Watts Sector

Avoid the void

Local Authorities are being asked to take a more commercial approach to their property assets than ever before. Where better to start than with careful scrutiny of lease arrangements.

As far as landlords are concerned, Local Authorities are Triple-A-rated tenants. When they rent property, they tend to take long leases and they always pay their rent on time. But the environment in which the public sector has operated in the past is changing fast and Local Authorities are now being advised to follow the private sector’s lead in order to squeeze value from both owner-occupied and rented property.

Where property is leased, there are two key areas that Local Authorities should consider as opportunities to achieve best value: break clauses and dilapidations. Take a commercial approach: read and understand your lease terms and always exercise the break options, regardless of your intentions. Today, a Local Authority tenant is very likely able to re-negotiate very competitive rentals 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.

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 will likely pay dividends.

Other options 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? On lease negotiation play hard and cap service charges when they are deemed unreasonable; particularly in older buildings with aged plant. As most authorities have large property portfolios, rationalise what space you can and utilise free space to save money in another building or sublet.

Finally, if the Local Authority is acting as a landlord by renting space to a tenant, ensure dilapidations claims are effectively enforced and settled. 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 more information contact Mark Few in Watts‘ Public Sector team on: 020 7280 8000.

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