more receptive to refurbishment and believes that good quality second hand buildings will become key to the market as the development pipeline dries up. An example is Black Country-based developer, Revelan, which is progressing with a multi-million pound project in Staffordshire. They paid £2.5m to acquire a 75,000 sq ft distribution unit, on a 3.4-acre site, in Lichfield's Eastern Avenue, as an investment. It's a well-established location, about three miles to the M6 Toll, and little more than a mile to the A38, so it clearly has significant potential. Revelan is now planning to refurbish the original space, and has also submitted an application to build new units. We represented Integra, and Jones Lang LaSalle acted for Revelan, which then gave the agents a joint instruction to market the site. They'll be looking to build small workshop units, but the site could take a 50,000 sq ft warehouse, and there are still logistics or distribution companies in the area with requirements for new space. No developer is going to rush into any scheme in the present climate, but if they research their market correctly, and have the right advisers, there is clearly still potential for deals to be done.
Using
industrial strength to ride the economic storm The creeping impact into public sector build too, however, underlines the importance of the Government's plans to provide additional funding for stalled PFI projects. Highlighting the ongoing plight of the construction sector and all those associated with it, the recent RICS Construction Market Survey found workloads continued to fall sharply in the final three months of 2008. It is now clear that without speedy action to support this sector, we run the risk that the economic fallout could be worse than in the downturn of the early 1990's. Triggered by the credit crunch, this problem is all encompassing. Home buying is affected, sector employees are facing job cuts and contractors are suffering. Many are being forced to keep tenders low in an attempt to remain competitive and ride out the recession as a result of new orders falling significantly and the demand for construction work drying up. According, to the latest Tender Price Index compiled by RICS' Building Cost Information Service (BCIS), the price of new construction work fell by 0.8% in Q3 2008 compared with the previous quarter and by 1.2% compared with a year earlier, and BCIS expect tender prices to fall by a further 10% throughout 2009 and 2010. Overall, new orders for construction fell ten percent in Q3 compared with the previous quarter and 18% compared with the same quarter in 2007. Over the same period, costs continued their upward trajectory with materials rising 7.2%, and wage rates rising 4.6% in the year to Q3 which puts a tighter squeeze on any potential profits. New work output is expected to fall this year and, according to our UK Construction Market Survey for Q4 2008, confidence in prospects for the next twelve months is at its gloomiest with over 45% chartered surveyors in the Midlands expecting workloads to fall rather than rise. Private housing, private industrial and private commercial are expected to suffer the most significant downturn over the next two years. Indeed, according to the survey, private commercial and industrial workloads dropped sharply over the fourth quarter with private industrial experiencing the sharpest decline in the Midlands. With tenders predicted to fall by 7% and BCIS analysts not expecting new work output to grow until 2011, there is no denying the next two years are going to be tough. Contractors are going to have to be competitive in order to stay in business with those who traditionally carry out a significant proportion of public sector work likely to fair better than those carrying out mainly private sector work. There is however a little more optimism in the public sector arena, with the Government planning to bring forward many projects in an attempt to stave off the impact of the recession. One example is the significant monies being made available regionally over each of the next three years via the Homes and Communities Agency including some arrangements to buy unsold stock off the open market from house builders for the provision of affordable homes. Others include increased investment in new schools and other public building projects. With infrastructure workloads currently declining and the outlook for future levels of work, profits and employment in the construction industry all low, it is essential that the Government takes all possible action. A key barrier to activity is the lack of access to finance for infrastructure development as banks have tightened lending criteria and a Government infrastructure bank should provide some support. However, the impact of the
bank will be minimal unless projects which will have an immediate impact
on jobs and activity are given priority. Construction jobs will only
be safeguarded by schemes that can be put in place in days and weeks
not months and years. Latest News: For all the latest Midlands property news visit our regularly updated news and deals section. For all the latest available commercial property visit our Property Search facility. Commercial property jobs:For more information on the
latest job vacancies
and careers news in the East and West Midlands, in the commercial property
market and beyond, visit our careers centre.
Last updated: 26 March 2009
|
|||||||
