All the costs associated to your property should be under constant scrutiny to keep expenditure to a minimum and ensure best value.
Iain Davidson, Director of Industrial & Logistics with Colliers International in Scotland, offers ten tips on how to achieve this:
1. Make sure you get the best deal from the start
Take proper advice from a specialist to ensure you get the best possible deal from the outset. Current economic conditions dictate that outside of prime areas rents are no longer based solely on the evidence set by other transactions in the area. If you have a strong covenant and are prepared to commit to a long lease then you may be able to ‘beat the market’. This can mean a lower rent, a more favourable rent review provision and/or better incentives. The lease you sign sets the tone for the duration of your term, so it is essential it represents the best deal for you.
2. Don’t occupy more space than you need
If your lease allows, consider subletting any surplus space. A sublease may represent a viable way for you to ensure you only incur costs on the space you occupy, not the space you originally signed a lease for. As companies seek to mitigate their own occupancy costs and exposure to long term lease commitments there could be a market for the space you do not need, and that is something worth investigating.
3. Don’t pay more rent than you have to
Always ensure you take proper advice regarding the rent you should be paying for your premises. Ill-advised tenants can fall foul of a proactive landlord at rent review and lease renewal, and it is essential that you or your advisors have the market knowledge to ensure you pay the minimum rent.
4. Know your property valuation
Can you buy your property and cover the mortgage costs for less than you currently pay in rent? For occupiers with long-term lease commitments, buying your property can lower your property costs considerably, and in the current climate you may pick up a bargain which could be sold on later at a profit.
5. Understand your landlord’s agenda
Does your landlord want income now, or security going forward? Well-advised tenants are exploring options to re-gear their leases in return for an incentive from their landlord. This could be a rent-free period, a cash incentive or even a reduced contractual rent. If you are happy to increase the number of years you are committed to under a lease, a landlord may see value in that and be willing to reward you for doing so.
6. Is your rateable value correct?
In Scotland, business rates are calculated based on a rateable value that is set by the Scottish Assessors Association, which is then used by local authorities to calculate amount due. The rateable value can be challenged but you should first get this checked by a reputable Rating agency before lodging an appeal.
7. Ensure you mitigate costs for vacant space
Should your operational requirements dictate that you need to vacate property prior to lease expiry, ensure that you take advice as to how best to mitigate the costs that your business will incur. Clearly the ideal outcome is to assign the lease, but in instances where the market does not allow you to do so consider sub-letting at less than passing rent, temporary occupiers and then rate saving initiatives to ensure you pay as little as possible for redundant space. Vacant Rates Liabilities will increase significantly next year as The Scottish Government have announced that they plan to remove the 50% Empty Rates Relief for vacant retail and office premises from April 2013.
8. Water Rates
In Scotland part of a water rates bill is based on the historic Rateable Value of a property. If the bill has been based on an erroneous Rateable Value you will be eligible for a refund. Discounts are also available by using e-Billing or paying by direct debit. A water rate liability audit will ensure you are paying no more than necessary.
9. Maintain your property in good repair
A Planned Maintenance Schedule can ensure you expend the minimum required to maintain your property in the state of repair required under the terms of your lease. Ensuring the property’s condition is maintained mitigates the chances of the landlord serving an interim schedule of repair during your occupation, which can be very costly – particularly if it has not been budgeted for.
10. Understand your service charge
Service charges can be very costly, and it is essential that you understand the services they provide and that you are happy that these are all necessary and legal. There are experts who can ensure you pay only what is essential under your lease and that the services procured represent best value. This process can allow for significant savings in some instances.