West End Focus

CITY & CITY FRINGE
EAST & NORTH LONDON
STRATFORD
WEST END
ESSEX & HERTS
www.strettons.co.uk
April 2015
Issue: 78
briefingNOTES
West End Focus
As a result of our decision to double the number of staff in our West End office, we are pleased to devote
this edition of Briefing Notes to property issues in the West End.
West End City Lights
After the successful re-launch of Strettons’ City office in Sun Street, EC2 in 2012
Strettons launched its West End office at 7 – 10 Chandos Street, W1 in 2013.
We are pleased to announce the continued success of
both offices and the expansion of our West End office
to include a Professional Services Team headed by
Director Mark Shaw who is now based in the West End
full time together with Simon Isaacs who has joined us
from Dalton Warner Davis as Associate Director
supported by two graduate surveyors.
The Professional Services Team will focus on landlord
and tenant, valuation and expert witness work. The
existing lettings and investment agency team headed
by Nick Duck and assisted by Yoni Benari continues to
consolidate and strengthen and has established itself in
the market disposing and acquiring in excess of 100,000
sq ft of office, retail, leisure and light industrial space
with a further 40,000 sq ft under offer. Our lettings
agency is also expanding, having assisted a number of
new and established clients in locations such as
Marylebone, Oxford Circus, Soho, Holland Park,
Clapham, Wandsworth, Earlsfield and Kennington,
covering office, retail and restaurant sectors.
If you would like to see how Strettons can help you in
the West End or City then please contact Mark Shaw
on 020 7907 7427 or Mark Bolton on
020 7375 1801.
NEXT AUCTIONS - 18TH MAY AND 6TH JULY 2015
CITY & CITY FRINGE
EAST & NORTH LONDON
STRATFORD
WEST END
ESSEX & HERTS
Who’s Afraid of the Residential Bubble?
It has been said that the rise and rise of residential values underpins a significant proportion of every property
transaction. We have seen industrial values rise not only due to a lack of supply but because industrial estates
have been converted into housing developments and the changes in the planning rules relating to permitted
development have meant that some industrial properties can lend themselves to residential conversion.
It is well documented that offices have seen growth more
recently not because of their intrinsic office value but because
they can be converted under permitted development rights
into residential apartments. Traditional shops and upper
parts have seen the residential upper parts outstrip their
retail ground floor elements in terms of rental and capital
values with one example in Hammersmith showing the
rental of a very small one bedroom flat hitting £23,000 per
annum and the ground floor office beneath it only showing
£15,000. Thus to many a property observer residential values
underpin many a transaction especially in London.
The flight to residential has however yielded an
unexpected winner. As the market has improved and the
economy has blossomed the need for office space has
grown and the demand for office space in suburban
London is now outstripping supply. One recent transaction
Strettons dealt with involved a 10,000 ft2 office block
where we saw a bidding war between occupational
tenants wishing to take space on the whole building on FRI
terms purely because there was a shortage of supply of
similar space in that particular location. The landlord who
in recent years had been dreading an empty property on
expiry was expecting a lengthy void and a dilapidations
shortfall was pleasantly surprised to receive a higher rent
from a strong covenant. Our West End team has seen an
increase in demand from office occupiers and the rental
capital gap between offices and residential is now closing.
In some cases clients are deciding to retain office
accommodation as whilst residential prices are still strong
and in most cases in excess of office prices the costs and
upheaval of conversion means that some owners of
traditional offices in the West End are retaining this use for
the time being in the knowledge that the residential
market will always be there in some shape or form.
'Special Purchaser' value in rent review arbitration has limitations.
Our West End Expert Witness Team were recently able to thwart a landlord’s attempt to hike the rent up in
Golders Green by successfully defeating the landlord and their agent at arbitration.
It is an established principal in
rent review that the bid of a
'special purchaser' can be taken
into account in the assessment
of rental value. So if there is an
adjoining tenant who might be
prepared to bid a higher rent,
there is an argument that the
rent should be uplifted to take
this into account. In a recent
arbitration case where Strettons
acted for the tenant, the extent
to which a landlord can uplift
the rent has been tested. A
client of ours occupied 4,800 sq
ft of offices in a purpose built
office block in north-west
London which was otherwise
majority occupied by a wellknown medical diagnostic
centre. This occupier had taken
suites in the building some £10
psf higher than prevailing rates
in the locality and argued that
our client should also pay a
similar level. We took the
matter to arbitration and the
arbitrator decided that this was
not the correct approach and
that, although an uplift should
be applied, it should be limited
to 10%. Director Mark Shaw
acted for the tenant and
commented that 'this was a
victory for common sense'.
For more information, please
contact him at our West End
office on 020 7907 7427.
www.strettons.co.uk
Take a SIPP
Pension planning need not be dull. In fact it can be quite exciting as in the
right circumstances it can free up cash, provide you with a source of
funding and help reorganise your property portfolio in interesting ways.
Managing properties within Self-Invested Personal
Pensions (SIPP) wrappers has been one of the fastest
growing elements of Strettons’ property management
work over the last few years. Properties held within a
SIPP often need to be managed by property professionals
and Strettons have a separate team looking after such
vehicles and who are cognisant of the specific nuances of
owning and managing a property held in this way.
Our experience has been that property investors have
been able to free up cash by selling their commercial
property (residential property is not allowed in a pension)
to their pension either in a SIPP or a SASS – (Small self
Administered Scheme). In this way a business or an
individual has been able to free up cash as the pension
buys the property. Furthermore once the property is held
in the pension,
provided the pension
pot itself is adequately
funded, the fund can then
lend its beneficiary up to 50% of the property value at
commercial rates. In this way an investor, property
company or individual can generate capital to use as they
wish and can also generate a friendly source of lending.
This was particularly useful when the banks were less than
welcoming to those wishing to borrow money. It can be
equally useful to have a friendly lender even in 2015.
Our West End office is able to offer advice in relation to
valuations for this purpose as a transfer into a pension
would need a valuation so that the pension trustee
can be certain that proper value is being paid.
Immigration - Commercial landlords Beware
The Immigration Act 2014 was passed in 2014 and places responsibilities on landlords to examine if a
prospective tenant has the right to be in the UK. A fine of up to £3,000 awaits those landlords that fail
to carry out their duties.
The Act will be road tested in the
Midlands from 1 December 2014 but
the government plans to roll it out
nationwide by the end of 2015. In
general a landlord can take three
easy steps to make sure that the
occupier is not an illegal migrant:
1. Check the prospective tenant’s
identification – passport.
2. Check that the tenant’s right to
stay in the UK is not limited.
3. Report to the Home Office if any
checks show that the individual
has no right to be in the UK.
If the landlord is unsure on any
matter they will be able to request a
right to check through the Home
Office landlord’s checking service.
Our Property Management
department recently advised a West
End client on a building close to
Tottenham Court Road. The property
was let in its entirety on an FRI lease
to a restaurant that operated from
the ground and basement floors.
Protection Act and so forth but they
also had to take issue with the tenant
with regard to the breach of
alterations provisions as the tenant
had sub divided the flat.
The four upper floors were arranged
as flats but on an inspection it
became apparent that the tenant had
sub-divided the premises into a
number of rooms and was allowing
them to be occupied by workers in
the restaurant. Whilst initial
investigations showed that the
occupiers were in the UK on licence,
further checks threw some doubt on
the accuracy of the documentation.
Our management department not
only had to vigorously pursue the
tenant for details relating to the
occupation of the premises and had
to jump through various hurdles
thrown in their way such as the Data
Our West End office is able to cope
with tenant disputes, property
management and professional
consultancy in the West End
and further afield.
CITY & CITY FRINGE
1-3 Sun Street
London
EC2A 2EP
Tel: 020 7375 1801
EAST & NORTH LONDON
Central House
189-203 Hoe Street
E17 3SZ
Tel: 020 8520 9911
ESSEX & HERTS
The Forge, Mulberry
Green, Old Harlow
Essex CM17 0ET
Tel: 01279 451 835
STRATFORD
63 Broadway
Stratford, London
E15 4BQ
Tel: 020 8522 4666
WEST END
7-10 Chandos Street
London
W1G 9DQ
Tel: 020 7637 4000
What Tenants Want & What Landlords Love to Hate
Your letting agent agrees terms and instructs solicitors, your surveyor agrees the terms of a lease
renewal and solicitors are instructed; your lawyer runs off their standard commercial lease, sends it
to the other side, documents are promptly signed and the deal is done in a matter of days. Correct?
Why do commercial leases take so long to sign and why are
all commercial leases different? Our leasehold advisory team
have been working in this field for decades and they
regularly keep a list of the most hard fought clauses that
landlords and tenants fight over when new leases are being
granted or existing leases renewed. Simon Isaacs, Associate
Director, and most recent addition to the Strettons and West
End team outlines the three clauses he has found tenants
have been pushing for in recent months. “The pendulum of
power between landlord and tenant swings with market
conditions. During the recession landlords were often only
too happy to have a tenant and were relaxed about certain
lease terms. As the market changes tenants’ ability to
dictate lease terms weakens and landlords’ ability to secure
terms that suit them strengthens”.
1. Break Clauses
Tenants want flexibility and a break clause is the ultimate
tool at their disposal to secure this. In the recession tenants
might have wanted rolling break clauses or break clauses
every two or three years but now we are seeing fewer break
clauses and the spacing between them lengthening. In some
locations break clauses are being excluded altogether or if
conceded tenants may have to pay a rent penalty if they
choose to operate a break clause.
3. Dilapidations
It is clear that the standard of repair is a central
battleground to directing who repairs the property and
who pays for it. The economic strength of the parties will
naturally dictate where the bargain is struck. What we are
seeing now is tenants requiring that landlords have to serve
schedules of dilapidations within a specific period of time
after the lease end often within three months.
Landlords should aim to make sure that such clauses are
rejected or if they have to concede, that the time limits
are stretched out as far as possible. This is to protect
landlords who may well either forget to serve a schedule
or be lulled into a false sense of certainty that the tenant
will renew or is attending to dilapidations.
Our West End Landlord & Tenant Team have been
advising on such matters for decades and can help you
secure the best lease terms whether you are
a landlord or a tenant.
2. Assignments
Tenants want the ability to assign their lease and to then
forget about it. Thus if they can alter the assignment clauses
so they do not have to enter into an authorised guarantee
agreement or if they can weaken the tests by which a
landlord can judge and object to a new assignee, they will
make strenuous efforts to do so. In Central London the
tenant/ landlord ‘swingometer’ points very much in the
landlord’s favour in current market conditions but it again
depends on the local market and the particular circumstances.
Detailed specialist advice should be obtained before taking or refraining from any action as a result of the comments made in this publication, which
are only intended as a brief introduction to the particular subjects. If you wish to discuss any of the issues referred to in this bulletin then you should
consult your normal contact in the firm or your legal advisors. Strettons cannot take any responsibility and will not accept liability for action taken or
refrained from on such general advice as contained within Briefing Notes.
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DIRECTORS
ASSOCIATE DIRECTORS
DIRECTORS
Benjamin Tobin BSc FRICS FNARA •
Philip J. Waterfield BSc FRICS
Simon E. D. Tilsiter BSc FRICS FNARA •
Francis C. Hunter BSc FRICS
Mark R. Bolton BSc MRICS
Mark R. Iliffe BSc MRICS ACIArb
Christopher J. M. Collins
Neal Matthews BSc MRICS
Mark Shaw BSc FRICS
Geneviève Mariner BSc (Hons) MRICS
Ian Mann BSc MRICS
Giles Owens MRICS
James Bacon BSc MRICS
Christopher Cornhill
Gary Powis BSc (Hons) MRICS
Nick Duck BSc (Hons) PG.Dip MRICS
Jon Cuthbert BSc MSc
Peter Costello BSc MRICS IRRV
Paul Quy
Simon Isaacs MRICS
Philip Costa BSc MRICS ACIArb
CONSULTANTS
Peter G. Tobin BSc MPhil FRICS FCIArb +
Philip P. Tobin FRICS MCIArb +
Graham R. Slyper FRICS IRRV +
FINANCIAL CONTROLLER
Kirit K. Jethwa
HEAD OF PROPERTY ACCOUNTS
Richard Allen
INSURANCE MANAGER
Ram Bekir
• Registered Property Receiver
+ Non Executive Directors