Commercial Property Management Archives

Why use a building surveyor at the start and end of your commercial lease?

Posted on June 20, 2023 by admin

A commercial building survey is not just for properties being sold. In fact, there are many reasons why you might appoint a surveyor to carry out a building survey or inspection on a rented commercial property.

Assessing the condition of the property

All commercial leases have clauses regarding the condition of the property, and how it should be maintained. This wording is designed to protect both landlords and tenants. But when it comes to enforcing these clauses, or ensuring a commercial property is being properly maintained, professional help is often needed.

This is where a trusted commercial building surveyor is worth their weight in gold. They can carry out building surveys and other inspections, and provide detailed reports (including photos) on the condition of the property and any maintenance issues. With this in mind, having a building survey done at both the start and end of any lease is a good way to reduce risk and ensure peace of mind.

As well as a formal commercial building survey, surveyors can also help with:

Schedule of Dilapidations – when a tenant has failed to properly maintain the property, this report outlines the items of disrepair and specifies the work needed to bring the property up to scratch.
Photographic Schedule of Condition – this document sets out the condition of the property in forensic detail, and covers the repair and maintenance obligations for the length of the lease, as agreed between the landlord and tenant.
Rent reviews – setting out the property’s current rental value, this report can be used to support lease negotiations and ensure the rent is set at the proper market rate.

Benefitting commercial landlords and tenants alike

Many commercial tenants choose to have a property survey done before they take on a new lease because it can save them a lot of money in unexpected repairs. And for landlords, surveys and inspections are a vital way to protect their investment.

Ultimately, working with a professional commercial property surveyor means both sides can be sure the advice given is accurate and fair – which helps to promote positive communications and deepen trust between the landlord and tenant.

At Perry Hill Chartered Surveyors, we support both landlords and tenants with the full range of surveys, inspections and valuations. Discover how we can help you get the most out of your commercial lease agreement.

Looking for new commercial premises? A chartered surveyor is worth their weight in gold

Posted on September 19, 2019 by admin

Whether you’re starting a new venture, expanding your operations, looking to downsize, or moving to a new location, finding the right commercial premises is critical. Having a good chartered surveyor on your side can save you time, money and hassle during this process – and throughout the lifecycle of your occupancy. Here’s how.

Finding and assessing properties

(commercial agency services)

Chartered surveyors are property experts. So it makes sense that they assist with property search and selection, helping businesses with both lettings and property sales. At Perry Hill, we’ve found this approach brings big benefits; for example, when it comes to negotiating rent or assessing the condition of a property, we have an in-depth idea of the market and building. This helps the client avoid paying too much (in terms of rent or sale price), and helps reduce the risk of acquiring a property with defects.

Mitigating risk

(dilapidations and repair)

You’d expect to have a building survey done before purchasing a home, but did you know chartered surveyors regularly carry out building surveys on commercial lettings, as well? Many commercial tenants opt to have a building survey completed before they take on a new lease because it can save a fortune in unexpected repairs. It also helps to reduce the risk of inheriting repair obligations from a previous tenant.

Another way to reduce risk in commercial lettings is to get a surveyor to draw up a Schedule of Condition at the start of the lease. This forensic report on the property’s condition – including detailed photographs – acts as a contractual agreement between the tenant and landlord, and clearly defines the condition of the property. This serves to limit the tenant’s obligations to repair or maintain the property, and protects both parties against future disputes.

Negotiating a fair rent

(market value)

Engaging Perry Hill as rent review surveyors is a great way to ensure you’re not paying over the odds for your commercial premises. During the rent review, a chartered surveyor will assess the rental value of the property, taking into account valuation standards and current market conditions, then provide a detailed report on its rental value – a vital tool for rent negotiations, be they at rent review or lease renewal.

If you’re looking for new commercial premises, Perry Hill Chartered Surveyors can support you with the search and selection, carry out building surveys and inspections, and provide trusted rent reviews. What’s more, our experienced surveyors are accredited by RICS, the Royal Institution of Chartered Surveyors, meaning you can count on getting accurate, fair advice every time.

The Importance of a Break Notice in Commercial Leases

Posted on September 5, 2019 by admin

A break notice or break clause is an essential part of any commercial lease, since it allows either the landlord or tenant to terminate the lease early. So far so simple. But making sure the break notice is worth the paper it’s written on? That’s where many commercial leases go wrong.

Why do you need a break clause?

The break clause can be one of the most difficult elements to negotiate in a commercial lease. Yet, there are clear benefits to both tenants and landlords. For the tenant, a break clause gives a certain amount of flexibility to react to market conditions – for example, by downsizing (or perhaps moving to a bigger space) as the business demands. It’s a much-needed safety net for tenants, particularly in unpredictable times like these.

And what about landlords? Surely they want to hang onto tenants for the full term of the lease? For the most part, that’s true. However, sometimes a landlord may want to redevelop or sell the property before the end of the lease. The break clause gives them that opportunity.

The potential pitfalls of a break clause

The idea behind the break clause may be simple, but the reality is often more complex than people expect. The courts deal with a surprising number of disputes over commercial lease break clauses – specifically, exercising a break clause to end a lease early.

In many of these cases, the break clause has been drafted in such an ambiguous way, it makes it difficult to exercise the clause in practice. Or sometimes the procedure for exercising the break clause hasn’t been properly followed, or certain conditions haven’t been met. Whatever the underlying reason, these disputes can be extremely costly.

Therefore, when you’re negotiating a new commercial lease, it pays to give your break clause plenty of attention, and seek specialist advice on whether it really protects your interests. It could save you a great deal of money and legal wrangling further down the line.

At Perry Hill Chartered Surveyors, we work with both tenants and landlords across London and the South East to agree unambiguous break clauses in commercial leases. From leisure and retail premises, to offices, industrial warehouses and mixed-use schemes, our team will ensure your commercial lease works for you. Talk to us about your commercial lease needs.

Planning building work on your property? Get a pre-building Schedule of Condition report first

Posted on August 20, 2019 by admin

When carrying out construction work on your property, there’s always a risk of damage to a neighbour’s property – especially in terraced and semi-detached properties. To help reduce liability and scope for neighbour disputes, it’s well worth investing in a pre-building Schedule of Condition report before work starts.

What is a Schedule of Condition?

The Schedule of Condition is essentially a building survey, but one designed to record the condition and defects of an adjoining property. It’s a forensically detailed report (including photographs) itemising the full condition of the neighbouring property pre-works.

Why document the condition of your neighbour’s property? Because it reduces your risk in the long term. For example, if your neighbour files a claim for damages resulting from your building works, you’ll have a complete, independent record of their property’s condition before work started, and this will help to determine whether their claim has any grounds.

What sort of construction work are we talking about?

At Perry Hill, we recommend getting a Schedule of Condition report in advance of any building project that might impact neighbouring properties. This may include a rear extension, structural alterations, loft conversion or basement conversion. The report can be used for both residential and commercial properties.

Investing in peace of mind

Construction work can be stressful and disruptive. If there’s one thing you don’t need on top of that upheaval, it’s a dispute with the people next door. For you and your neighbour, the Schedule of Condition report provides important reassurance, because both parties know there’s a factual record of the adjoining property’s condition before work started.

Then, when the construction work is finished, a further inspection can be carried out, checking off against the Schedule of Condition report and confirming whether any damage or issues have arisen as a result of the works. It’s a sensible way to maintain good neighbour relations before, during and after a building project.

To find out how a pre-building Schedule of Condition can help ensure your construction work is a success, talk to Perry Hill. Our team of chartered surveyors can carry out all kinds of building inspections and reports, and provide trusted advice on the best way forward for your property.

Why You Should Get a Pre-Building Schedule of Condition Report Before Commencing Building Work

Posted on August 20, 2019 by admin

What is a Schedule of Condition?

Why document the condition of your neighbour’s property?

Because it reduces your risk in the long term. For example, if your neighbour files a claim for damages resulting from your building works, you’ll have a complete, independent record of their property’s condition before work started, and this will help to determine whether their claim has any grounds.

What sort of construction work are we talking about?

Investing in peace of mind

How a commercial rent review can help you negotiate with your landlord

Posted on May 23, 2019 by dev@perryhill

If you lease a commercial property, you’ll know that some landlords may inflate a property’s rental value and charge more than the property is really worth. But did you know that there’s a formal way to challenge the landlord’s proposed rent and ensure you’re paying a fair market rent? That formal process is known as a ‘rent review’.

How do rent reviews work?

A rent review can be used for any type of land or commercial building, and is recommended anytime you renew a lease or take on a new lease. In a nutshell, you appoint a chartered surveyor to assess the property in line with professional valuation standards and current market conditions to gain an accurate picture of its rental market value. You’ll then receive detailed information about the value of the lease, which you can use in negotiations.

It’s not just tenants that can request a rent review – landlords may also appoint a surveyor to conduct a rent review. Say, for example, a landlord feels their property is undervalued at present, they may want a rent review to justify a higher rental value when the lease is up for renewal.

Typically, commercial rent reviews are carried out every three to five years, but your lease agreement may outline more frequent reviews. Be certain you know what you’re agreeing to before you sign on the dotted line.

Making sure you’re paying a fair rent

When you understand a property’s correct rental value, it puts you in a stronger negotiating position:

You can be sure you’re not overpaying, before you agree to a new lease or lease renewal.
In the event of a dispute with your landlord, you can use the rent review as proof of the property’s current market value.
You can set out any factors that may lower the property’s market value, such as maintenance issues or external influences – and these factors will be supported by the rent review.
You can also budget accurately, and keep your operational costs to a minimum.

At Perry Hill Chartered Surveyors, we act as commercial rent review surveyors for tenants or landlords who need a rent valuation they can trust. Our experienced surveyors are certified by RICS, the Royal Institution of Chartered Surveyors, meaning you will always receive an accurate, fair rent review. Discover more about our commercial rent review service.

Landlords, when did you last do a rent review on your commercial properties?

Posted on May 9, 2019 by dev@perryhill

In our experience, many commercial landlords forget about doing a regular rent review. It’s an easy thing to overlook – particularly when a property is being leased to a stable, long-term tenant – but neglecting the rent review can cost you money in the long term.

What’s involved in a commercial rent review?

In simple terms, a chartered surveyor will assess your property, compare it to other similar commercial properties in the same area, and provide a report on the property’s current rental market value. The rent review can then be used to ensure the rent is set at the proper market rate, and to support lease negotiations.

How often you conduct a rent review will depend on what’s set out in your commercial lease agreement, but every three to five years is a good rule of thumb. Certainly any time a lease is due for renewal, you should carry out a rent review before negotiating the new lease with tenants.

Understanding the benefits of regular rent reviews

A rent review will help you establish the correct market rental value of your property, which means:

You’ll be able to increase the rent every three to five years, depending on inflation and market conditions.
You’ll have the assurance you need to tackle lease renewal negotiations with confidence.
You’ll be enhancing the value of your property and protecting your investment.
In the event of a dispute with your tenants, you’ll have proof of the accurate value of the property.

Professional standards for rent reviews

Whenever you’re negotiating a lease with tenants, both you and your tenants will have different objectives in mind; you’ll obviously want to maximise your investment, while the tenant (rightly) wants to make sure they’re not paying over the odds. A professional rent review – one that’s conducted in line with international valuation standards – ensures that the rent is fair and accurate, thus paving the way for smooth, successful negotiations.

At Perry Hill, our team of RICS-qualified chartered surveyors has a wealth of experience helping landlords with all aspects of commercial rent reviews and valuation – including for pension funds, trusts, charities and local authorities. Serving Surrey and the South East, our trusted rent review service can be used for any type of land or commercial building. Ask us about enhancing the value of your asset with a commercial rent review.

Lease Valuation Methods and Examples

Posted on February 14, 2019 by dev@perryhill

The market for acquiring short lease flats has always been strong, with investors and developers seeking to acquire short leaseholds, to refurbish and to obtain a lease extension. In this blog we look at the methods of valuing a short lease, in respect of obtaining a statutory lease extension.

Lease Valuation Method for Properties

The main accepted method of calculating the existing Leasehold value of a particular property, with less than 80 years unexpired lease term, is to utilise the Graphs of Relativity. However, this is not always appropriate valuing short leases, when they get to sub 30 years.

In cases where a lease term is sub 30 years unexpired, other methods of valuations should be considered. Using an investment calculation would be appropriate in ascertaining an existing lease value in our opinion.

There would be no need for any further allowance for the “no act” world which you would have to consider when using a graph of relativity to calculate the existing Lease value. The statutory assumption to be adopted when valuing the existing lease value is to assume that the property does not have any rights under the act for a statutory lease extension.

For unexpired Lease – “short leases” of say 20/30 years unexpired threshold, the valuation method should consider what a prudent investor be willing to pay to acquire the Lease taking into account that at the end of the term the Leasehold property would revert back to the Freeholder. A valuer would first have to access how much the property would be let out for on the open market, per annum, minus the relevant deductions associated with properties that are let out on an Assured Shorthold Tenancy. Once this has been assessed an appropriate yield would need to be applied. The yield would represent the appropriate rate of return an investor could expect from a property, knowing that it is effectively a wasting asset.

Leasehold Valuation Calculation

We have outlined a leasehold valuation calculation example below; please note the figures used are purely subjective.

A two-bedroom, ground floor flat rents for £1350.00 per calendar month (£16,200 per annum). Unexpired term is 17 years.

Calculation

£16,200 per annum

Less

Ground rent @ £15.00 per annum

Management costs @ 10% of annual rent (£1620.00)

Void period @ 5% of annual rent (£810.00)

Total = £13,755 per annum

Capital Value

£13,755 @ Yield (8%) for 17 years (9.1216 YP) = £125,468.00

Typically, a residential investment would attract a yield of 3-5%, given the inherent capital value associated with residential investments. However, as this asset has a declining value because it is a leasehold wasting asset, an investor may expect a return of 7-8% on sums invested reflecting the capitalised short lease value.

This is an appropriate method of valuation for residential short Leases, as the methodology represents a tried and tested approach for calculating the value of investments across a multitude of different disciplines. The Upper Tribunal has stated that the Graphs of Relativity should only be used when there is a lack of real-world evidence. This method would be considered as real-world evidence, as it is based upon transactions that have been completed. There may be different attitudes to yield and deductions applied to the calculation depending on the location, lease and type of the property.

Lease Valuation Advice from Perry Hill

Our valuers are specialists in appraising Leases and Leasehold premises, in order to provide Clients with realistic assessments, in respect of the premium payable in lieu of Statutory Lease Extensions.

Get in touch with one of our team members today by filling out our contact form. One of our trusty agents will then get back to you.

Selling a Property with a Short Lease – Case Study

Posted on December 5, 2018 by dev@perryhill

Lease Extension in London

Earlier this year Perry Hill were instructed to carry out a lease extension in Isleworth for the leaseholder. Below we explain how Perry Hill was able to save the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Selling Property with a Short Lease

This was job was a low lease and the property in question had circa 16 years unexpired on the lease. The property was inherited recently and the leaseholder wanted to put to sell the property as quickly as possible, this could only be carried out after a lease extension had been completed.

Low leases require a different approach to be used, this particularly due to the large sums of monies expected for the lease extension and the freeholder would be keen to negotiate hard because they know at the end of the term, they will be acquiring the property at no cost.

The executors of the estate served a section 42 notice; this reserves the leaseholder’s right to a 90 year lease extension at nil ground rent under statute.

This was a particularly interesting case due to the nature of the low lease and calculating the existing lease value. There are a number of methodologies that can be used; these methods are the graphs of relativity, real world evidence of similar comparable properties on similar lease terms and investment value.

Lease Extension Outcome

In this particular case the investment value was deemed the most appropriate, as this incorporates both what an investor would pay on the open market for a property with a low lease, providing a certain level of income via rent and a “no act” world.

The investment method is effecting via an experienced surveyor, is valuing the Market Rent for the property assuming an Assured Shorthold Tenancy, deducting an appropriate percentage to include vacancy rate and 10% for management of the property.

This value would be then capitalised at 7%. The 7% represents the rate of return when compared to the Capital Value of the property assuming a short lease. This is an effective away of calculating the existing lease value, as there would be no further deductions for a “no act” world, which is a contentious issue currently in leasehold valuations with the recent Sloane v Munday case. Between the surveyors it was decided that the investment valuation was an appropriate method for calculating the existing lease value as there was no real world evidence available.

Using this way of thinking, Perry Hill are delighted to state that they saved the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Lease Extension Services from Perry Hill

Perry Hill Chartered Surveyors successfully help homeowners each year in extending their residential Leaseholds. Our industry-recognised surveyors save our Clients time and money by helping with the burden of negotiating complex residential Leasehold negotiations.

Find out more about Lease Extensions and contact a member of our team today to discuss your options.

Lease Extension – How to Extend your Lease

Posted on November 5, 2018 by dev@perryhill

Two routes are available for homeowners interested in obtaining a lease extension premium. This is an informal lease extension or a statutory lease extension. In this blog I will address the typical process for statutory lease extension.

Under all leases, the lessee will be responsible not only for your own surveying and legal expenses in extending the lease, but also your freeholders costs as well.

Statutory Lease Extensions Explained

This is the right under statute for a statutory lease extension, which a 90 year extension to your original remaining term at nil ground rent provided that you are a qualifying lessee. To be a qualifying Lessee you have to meet the following criteria:

Leasehold Ownership. You have to have owned the leasehold interest for at least 2 years
Leasehold term. A long lease is, mainly, a lease for a term of years in excess of 21 years from when it was originally granted (this does not apply to the reaming unexpired term, but the original lease length).

Despite fulfilling the criteria, you would not be eligible for a statutory lease extension if:

Housing Trusts. If the landlord is a charitable housing trust and the flat is provided as part of the charity’s functions.
Commercial Interests. It is a business or commercial lease.

If these criteria are fulfilled, then the route of a statutory lease extension is available for you.

Leasehold Renewal Process

A typical lease extension process would involve the following:

Instruct a surveyor to carry out a lease extension valuation on your property, this will normally set out a fair and reasonable premium for a lease extension.
It will also set out the level in which a section 42 notice should be served upon the landlord. This is a notice that sets out under statute that you are seeking a lease extension valuation. It also sets the valuation date as the date of the notice. This is very important, as more times elapses, the less the unexpired term thus resulting in a more expensive premium.
The notice cannot be served by the surveyor; however it must be served by a competent solicitor.
The landlord has a 2 month period to serve a counter notice, section 45 notice, this will either accept the proposed premium or reject the premium in the section 42 notice and state what they believe the premium should be with the lease extension.
Lease extension’s have a degree of negotiation, as there are a number of variable factors and the lessee is typically looking to acquire the premium for the lowest figure, while the freeholder is seeking the highest possible figure.
Typically once both notices have been served, each of the surveyors on both sides are instructed by their clients to negotiate the lease extension premium, looking to get the best deal for their party using the facts, the negotiation fees are payable by each of the parties. Unlike the valuations fees which are payable by the Lessee.
Once the premium is agreed, which typically can be a 4-6 month period, the matter is passed onto the solicitors who will agree the new lease and with the transfer of funds the matter can be completed.
If the premium is not agreed, in the allotted time period, the lessee can make an application to tribunal; this typically has an associated fee of £500+Vat through the solicitors.
Each party will have to bear their own costs with professional fees and share the tribunal costs equally.
The tribunal will consider the case bought forward by each of the surveyors and decided on the premium payable. This can be appealed; however this is a costly exercise.

Residential Lease Extensions in Guildford, Surrey and London

Perry Hill’s residential experts successfully help those looking to extend their residential lease. Our team can provide expert valuation services prior to the lease extension process. We are also happy to assist you in the negotiation stages of the lease extension process. To find out more about our residential lease extension team, get in touch here or call us on 01483 237333.