David Rayner, partner from Birkett Long’s Commercial Property Team discusses the “big themes” that are likely to affect commercial premises during 2012.

From the perspective of both landlords/investors on the one hand and tenants/occupiers on the other, sustainability and cost saving will top the priority list – indeed, the two are linked, because the more sustainable a building the larger the achievable cost savings, especially over the long term.

Sustainability has become an important factor for anyone involved in commercial real estate transactions.  Historically, landlords and investors didn’t pay much attention to how sustainable their buildings were nor did they look at ways to reduce costs and expenditure relating to that building, expecting that everything would fall on their tenants.  Now, however, in a changed economic environment, there is a premium to be gained by landlords who hold sustainable buildings with lower costs of occupation.

It is understandable that business leaders want to concentrate their attention and efforts on running the business rather than the business premises.  But the tough world in which all businesses now operate makes it prudent to look more closely at the terms under which the business is occupying its premises and see how costs could be saved.

Birkett Long has introduced a new service offering tenants a review and report on their lease.  The firm also provides a wider review and advice service, designed for both landlords and tenants, which provides an appraisal of business premises and highlights any action – particularly urgent action – that may need to be taken.  This appraisal looks at how costs and expenses can be minimised. 

The following examples illustrate the type of issues such a review can address:
- A landlord providing common services to a building or an estate and a tenant looking at its own office or unit, will both be keen to reduce energy costs as far as possible.  Both need to understand how any works to improve the sustainability of the building - or the smaller unit - can be carried out and by whom and, if different, at whose expense.  Both also need to understand how such improvement works might influence the outcome of future rent reviews.
- Landlords and tenants need to appreciate how any break clause can be operate.
- They should know what tactics can be adopted and understand the essential points when negotiating lease renewal.  In the current market, a key question is whether it is in the tenant’s best interest to try to force the landlord’s hand or whether the landlord should do all they can to retain existing tenants? 
- The full extent of repairing and maintenance obligations should be understood.  Both sides need to consider the tactics to adopt should the issue of dilapidations be raised.  Many commercial leases relating to units within large estates or buildings will have provisions requiring the landlord to provide services for the benefit of all tenants, but allowing him to recover the costs of those services from the various occupiers.  Landlords and tenants should understand exactly what has to be provided, or can be provided, and the consequences of not doing so.  We have seen cases where attempts have been made to squeeze services not covered into the scope of ‘service provision’. 
- Insurance and the recoverability of insurance premiums is a vitally important area.  Landlords and tenants should be aware of whether they can challenge the insurance provisions and where liability for making good damage from uninsured risks would fall.

In a difficult business environment, costs and cost savings will become increasingly important.  It is only the well advised landlord or tenant who will know how best to meet the challenges of the forthcoming year.

For further details on Birkett Long’s lease review and commercial property review services please refer to your usual Commercial Property contact or David Rayner