buildin
Page 41
If you've noticed an error in this article please click here to report it so we can fix it.
One of the hest investments a haulier, or anyone else, can make is property. It may be that you want to lease office space, a warehouse or loading facilities. Any or all of these can make financial sense—CMguides you through the answers to questions you need to ask...
How do I find a property?
In find something suitable, first employ an agent to look for you. Anyone in the property industry could have useful contacts. You need to give your agent details of your requirements: size, location, proposed use, type of tenant you want, price, and if you may use the property yourself in the future.
▪ Now that I've found a property, what do I need to think about?
A structural survey is recommended, even if you intend to make the tenant keep the whole property in good repair. You should also think about past uses of the land. Could the property be contaminated? While the usual rule is the polluter pays", if the polluter cannot be found or is insolvent, the landowner can end up paying for clean-up costs. Bear this in mind if you lease out to a haulier or a business involved in, say. dangerous chemicals, as you could be left with the bill.
• If the building is new, is any guarantee available against defects in design and construction?
This usually takes the form of collateral warranties (a guarantee from the builder, architect, etc) or insurance. Your solicitor g will deal with the legal investiga
• tions, including searches with g the local authority. What sort of return should I expect?
• The yield is calculated by looking -4at rental income as a rate of return on your capital input. 4 For example: Purchase a ware house for Lioc),000, lease it for Do,000 per annum. The yield is "rent" multiplied by roo. divided by the purchase price, which gives you a percentage return. In this example it would be ro% (ro,000 x too)/ mo.000-io%). This means you should be able to recover your capital investment in to years.
This is over simplistic. There are other factors such as professional fees, rising/falling property or rental values and so on. However, the yield will help you decide whether this might make a good investment. Your agent would be the best person to advise you of the expected yield.
What about any tenants?
Local letting ageil ts will be able to find tenants. I Iowever, before accepting a tenant consider their financial status—especially as the haulage industry is being badly squeezed. This can be checked with references, credit checks and information from accounts. You may want to get extra security from the tenant, such as a personal guarantee or a rent deposit.
Terms of the lease When letting property, you will need to think about more than the rent and term. Is the rent to be reviewed during the term? Rents are usually reviewed upwards to the open market rent every five years. Will either party be empowered to end the lease early? Do you want to control any changes of the tenant's use?
What level of repair obligation do you want to enforce?
This could be "good and substantial" (good repair regardless of its condition) or in the same condition as at the start of the lease with reference to art agreed "schedule of condition".
Your decision on the repair obligation might be influenced by the area to be let. A tenant is more likely to accept responsibility for the structure if he is taking the whole building. If the lease is for part ofa building. you may need to retain responsibility for the structure.
.7.• Do you need to reserve rights over the leased property for yourself or others or grant rights in its favour?
An example of this inight be a right of way over a common access area.
Who will insure the property?
You will probably want to do so— after all, you have most to lose. If you are letting to several tenants, you do not want to risk any double insurance.
• :• Do you want to prevent all alterations?
Generally, you will want to retain absolute control over the structure and exterior but give the tenant more flexibility with any internal alterations.
Do you need a service
charge to recover some costs? This could cover services such as maintenance of the structure, lighting of common parts.
• Is the tenant to be given security of tenure?
Ellis allows a tenant to stay i occupation at the end of the leas and have a new lease on the sam terms, albeit at an open markt rent. The landlord can oppose th new lease on limited grounds; fc example, he wants to use th property himself or he wants t redevelop it.
Most business tenants wi have security of tenure unless yo obtained a court order before th lease was granted which allowe you to exclude these provision; • What about VAT?
The basics are that you mm charge and account for VAT o. rents collected and on the pric on the sale of the property, an you can recover VAT paid on pr fessional fees incurred in dealin with the property.
4What concerns will a buyer have when the property Is said?
!fa buyer is worried about the ter ants' ability to pay rent, or if the do not fit in with his plans for th property, or he is not happy wif the lease terms, he will want t ensure that the tenants can b removed in the near future.
A buyer will want to see if ther is a landlord's right to end th lease early, He will also want t4 see if the leases give security o tenure. If they do not, the buye knows that his maximum corn mitment to the tenant is for th term of the lease.
Formal leases will contain forfei ture clauses. A buyer may ti& these to evict a tenant, but only i his claims are justified. Even i there is a breach, tenants can appl for relief from the court and the] remedy the breach. They can the] usually stay in the property
• by Anita Gupta
Partner, property depart ment, law firm Eversheds.