Watts Sector

A break with tradition?

In the current economic climate, universities need to know their property portfolios inside out and maximising the value of leases is no exception.

As far as landlords are concerned, universities are Triple-A-rated tenants. When they rent property, they tend to take long leases and pay their rent on time. But the environment in which the Higher Education sector has operated in the past is rapidly changing. Now universities must follow the private sector’s lead in order to squeeze best value from their rented property.

Where property is leased, there are two key aspects to consider as opportunities to achieve best value: leases and dilapidations. Take a commercial approach: read and understand your lease terms and always exercise the break options, regardless of your intentions. In the current property market, a university tenant is likely to be able to re-negotiate very competitive rents with landlords who will be keen to retain them. If this is not possible, or negotiations end in stalemate, remember, it is a buyer’s market and you will find a better deal elsewhere, even with potential relocation costs.

On lease negotiation play hard and cap service charges when they are deemed unreasonable; particularly in older buildings with ageing plant. Other options could include renegotiation of a longer lease term or perhaps offering to help modernise the property or incorporate any necessary renovations into your long term maintenance plan in exchange for a reduced rent. If landlords serve a dilapidations claim on expiration of a lease, ensure that it is carefully scrutinised. Take professional advice if you do not have a commercial dilapidations expert in house. It could pay dividends.

Lee Soden, Director of facilities management at Canterbury Christchurch University in Kent advises producing a business case for each element of the property portfolio: “it pays to understand the lease position and liability of the university in terms of dilapidations on every property in which you have an interest,” he says. If estates departments are to keep a lid on costs and work within greatly reduced budgets they must have a strong grasp of the lease terms they have signed up to and the penalties that will be levied if they come out of that lease. “Keep on top of your portfolio, know the break clauses and take independent advice from someone who knows the market,” advises Soden.

The same principles apply if the university is acting as a landlord by renting space to a tenant. Ensure dilapidations claims are effectively enforced and settled and review tenants’ leases to ensure service charge monies are claimed and expended to maintain the condition of common parts and thus the capital value of the property. The importance of maximising the benefit to be gained from your property assets cannot be underestimated nor understated whichever hat you are wearing.

For further information contact Mark Few, Director in Watts’ London office on 020 7280 8000.

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