During this difficult period, corporate occupiers will be looking to make savings. Here are just a few ideas for cost savings in the coming months:-
- Break clauses – It is always timely to remind tenant clients that lease breaks need to be exercised with military precision and with the benefit of good professional advice. We would say that, wouldn’t we? Yes – but it is invariably a false economy to try and implement your own breaks (whether serving notices, trying to determine what repairs will need to be carried out or trying to agree payments with landlords). It is important to get the conditions of a break clause right first time rather than taking an uncertain, non-advised route which could result in you being tied into a lease for a further period of years. Break clauses are very strictly construed and if you get it wrong it will have expensive consequences.
- Service Charge - Overcharges – The US has seen an uptake in occupiers undertaking their own service charge audits to obtain assurance that the service charge that they are paying is reflective of what is set out in their leases. How often do tenants look back to their leases when they receive a service charge bill? Managing and auditing service charge statements takes time and resource and costs can often slip through onto a statement when they shouldn’t legitimately be there. It will be interesting to see whether this trend of auditing follows through into the UK with occupiers actively engaging companies to review their statements and identify if there are any savings to be made. This is likely to be of upmost importance following the Covid-19 crisis, with tenants looking to make as many savings as possible. Your solicitor will have taken great pains to negotiate cost savings for you in your service charge provisions…..so make sure that you are getting them!
- Capital Allowances – The world of capital allowances is often ignored by tenants (as, let’s face it, a lot of people do not know about and/or understand capital allowances). In summary, you can claim a “capital allowance” when you buy assets which you are keeping to use in your business. The allowance permits you to deduct some or all the value of such assets from your profits before you pay tax. So, if you are an occupier fitting out your premises with kit (whether it is mechanical and electrical systems or simply desks and partitioning) it is possible that you might be missing out on claiming such allowances. If in doubt it is always worth getting advice on the topic.
- Watch out for the "all-inclusive rent" SDLT trap – Stamp Duty Land Tax (otherwise known as “SDLT”) is payable (subject to certain reliefs) on leases that exceed a rental threshold of £150,000 per annum and VAT is included for these purposes. With the growth of the co-working/managed office/serviced office sector, we have seen more and more leases being offered in this sector which provide for an “all-inclusive” rent which might be comprised of rent, insurance rent, service charge and possibly also rates and utilities. If you are about to enter into a lease which provides for an “all inclusive” rent then beware of the SDLT trap! You could end up paying SDLT on the entire rental amount if you meet the SDLT threshold. If the all-inclusive rent is going to take you over the threshold then ask the Landlord to separate out the charges or else add drafting to make it clear as to the fact that the rent includes service charge and other costs (preferably with the applicable rates). This will then bring down your “net present value” to the correct level which will hopefully take you under the threshold for SDLT.
Although the above is simply a snap-shot of potential cost-saving measures, these are areas that are sometimes over-looked by occupiers…...and there are many more! Please get in touch with one of the team if you would like further information on any of the above or a general review of your leases for the purposes of identifying cost savings.