Core Services

• strategic vision
• strategic property analysis
• relocation management
• relocation review
• property audits
• exit strategies
• space reduction

The Midas Touch

Leader

Welcome to the Autumn 2006 issue of
"The Midas Touch", the quarterly newsletter of the market leading business property consultancy, Midas Corporate Consulting. As some of you will already know, Midas works with companies and organisations to maximise the opportunities arising from their property portfolios in line with their business strategy and commercial objectives.

We occupy a rare position in the property services market since we act exclusively on occupier issues, giving us unrivalled insight and know-how in an area that is critical to any organisation's long-term success.

A key theme for this issue is the impact of new energy-related measures on business occupiers. Midas is aware that Sustainability is becoming a key issue in property selection and we assist those clients who are looking to reduce their energy costs at the same time as address the raft of new rules on energy efficiency.

We also look at how to avoid rent increases when leases expire, and we provide advice on the right to a new lease on commercial terms.

Finally, thank you to all those people who sent in really useful feedback after the first issue. Please feel free to contact Midas with your further suggestions, comments or questions. And, if you like what you read here, then please let us know of any colleagues or business associates whom you think would find our newsletter valuable.

Best regards,

Andrew Pegg
Managing Director

News

Businesses in the UK will be placed under increasing pressures to implement greater energy efficiency initiatives following the Government's recent energy review.

The Government is proposing a series of measures to reduce energy consumption and to secure cleaner energy at affordable prices. While these may well pose challenges for many businesses, they also offer a raft of cost savings opportunities. The new measures have been proposed to address climate change and to reduce the UK's over-dependence on imported gas and to avoid becoming a net importer of oil.

The proposals include measures to eliminate the least efficient consumer electronics from the market and to provide greater financial incentives for large businesses and organisations to reduce their carbon emissions. There is also a possibility that the EU Emissions Trading Scheme could be extended to small and medium-sized companies who would be allocated a ration of permits to emit carbon dioxide (CO2). If they overshoot their ration, the firms would have to buy extra permits.

Consultations are now taking place on the proposals. For more information, please contact Midas.

It is worth noting the new Building Regulations that came into effect as from April 2006 on ventilation and conservation of fuel and power.

The revised Part L of the Building Regulations will change the way that energy conservation measures are calculated in buildings and the new standards should have the effect of making new buildings at least 20% more energy efficient than buildings designed in compliance with regulations in force before April 2006.

The new standards apply to all new buildings and when building work is carried out in existing buildings. They will mean that developers and commercial landlords will need to make greater use of energy saving insulation, more efficient boilers and consider using low or zero carbon systems such a solar panels and mini-wind turbines to demonstrate compliance.

It is likely that commercial landlords will look to pass on the costs of compliance to property occupiers under the terms of the leases. Businesses looking to lease older buildings will need to consider carefully both the implications of Part L and the proposed lease terms. The time to do this is in the due diligence stage, before the lease is signed. These terms will also apply to existing occupiers and they should review their service charge liability carefully.

The revised Part L implements parts of the Energy Performance of Buildings Directive including a requirement that when existing buildings with a floor area over 1000 m2 undergo major renovation, their energy efficiency should be upgraded insofar as is feasible.

The new rules on adequate means of ventilation are contained in Part F and there are specific measures for offices, car parks and other types of non-residential buildings.

For more information, please contact Midas.

The London Chamber of Commerce's Property and Construction Committee has invited Andrew Pegg to join the committee to represent occupiers' views.

The London Chamber's Property and Construction Group works to ensure that all views for this sector are fully represented at all levels of government. Andrew is keen for his presence on the committee to help influence pressing policy issues affecting the availability and quality of London's business space. This will include work on submissions to the Mayor's office and its London Plan so that the capital has the necessary resources to ensure that infrastructure is in place to support the growing numbers of people who are choosing to live and work in the city.

We are delighted to report on the formation of a "coalition" with like-minded property professionals across the UK in order to provide broader specialist knowledge and services to clients, whether large or small.

The Royal Institute of Chartered Surveyors has estimated that UK companies are wasting £18bn per year on unnecessary costs through inefficient use of property simply because they are unaware of the options that are available to reduce costs and do not have experts on hand to deliver savings.

We are confident that our alliance with these other specialised professionals will enhance the skills and resources available to Midas' clients, so that we can help them maximise the contribution that property can make to their business strategy and commercial objectives.

For more information, please contact Midas.

New research commissioned by the British Chambers of Commerce indicates that business rates will soar if central government devolves business rates to individual local authorities.

Relocalisation of business rates is likely to lead to increasing bills for businesses as many local authorities would be tempted to reduce council taxes and at the same time add anything from 1.2% to more than 2% to existing business rates. The Institute of Public Finance (IPF) who carried out the research for the BCC was told by councils around the country that any decisions to increase their annual spending would be likely to lead to national average increases in business rates of 2.5%.

The business community is clearly concerned that these types of increases to business rates could create business wastelands, causing significant damage to local quality of life as firms close or move to lower-rate areas. For more information, please contact Midas.

Best practice

Regularly reducing energy costs

As energy costs continue to rise rapidly, Midas is recommending to clients that they assess the costs of the energy they use so as to identify opportunities to reduce costs in this critical area. Midas uses three tools to help companies reduce their costs by achieving maximum energy efficiency: regular energy audits, optimising the efficiency of their plant, machinery and equipment, and constant review of the tariffs they are being charged to ensure they are paying the lowest possible tariffs.

Energy Audits

We often advise companies who are either taking on property as a business occupier or who are existing business occupiers to undertake an energy audit. This will provide them with the kind of information they need about the efficiency of the buildings they occupy, the plant and machinery they use, and the tariff terms that currently apply to their energy consumption.

Optimising Machinery and Equipment

By making straightforward and practical changes to basic items such as heating, lighting and air conditioning arrangements, companies can reduce their annual energy bills by as much as 10%. We have found that even greater savings of 20% or more can be made by optimising heating controls and preventing leaks.

Tariff Review

We also recommend that our clients constantly review the tariffs they are paying for their energy. Through our partners in this area Midas is able to identify for our clients the tariffs they should be paying and assist them in negotiating lower tariffs, and in reducing consumption levels.

By regularly reviewing our customers' supply contracts and tariff terms we are able to achieve significant savings for them on an ongoing basis.

Clearly longer-term gains will arise through a full energy audit to identify the full scope of potential for energy efficiency of the buildings and plant and machinery concerned.

In the next issue of "The Midas Touch" we will look at ways to reduce carbon emissions.

For more information, contact Midas.

What accomodation can your business afford?

New accounting standards mean that businesses of a certain size have to provide for the full liability for their leasehold property in their published accounts.

Midas determines the affordability ratio of property for companies and organisations. Affordability is the percentage of Total Property Costs to business turnover. By comparing similar companies and organizations (in both any given year and over time) we can identify potential inefficiencies related to the use of property as well as business opportunities to target management decisions to improve efficiency and effectiveness. The net result is an improvement in the bottom line. Whilst the impacts may be more visible to a larger PLC, the principles apply to any organisation. For more information, please contact Midas.

Facilities Management - The Property Challenge

The July 2006 issue of Facilities Management Journal has published an article by Andrew Pegg on The Property Challenge in which Andrew sets out his tips for managing property to suit an organisation's needs.

To view this article, please click here (in PDF format).

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Case Study

Our case studies illustrate how Midas works with our clients to unlock the potential in their property portfolios.

How to avoid huge rent increases when your lease expires

Midas recently helped a company that had no security of tenure and was asked to pay a potentially crippling increase in rent.

Our client's landlord was seeking an increase in rent on terms that were so detrimental to our client's business that it would have not been viable to continue trading. They were given 3 months to accept a fait accompli.

As part of our negotiations and representations on our client's behalf, we were able to help our client consider alternatives and to identify solutions that would open new markets. At the same time, we agreed a modest increase with the landlord based on a reasoned presentation of our client's business case. As a result, Midas has now created a relationship which has opened the door in the direction of a renewal of our client's lease on more favourable terms as well as alternative options.

"This case clearly illustrated the importance of taking the professional advice well in advance of any expiry or break, and in particular before a new lease is signed," comments Andrew Pegg, Midas Managing Director.

Viewpoint

Does Government housing policy work for businesses and families?

In this issue of The Midas Touch, managing director of Midas business property consultancy Andrew Pegg argues that a broader approach to planning is urgently required to avert cost pressures on businesses.

The Government estimates that we may need to accommodate up to 3.8 million extra households by 2021, and in the headlong rush to provide the housing required, conversion of commercial landlord buildings for residential use is being undertaken without adequate consideration of the long-term impacts. In addition, the perceived need and prioritisation of one and two-bedroom flats may well have the effect of creating a shortage of 3-4 bedroom houses in the future.

There are already plenty of indicators pointing to problems ahead.

All change

Increasingly local authorities are under pressure to provide more housing on brownfield land, and this has resulted in conversions of lower value industrial and commercial use buildings into residential use.

The likely consequences of this quick-fix approach will be a reduction in the options people have in terms of where they can work, and a shortage of industrial and commercial property in key areas which will lead to a rise in rents for existing stock.

On top of this, my concern is that the current openness towards permitting lower value commercial land to change to residential use, whether for key workers or others, is likely to cause a shortfall in commercial workspace in the next ten to fifteen years unless such sites are safeguarded.

London is perhaps an acute case. While there are many benefits to the local community and businesses from the regeneration project in the area where the Olympic Games will take place, it is unlikely that property developers will want to provide affordable residential homes or start-up business premises in the regenerated area, or that small and medium-sized companies will be able to afford to take on business leases in an area where the industrial land is now over £2.5m per acre.

Strategic planning needed

At both government and local levels, I believe that a broader view of planning needs to be considered, taking into account the demographics for the next two decades so that there are specific sites dedicated and protected for employment and for residential use.

Without urgent action in this area, we will see greater pressure on our roads as more and more people are obliged to travel longer distances to get to their place of work. We will also miss out on the opportunities to create dynamic communities where businesses of all sizes are functioning as an integral part of society."

Ask Midas

In this section, we address some of typical questions we receive from our clients and from the press.

Lease renewals

Q. How can I ensure I have a right to renew my lease?

A. Most business occupiers have the right to request a new lease under the Landlord and Tenant Act 1954 for up to 14 years. However, to secure this right you must comply with various legal requirements and with a strict timetable once "trigger" notices are served. The new lease may be negotiated between principals or their business property surveyors representing each side or, failing this, can be fixed by the county court.

The landlord can only refuse a new lease on specific grounds, and would be expected to compensate the occupier for having to move premises. Midas can advise you on the amount of compensation you can expect.

If a lease is excluded from the security of tenure provisions of the Landlord and Tenant Act, these rights do not apply. This means the occupier cannot insist on remaining at the property and therefore business continuity is key.

Midas recently acted for clients who did not have security of tenure as the building was due to be redeveloped. The notice period in the lease did not take any account of the time taken for a business to find and relocate to alternative premises. This case highlights the importance of understanding your lease terms and knowing what your options are.

Meet the team

Managing Director - Andrew Pegg
Director of Business Analysis - Chido Ikeyina
Director of Strategic Consulting - Julian Capell
Marketing Director - Anne Bacon
Team PA - Wendy Slane

To contact any of the Midas team, please click on their names above.