13 December, 2011
Don Lemen, Director, Retail Management, DTZ considers how landlords can mitigate void liability costs for shop units.
“DTZ Research indicates that the top 20 malls and high streets in the UK are experiencing their best occupancy levels for 10 years, however, it is still vital for landlords to put in place a robust strategy to mitigate void costs.
“Relationships with administrators and liquidators need to be carefully managed. There are methods of delaying rates liabilities and collecting at least a proportion of historic arrears and ongoing fixed costs whilst the lease is technically in place. To assist, agents should confirm in writing that keys are held only for health and safety purposes, without prejudicing the lease.
“Unexpected tenant insolvency does not necessarily result in full void costs when immediate re-occupation is not sought. However, service charges, insurance and business rates for void units must be taken into account and it is the latter which the landlord should focus on as part of a mitigation strategy. Landlords could be eligible for additional rates relief by documenting their usage of units as temporary storage locations.
“Rating liabilities can be challenged where a unit has been reconfigured or is yet to reach Practical Completion. At Westfield, Stratford City, sections of void unit window displays have been dressed to preserve the vitality of the mall, attracting both retailer and customer interest whilst reducing costs.
“Finally, keeping accurate tenancy records diarising forthcoming key dates which could lead to vacancies, such as expiries and break dates, is essential. The BCSC Shopping Centre Asset Pricing Guide encourages investors to take a forward looking analysis of risk. Asset management therefore should be proactive to ensure void costs, although sometimes unavoidable, are kept to a minimum.”