Property Industry Update March 2008
Credit crunch hits commercial property market
Business confidence across the UK has been hit by turbulence since those heady spring days of 2007. The credit crunch. A run on Northern Rock. Stagnating UK house prices. Scottish Widows and other funds closing the doors to investors wishing to exit their property pension funds.
There are two key messages for owners of commercial property:
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The first is that the falls in UK commercial property values seem to be hitting the south-east of England hardest.
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Secondly, if you’re thinking of selling property, make sure you know your product.
Angus MacRae, one of Semple Fraser’s partners, comments that:
“Selling assets fast is mostly common sense – it’s about good organisation and facing the reality of what you own. It may sound harsh – but what you own can sometimes be very different from what you would like to sell.”
Semple Fraser’s top 5 tips on readiness for sale
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Work out exactly what it is that you’re selling. Is it a corporate sale (eg the sale of an SPV) or an asset sale? Are you selling the whole asset or just part of it? Are you intending to include any available capital allowances in the sale? If so, pull together the relevant info a purchaser will want to see. Will you be transferring employees to the purchaser under TUPE ? If you think you might be, check out the legal position on that as early as you can.
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Imagine that you are buying fresh and prepare as much as you can in advance of a sale.
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Make sure you have all the up-to-date letting documents, environmental reports, construction documents, VAT documentation, utilities info, planning and building control docs, fire safety risk assessments, management contracts and so on, gathered together in a user-friendly package.
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Did you discover any holes in the due diligence package while you were buying – but you took a view on them? If you did, think about whether the gaps can be fixed just now – or whether you should disclose them “up-front” to interested parties, to prevent purchasers using them as a price-chip weapon down the line.
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Finally (and we would say this, wouldn’t we? – but it’s true) it’s very useful to involve your lawyers in the preparation exercise as soon as you think you might want to sell a property.
Licencing law undergoes facelift
Scottish licensing law is undergoing a seismic change as the new Licensing (Scotland) Act 2005 comes into effect. Since 1 February 2008, we have been in a transitional period – which will last until September 2009 when the new rules will come fully into force.
The new licensing regime will involve the seven previous types of licence being replaced by one "Premises Licence", with the person responsible for running the premises also requiring to hold a new "Personal Licence". Some of the other most notable changes are:
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The old pattern of quarterly board meetings is being swept away, to be replaced by an ongoing programme of licensing grants.
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An application for a Premises Licence will require to be accompanied by various documents, including an Operating Plan which sets out in detail how the premises will be run and a Layout Plan showing the precise extent and configuration of the licensed premises.
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The Premises Licence will not need to be renewed every three years. Instead it will simply remain in force while the premises are being run in accordance with the Operating Plan.
There is widespread concern in the licensed trade about the increased administration and costs which the new regime may entail.
Anyone involved with licensed property, whether as an operator, owner, landlord, tenant or developer of licensed premises, needs to become informed about the detail of the new rules and identify the impact on their business.
For example, anyone planning a new hotel development from now on will, at some stage, need to make an application for a "provisional premises licence" under the new regime – and should be aware that the process for obtaining that differs significantly from the old outline provisional procedure. An application for a “provisional premises licence” can still be made only with outline planning consent. However the problem is that the level of detail required for the layout plans to accompany the licence application means that fully detailed plans will have to be available at the outset of the application in any case.
Alison Gow, one of Semple Fraser’s partners, comments that:
“The problems and front-loading of costs that property developers will face in providing detailed layout plans at the outset of applying for a provisional premises licence for a new site are clear. Representations have been made to the Scottish Parliament to amend the legislation and allow provisional applications with outline plans. However the problems remain to be dealt with for provisional applications unless and until those representations are taken on board.”
Semple Fraser’s licensing team have been studying the new rules and proposed practice closely and can provide any advice required readily.
Scottish Service Charge Code beds in
Since 1 April 2007, service charge regimes in England and Wales have been subject to the "best practice" recommendations set out in the RICS Code of Practice: "Service Charges in Commercial Property".
On 11 September 2007, a Scottish edition of the Code was launched, meaning that landlords and managing agents of Scottish property now also need to pay careful attention to the terms of their Code.
The English and Scottish Codes are very similar in content, both setting out principles as to how which service charge regimes for commercial property should ideally be operated.
Both Codes have the status of a professional guidance note, providing advice on "best practice" to surveyor practitioners. So while there is no absolute requirement to adhere to them, surveyors are at risk professionally if they do not follow the Codes. Also, while the Codes can’t override the terms of existing leases, parties are encouraged to interpret existing leases in light of the Codes.
Some of the most influential landlords of commercial property have already announced that wherever possible they will adhere to the Codes. Increasingly we are seeing clients across the board, whether landlords, tenants or managing agents, asking us whether the appropriate Code should be mentioned in their lease transactions and if so on what basis. There are various alternative approaches, which we can advise on.
At the moment, it’s fair to say that practice in this area is still evolving – and that only time will tell just how deep-rooted the Codes will become in day to day leasing and management life.
FOR FURTHER INFORMATION PLEASE CONTACT: ROLAND SMYTH