Landlords might well find they now have control of vacant buildings with a backlog of maintenance issues and damage together with no tenant to pay rent and a depleted service charge. Tenants may feel that they are in a good position to do deals with landlords.
Robert Burke, head of project and building consultancy at property consultants Cluttons
Covid-19 continues to cause extraordinary levels of disruption to the real estate sector and the insurance market that serves it, says Robert Burke of property consultants Cluttons.
Insurers, in some instances, temporarily relaxed inspection requirements for unoccupied buildings during lockdowns and it was up to owners and occupiers to take preventative measures. A number of daily management tasks were more difficult; with travel bans affecting regular inspections. Commercial property owners did their best to secure perimeters and ensure adequate building security.
Nevertheless, social distancing restricted workers' access to buildings, adding to costs and lengthening timescales. The potential consequences are obvious. If a damaged property is not promptly repaired, costs can quickly escalate. As the UK moves towards an emerging new normal, the fallout from this era has immediate and longer-term implications for the real estate sector. More settled claims trends are beginning to emerge in the partially post-pandemic phase we’ve been in since March this year.
Looking to the future
Asset values have been impacted – not least by what may turn out to be lasting changes to how and where people choose to live and work. Meanwhile, insurers are likely to impose new policy coverage restrictions, sometimes increased policy excesses, or in the worst cases, withdraw coverage altogether for buildings left unoccupied over extended periods. Until the true new normal settles in, the key will be ensuring that affected properties are well maintained, weather-proofed and secure against unauthorised entry.
Landlords might well find they now have control of vacant buildings with a backlog of maintenance issues and damage together with no tenant to pay rent and a depleted service charge. Tenants may feel that they are in a good position to do deals with landlords, although ignoring such works will store problems for the future.
What to do?
- Prioritise urgent and health and safety matters first. You will need to work with your surveyor to ensure you have up-to-date prices, and a plan for the remainder of the work. Surveyors will be able to help with procurement and to advise over supply chain and any delivery issues.
- Set up PPM now to map out what is needed against funds available.
- Check your insurance policy and work with your property and insurance advisers to assess whether any claims may have merit.
- Consider tax breaks and the affordability of projects. Capital allowances offer a unique form of value engineering – if projects utilise capital allowance savings to realise an additional 5-15 per cent of value, scheme opportunities are substantially increased.
What are capital allowances?
Capital allowances remain of value if a project has begun or is even complete – entitlement will not generally diminish. Proactive planning, however, will exploit all optimal project opportunities and maximise savings. The UK’s economic recovery was placed at the heart of the budget earlier this year, unlocking significant cash reserves through increased capital allowances, and with an expected investment into the property sector of £20-30 billion over the next few years, there is a great deal of value for clients.
Companies will be able to claim these quite remarkable levels of capital allowances in the form of 130 per cent ‘super deductions’ for general plant, along with new ‘first year allowances’ which will be available for all integral feature assets at 50 per cent in the first year. This essentially means clients can realise savings over and above full cost deductions rather than just accelerating the mitigation of a tax liability. Furthermore, the extended annual investment allowances tax relief of £1 million per annum currently remains in place.
With a backlog of work and favourable capital allowances as well as a landscape of vacant buildings – now is the time to consider works and projects. These will need careful management and planning to prioritise and work through supply issues. Now, more than ever, is a time for landlords and tenants to work together.
Robert Burke is head of project and building consultancy at property consultants Cluttons