Shoosmiths LLP
  February 10, 2009 - England

Occupying Commercial Premises is a Necessary Evil for Most Retailers.
  by Libby Shirtcliffe

But which practical actions could add up to substantial cost savings in the current climate and for the future?:

  • try to capitalise on potential rent savings in volatile markets
  • look to release funds from the portfolio - sweat the assets
  • make sure that service charges are kept in check
  • act quickly on sub-tenant default

These are the key messages:

  • Rents in most market places are falling. Valuers are finding it difficult to be accurate about what the market will do in the short to medium term, but the smart money is on rents falling still further. Maximise the refund due if your units are overrented, by triggering the 1954 Act statutory notice procedures at the right time to claim interim rent. Waiting too long might mean missing out on setting the rent for the next 5 years at the bottom of the market. When is the right time? Keep close tags on the markets with your valuer experts, and then consider the best strategy in each case - no one size fits all.
  • Look at re-gears, downsizing, and sale and leaseback deals - work with landlords to get maximum benefit for them and you.
  • Review your service charge - ask for a detailed breakdown of the accounts. Make sure that the lease allows your landlord to charge for all of the categories of work in the accounts, and that the levels are fair. Check for failure to calculate the charges in accordance with the lease formula. Service charges are not like utilities bills - payment in full must be reasoned and justified.
  • Large property portfolios always have surplus sub-let units, whether in whole or in part. Here, look at two important areas:
    • Control of sub-tenant breaches - Insolvency remains a real risk, so swift action may prevent future loss. Keep accurate records of accounts, all conversations and correspondence, and consider issuing statutory demands to force a quick settlement of arrears.

    • Maximise rental income from sub-lets of part - look at falling markets and use the lease renewal procedures to your advantage to minimise paying rental refunds on overrented units. You may need to push to get the deal done, as the longer you leave it to fix the new rent, the further the market might fall. Alternatively, delaying completion of a new lease for as long as possible may be the preferred strategy - treat each case individually.

In time, the market will recover from its current state of uncertainty, but if you plan smarter, you can make savings that go straight back to the bottom line. Besides, cost control never goes out of fashion.




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