15 March 2013

It can be difficult to think about putting your hard-earned money into those mundane repair jobs around the house, especially when times are tough and demands on our monthly budgets seem never ending: it can be a similar situation in the commercial property world. In these economically challenging times, there can be a temptation for landlords to consolidate their income streams and simply maintain the status quo. Although this is tempting, we should remember that property is a wasting asset. What do mean when we say this? Well, it simply means that by virtue of its use and the passage of time, the asset is consumed or its value reduced. However, investment in the right places at the right time, during the life cycle of the property, can breathe new life into an ageing asset and yield tangible returns for the owner.

When is the best time to invest? It depends on the specific characteristics of the property, but the rule of thumb would have to be, before it is too late! Whether you are dealing with the common areas of an office building or the landscaping at a retail park, early engagement with the process is crucial. The timing may also be influenced by lease events at the property. A tenant may have served notice to vacate providing an opportunity to carry out major works to the property in an effort to secure a new letting, or a number of lease ends may be approaching and a carefully managed refurbishment may just encourage existing tenants to renew those leases.

How? This is possibly the most challenging question of all when scrutiny of banks is at an all-time high and appetite for lending at an all-time low. One potential solution lies in preparing a business plan setting out the economic case for investment. Property owners, in all their forms, need to be aware of the risk in the “do-nothing” approach and that a temporary diversion of rents can ensure that the rental income is not only here for today but tomorrow as well. Let’s also not forget that a commercial lease may provide scope for recovery of these costs or elements thereof. Whilst this is certainly not the panacea to cure all funding issues, it can provide a much-needed contribution. Successful negotiation with the occupational tenants will require the skilled application of the respective lease clauses as well as the assistance of experienced construction professionals. A measured approach grounded in reasonableness will usually yield the best results for both parties.

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