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Use and User
Mixed User Buildings and Service Charges
25/June/2013
When a building comprises ground floor commercial premises let on a business tenancy, and upper part residential flat sold on a long lease, there are two ways for the landlord to recover the costs and expenses incurred by the landlord in connection with repair and decoration of the common parts of the building, such as main structure walls, foundations, roof, etc.
One way is a ‘pay-as-you-go’ clause in both leases whereby the respective tenants separately covenant to reimburse the landlord whenever expense is incurred. The other is a service charge, payable part in advance, the balance after the end of each yearly accounting period.
Even though when repairing, etc., covenants are only partly the tenant’s responsibility, there may not be a reciprocal covenant on the landlord to carry out the work. The CML likes defined responsibility, basically for the landlord to also covenant, but to be obliged might not suit the landlord. Even if it were implied that if the tenant were not responsible at all, so surely the landlord would be, there is a practical difference between enforcing an implication and actual.
An advantage of ‘pay-as-you go’ is that the landlord may not be obliged to the tenant; the disadvantage is having to pay for the work before recovering from the tenant. With a ‘proper’ service charge, where an interim payment is in advance, the balance at the end of the charge accounting year, the landlord would have money up front and/or in the kitty.
For what might seem routine matters, landlords frequently encounter resistance from tenants when applying the wording in a lease literally. Services charges, along with building insurance, are amongst the thornier issues between landlord and tenant, and with mixed-user properties services charges can be fraught with difficulty.
The commercial property market is largely unregulated and a lease is a commercial contract which means the parties are deemed to know what they are doing. Residential property is largely regulated and oriented towards consumer-protection legislation. The main reason, I suspect, is that residential tenants pay using net income after tax, whereas for businesses leasing commitments are tax-deductible.
With commercial property, interpretation of the lease is a separate issue, but otherwise it doesn’t matter how open-ended a cost commitment, the courts are unlikely to interfere. Not so with residential property where regardless of any contractual agreement, the Landlord and Tenant Act 1985 (as amended) requires the landlord to comply with a formal consultation procedure in connection with qualifying works, failing which the maximum amount recoverable from the lessee is £250.
The Landlord and Tenant Act 1985 is to ensure residential tenants are not required to pay for unnecessary or defective services, and/or for the payment for necessary services to be provided to an acceptable standard. The gist of Daejan Investments Ltd v Benson and others [2013] is that failure to comply with the minutiae of the consultation procedure ought not be an opportunity for lessees to wriggle out of payment. However, per Phillips v Francis [2012] a landlord has to consider overall expenditure on qualifying works, the whole of which determines whether the leaseholders have to be consulted, even though the charge would be £250 or less for each individual leaseholder.
Long leaseholders may like to regard themselves owners, they are not: all they have is use of the space inside the premises, together with the right for the purpose stated in the lease for the duration of the term (subject to any rights on expiry). Everything else belongs to the landlord (subject to any exceptions) so arguably it is socially fair and reasonable when the landlord wants to carry out works at the tenant’s expense for the tenant to have a say in how much should be expended.
Generally, the landlord wants to do the works; tenants may be less inclined to make the first move when they know it is going to cost them. With mixed-user buildings, where the business tenancy may include tenant-enforceable covenants and/or tenants undeterred by legal proceedings it is a question of who wants the works done and the urgency.
In a matter I dealt with for a landlord of a mixed-user building, the residential lessee wanted repairs done urgently because the state of the building was deterring his prospective (sub)-tenants. He informed my client it was the landlord’s responsibility but would get the work done provided the landlord would reimburse approximately £5000. I advised that despite the lessee having indicated footing the bill, the work couldn’t go ahead until the consultation had been complied with, otherwise the lessee could refuse to pay more than £250. I wrote to the lessee to explain. I was told I could forget any suggestion of him paying my fees, let alone another surveyor for supervising the works. In response, I provided a copy of the lease whereupon I was questioned whether the fees were reasonable. As the matter progressed and insistency of urgency intensified. It transpired the estimates the lessee had obtained were verbal, so I set about obtaining written estimates from the several contractors, The lessee said the lowest price should be accepted, but the works proposed by the contractor would have resulted in an improvement not a repair, so not recoverable. Mentioning that, while scaffolding was erected, my Client could get some other work done, in the event the lessee told us to forget it, he would get the work done at his own expense.
Where the landlord wants to undertake works, then the consultation procedure must be satisfied with the residential element before the work is started. Where the commercial tenant wants the landlord to do the works as a matter of urgency, the landlord might have to decide whether preferable to endure the inevitable delay in getting the go-ahead from the residential tenant or go ahead regardless in order to pacify the commercial tenant and avoid any proceedings.
One way is a ‘pay-as-you-go’ clause in both leases whereby the respective tenants separately covenant to reimburse the landlord whenever expense is incurred. The other is a service charge, payable part in advance, the balance after the end of each yearly accounting period.
Even though when repairing, etc., covenants are only partly the tenant’s responsibility, there may not be a reciprocal covenant on the landlord to carry out the work. The CML likes defined responsibility, basically for the landlord to also covenant, but to be obliged might not suit the landlord. Even if it were implied that if the tenant were not responsible at all, so surely the landlord would be, there is a practical difference between enforcing an implication and actual.
An advantage of ‘pay-as-you go’ is that the landlord may not be obliged to the tenant; the disadvantage is having to pay for the work before recovering from the tenant. With a ‘proper’ service charge, where an interim payment is in advance, the balance at the end of the charge accounting year, the landlord would have money up front and/or in the kitty.
For what might seem routine matters, landlords frequently encounter resistance from tenants when applying the wording in a lease literally. Services charges, along with building insurance, are amongst the thornier issues between landlord and tenant, and with mixed-user properties services charges can be fraught with difficulty.
The commercial property market is largely unregulated and a lease is a commercial contract which means the parties are deemed to know what they are doing. Residential property is largely regulated and oriented towards consumer-protection legislation. The main reason, I suspect, is that residential tenants pay using net income after tax, whereas for businesses leasing commitments are tax-deductible.
With commercial property, interpretation of the lease is a separate issue, but otherwise it doesn’t matter how open-ended a cost commitment, the courts are unlikely to interfere. Not so with residential property where regardless of any contractual agreement, the Landlord and Tenant Act 1985 (as amended) requires the landlord to comply with a formal consultation procedure in connection with qualifying works, failing which the maximum amount recoverable from the lessee is £250.
The Landlord and Tenant Act 1985 is to ensure residential tenants are not required to pay for unnecessary or defective services, and/or for the payment for necessary services to be provided to an acceptable standard. The gist of Daejan Investments Ltd v Benson and others [2013] is that failure to comply with the minutiae of the consultation procedure ought not be an opportunity for lessees to wriggle out of payment. However, per Phillips v Francis [2012] a landlord has to consider overall expenditure on qualifying works, the whole of which determines whether the leaseholders have to be consulted, even though the charge would be £250 or less for each individual leaseholder.
Long leaseholders may like to regard themselves owners, they are not: all they have is use of the space inside the premises, together with the right for the purpose stated in the lease for the duration of the term (subject to any rights on expiry). Everything else belongs to the landlord (subject to any exceptions) so arguably it is socially fair and reasonable when the landlord wants to carry out works at the tenant’s expense for the tenant to have a say in how much should be expended.
Generally, the landlord wants to do the works; tenants may be less inclined to make the first move when they know it is going to cost them. With mixed-user buildings, where the business tenancy may include tenant-enforceable covenants and/or tenants undeterred by legal proceedings it is a question of who wants the works done and the urgency.
In a matter I dealt with for a landlord of a mixed-user building, the residential lessee wanted repairs done urgently because the state of the building was deterring his prospective (sub)-tenants. He informed my client it was the landlord’s responsibility but would get the work done provided the landlord would reimburse approximately £5000. I advised that despite the lessee having indicated footing the bill, the work couldn’t go ahead until the consultation had been complied with, otherwise the lessee could refuse to pay more than £250. I wrote to the lessee to explain. I was told I could forget any suggestion of him paying my fees, let alone another surveyor for supervising the works. In response, I provided a copy of the lease whereupon I was questioned whether the fees were reasonable. As the matter progressed and insistency of urgency intensified. It transpired the estimates the lessee had obtained were verbal, so I set about obtaining written estimates from the several contractors, The lessee said the lowest price should be accepted, but the works proposed by the contractor would have resulted in an improvement not a repair, so not recoverable. Mentioning that, while scaffolding was erected, my Client could get some other work done, in the event the lessee told us to forget it, he would get the work done at his own expense.
Where the landlord wants to undertake works, then the consultation procedure must be satisfied with the residential element before the work is started. Where the commercial tenant wants the landlord to do the works as a matter of urgency, the landlord might have to decide whether preferable to endure the inevitable delay in getting the go-ahead from the residential tenant or go ahead regardless in order to pacify the commercial tenant and avoid any proceedings.
VAT and storage
01/September/2012
"As from 1 October 2012, the VAT exemption for storage facilities was withdrawn on a blanket basis and VAT will automatically be payable on rent even if the option to tax has not been exercised.
VAT Information Sheet 10/13 was published on 9 August 2013 and clarified what was intended by the changes which came in on 1 October 2012. The IS states that the new rules apply to suppliers of “any facility which is used, or could potentially be used, by their customers for the storage of goods and customers who rent facilities to store goods”.
The IS clarifies that the changes do not just apply to “self-storage”, which could be narrowly defined as storage just by the end user, but storage by either the supply recipient (customer) or a third party with the customer`s permission if not under a separate supply (for VAT purpose).
The law refers to “facilities for the self-storage of goods” but the guidance states that the changes are not restricted to the type of storage where a small area within a dedicated building is rented by an individual to store their own personal property. The self-storage of goods, therefore, means any storage of goods by an end user.
Storage use includes physical storage, regardless of the supplier’s intention or any agreement between the parties, or storage implicitly intended from the nature of the premises, or commercial documentation in the absence of other actual use. If premises are used for more than one purpose, the rules on multiple and composite supplies will apply and there are examples contained in the IS.
The ramification for landlords is that, as the supplier of premises, they need to monitor the use to which the leased premises are put. Premises which are exempt from VAT in the normal case (and in respect of which no VAT election has been made) will become chargeable automatically for VAT in the event that the tenant, or a third party with the tenant’s permission, uses the whole or part of the premises for storage.
As is often the case, an absentee or institutional landlord will not know how the tenant is using the premises or permitting their use. The IS recommends that the landlord obtains and retains written confirmation of the use from the tenant. It will be necessary, in future, for all leases to contain a requirement for the tenant to supply such information, so that the landlord can comply with the law.
Where premises are sub-let, the head landlord will not need to charge VAT (in the absence of an election) but the intermediate landlord may need to begin to charge VAT if the sub-tenant or a third party with the sub-tenant’s consent (not a separate sub-underlessee or sub-licensee) begins to use the premises for storage. "
VAT Information Sheet 10/13 was published on 9 August 2013 and clarified what was intended by the changes which came in on 1 October 2012. The IS states that the new rules apply to suppliers of “any facility which is used, or could potentially be used, by their customers for the storage of goods and customers who rent facilities to store goods”.
The IS clarifies that the changes do not just apply to “self-storage”, which could be narrowly defined as storage just by the end user, but storage by either the supply recipient (customer) or a third party with the customer`s permission if not under a separate supply (for VAT purpose).
The law refers to “facilities for the self-storage of goods” but the guidance states that the changes are not restricted to the type of storage where a small area within a dedicated building is rented by an individual to store their own personal property. The self-storage of goods, therefore, means any storage of goods by an end user.
Storage use includes physical storage, regardless of the supplier’s intention or any agreement between the parties, or storage implicitly intended from the nature of the premises, or commercial documentation in the absence of other actual use. If premises are used for more than one purpose, the rules on multiple and composite supplies will apply and there are examples contained in the IS.
The ramification for landlords is that, as the supplier of premises, they need to monitor the use to which the leased premises are put. Premises which are exempt from VAT in the normal case (and in respect of which no VAT election has been made) will become chargeable automatically for VAT in the event that the tenant, or a third party with the tenant’s permission, uses the whole or part of the premises for storage.
As is often the case, an absentee or institutional landlord will not know how the tenant is using the premises or permitting their use. The IS recommends that the landlord obtains and retains written confirmation of the use from the tenant. It will be necessary, in future, for all leases to contain a requirement for the tenant to supply such information, so that the landlord can comply with the law.
Where premises are sub-let, the head landlord will not need to charge VAT (in the absence of an election) but the intermediate landlord may need to begin to charge VAT if the sub-tenant or a third party with the sub-tenant’s consent (not a separate sub-underlessee or sub-licensee) begins to use the premises for storage. "
Use Class A5
01/March/2009
In 2009, LB Waltham Forest introduced a policy, likely to be copied by other planning authorities, of not allowing take-away food shops to open within 400 metres of schools, parks and youth centres. Also, the North East London planning authority has begun consulting on a suite of development control policies which would restrict the number of fast-food outlets within primary, secondary and retail parade zones.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. Checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. Checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.