In recent years, there has been a substantial increase in employees regularly working from away from their main place of work as the benefits of better technology become available to the many. Telecommuting of a work arrangement in which employees enjoy flexibility in working location and hours.

Simply put, the daily commute to a central place of work is replaced by telecommunication links. This opportunity is only likely to increase with new technologies such as the ‘Cloud’ becoming mainstream for many organisations which enables staff to access all information they need remotely from the office at any time.

Having employees work effectively away from the office certainly does have its benefits including, in some cases, a more efficient business process, better risk management and lower overheads. However, there is one cost that can also be significantly reduced when considering the telecommuting approach; property costs.

“We typically find, that organisations have already begun to implement policies where there employees can work remotely, or directly engaging with clients. However, as a result, they are then left with residual high property costs which they are unaware how to manage, and this can then become a significant drain on resources, which many feel is completely unmanageable”, says Andrew Pegg, Property Consultant for Expense Reduction Analysts.

“In our experience, it does take an expert to realign a client’s property portfolio, which does require a significant amount of time and expertise. The entire process can be extremely costly and involve lengthy lease agreements that are not easy to understand. However, most of our clients agree a contingency ‘No Saving – No Fee’ arrangement, so the cost is managed efficiently from the start”, said Andrew.

Certainly, telecommuting will presents an organisation with fresh challenges such as managing team working, providing “face time” to share knowledge and build relationships which in turn means that the role and function of the office has to evolve, and new skills have to be learnt.

“Overall, telecommuting can be an extremely effective way of making cost savings, and when combined with an intelligent business restructuring, IT and property realignment programme, the benefits to an organisation can be huge”, said Andrew.

The company prides itself on its commitment to providing its customers in research and industry with the highest quality products and services and has an ISO 9001-certified production facility in the UK. This headquarters supports sales offices in the Germany.

It is one of the most reliable and complete sources of research and diagnostic products in the World.

The client occupies a 21,000 sq ft facility under a 15-year lease from 1st July 2006 with 5-yearly “upward only” rent reviews. The Property team working alongside Expense Reduction Analysts’ Building, Plant and Facilities Management team, “BPFM”, were asked in October 2010 to advise on the issues arising of the rent review due in June 2011.

ERA Property offers an initial consulting service to undertake specific reviews of a business’s property issues including a review of lease and other property data, the premises, the business occupancy levels and the prevailing market conditions. This process formed the baseline of our report on the specific issues such as rent reviews.

The team’s investigations identified that the current rent was significantly above current market levels. The Client’s senior management team asked Expense Reduction Analysts to explore whether there was a case for the rent to be reduced notwithstanding the lease contained the usual “institutional” requirement of an “upwards only” rent review.

ERA Property established that the lease contained a break clause which was to be effective at the tenth anniversary of the term – in approximately five and a half year’s time. This meant that this would have a significant impact on the value of the landlord’s property investment value and inhibit its value and attractiveness to investors, should the property need to be sold. Removing this break clause would create value to the landlord which they might encourage them to reduce the passing rent.

As the property team had considered the business’s property requirements holistically, they identified that the business operations had changed significantly in the five years since the lease started – such that there was excess space in the building. With business requirements continually changing, simply dropping the lease break and committing to the property for a full 10 years now may not have been in the best long term interest of the company, compared to the merits of either re-negotiating the lease at some point in the future or relocating to more suitable premises in five years’ time.

After discussions with the Client’s UK Managing Director and Divisional Head from Germany, it was agreed to nonetheless pursue negotiations with the landlord’s managing agent to find the magnitude of rent reduction that could be achieved now in return for dropping the break clause. These resulted in an offer of an 11% reduction in return of the longer lease commitment.

However, as this still represented only a modest reduction on the current passing rent per square foot, leaving the passing rent well above market levels, it was decided to benchmark the offer in investment valuation terms. This confirmed that the present value of the property and the proposed offer were approximately equal but it did not reflect the considerable fall in value that would arise as the lease break date approached. This timing issue presented an obstacle as the landlord could not increase their offer without writing down the “book value” of its investment.

Therefore, the issue was whether the business should take the significant cost reduction on the table worth around £250,000 over five years, or bear the current cost and seek to secure better terms in 3-4 years’ time, closer to the lease break.

The Property team advised not to accept the landlord’s offer and drop the break at the present time. This advice was based on the assessment of the changing business drivers, the increased leverage with the landlord and consideration that the business could be prejudiced by “locking in” to a 10 year commitment that could be detrimental in the long run. The intention, now a dialogue is open is to monitor the situation with a view to re-instigating negotiations closer to the lease break in 3–4 years when more appropriate terms can be agreed relative to the business need.

Commenting on the invaluable advice and support received from Expense Reduction Analysts’ Property Team, the Client’s UK Managing Director, said:

“We are extremely happy with the service that was provided to us by the Property team; their wealth of knowledge and expertise has been incredibly helpful and has provided a positive solution to a tricky dilemma. Without their input, we would have not have been aware of the options open to us and would have left the status quo. Now we have a much greater understanding of the possibilities and the opportunity presented by the lease is very much on our radar. The key benefit for me was the understanding not only of our own options, but the drivers and issues for the Landlord, which always helps from a negotiating point of view”.

As a result of this partnership, the client’s rent review has now been agreed at no increase and Expense Reduction Analysts’ Property team are now advising the client in connection with the disposal of a surplus site; good progress is being made with this ongoing project.

If this affected you, the latest long-range forecast from respected forecaster James Madden may cause you concern. His key conclusion is:

“I therefore expect the 2011-2012 winter to follow a similar pattern in terms of how November and December was in 2010 for the vast majority of this winter.  It will be exceptionally cold and snowy with well below average temperatures.  I fully expect to see records broken with the highlands of Scotland being once again particularly hard hit.  It is therefore vital to start preparing now in terms of high energy bills and raising awareness amongst the most vulnerable and elderly people of society.

James Madden (UK Long Range Forecaster)

www.ExactaWeather.com   Published: 18th June 2011 (21:29) BST”

(Full forecast at http://www.exactaweather.com/uploads/mainswinter1.pdf )

Even today, heating-oils at wholesale level are trading at a premium of circa 25% above prices at the beginning of November 2010. However, once the weather turned wintry last year, final delivered prices were running at nearly double wholesale prices in some cases.

Fortunately although existing clients of Expense Reduction Analysts endured the impact of world wholesale prices, they avoided the pain of the increased costs associated with the delivered prices being charged to non-contracrt customers in the UK.

If you are a heating-oil user, perhaps now would be a good time to undertake a review with Expense Reduction Analysts to achieve some immediate cost savings whilst obtaining protection against opportunistic pricing when the weather turns as bad as Mr Madden has forecast.

Ken Rogers.

August 2011

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The enterprise zones will be given cheaper business rates, faster broadband and lower levels of planning control.

The enterprise zones announced today are:

· Daresbury Science Campus in Warrington

· Newquay AeroHub in Cornwall

· The Solent Enterprise Zone at Daedalus Airfield in Gosport

· Rotherwas Enterprise Zone in Hereford

· Discovery Park in Sandwich, Kent

· Enterprise West Essex in Harlow

· Science Vale UK in Oxfordshire

· Alconbury Airfield in Cambridgeshire

· Great Yarmouth in Norfolk

· Lowestoft in Suffolk

· Northampton Waterside

· MIRA Technology Park in Hinckley Leicestershire

· Humber Estuary Renewable Energy Super Cluster

The Enterprise Zones previously announced were: Leeds, Sheffield, Birmingham, Bristol, Liverpool, London, Manchester, Derby, Nottingham, the Black Country, the Tees Valley, the West of England and the North East.

Although this is good news for companies within the zones, companies outside the zones could potentially lose out as new staff are attracted into to the zones, leaving a potential skills shortage.  Also, it could result in more vacant sites outside of the zones as companies relocating will undoubtedly be attracted by the new incentives.  We will have to wait and see!

For more information on property costs, click here to contact the team.

Businesses may be unaware that they could still avoid business rates on empty buildings following the lowering of the exemption threshold from April 2011.

Up to the beginning of April those properties with a rateable value of less than £18,000 did not have to pay property business rates. However, this exemption was reduced with effect from 1st April 2011 to just £2,600.

However, the Government is providing eligible small businesses, who occupy a property with a rateable value of less than £6,000, a rate holiday period and reduced tiered rates for rateable values between £6,000-£12,000 up until October 2012 through the Small Business Rate Relief scheme.

Businesses should therefore look at their empty property space and see if they can create ‘parcels’ of accommodation that fall under a rateable value of £12,000, which can be let out on a short term agreement to small businesses. The main stipulation for splitting property in this way is that it is capable of separate occupation.  However, if unclear about the merits, professional advice should always be sought.

Whilst there may be some costs associated with making structural changes to meet the criteria for separate occupation businesses could save up to £2,500 on every empty suite let over the next year to October 2012 with a rateable value of less than £6,000. They will also be able to gain discounts on empty properties with rateable values between £6,000-£12,000.

The first 10 new urban Enterprise Zones will be within the following Local Enterprise Partnership (LEP) areas: Birmingham and Solihull; Leeds, Sheffield, Liverpool, Birmingham and Solihull, Greater Manchester, the Black Country, Tees Valley, Tyneside, Bristol, and Derbyshire and Nottinghamshire.

In addition, London will have an Enterprise Zone and be able to choose its site.  This reflects the Mayor of London’s unique economic development responsibilities.

The Government will also launch a competitive process for interested LEPs to establish 10 more Enterprise Zones.

The Enterprise Zones will benefit from the following benefits: -

• 100% business rate discount worth up to £275,000 over a five year period for businesses that move into an Enterprise Zone during the course of this Parliament;
• all business rates growth within the zone for a period of at least 25 years will be retained and shared by the local authorities in the LEP area to support their economic priorities;
• radically simplified planning approaches will be developed in the zone; and
• Government support to ensure superfast broadband is rolled out in the zone. This will be achieved through guaranteeing the most supportive planning environment and, if necessary, public funding.

As a further boost to small business, an extension of the current rate relief holiday has been annoucned.  It was set to end in October, but the Chancellor pledged an extra £370m of funding to extend the relief until October 2012.

Here are a few frequently asked questions to help you: -

My bill has increased significantly for 2011/12 – why is this?

Your rates bill is calculated by reference to a Rateable Value multiplied by a Business Rates Multiplier (described below).  This Multiplier is based on inflation which is currently running quite high and for the coming 2011/12 rates year, is set at 4.6%.  Therefore for many businesses their rates will increase.

Furthermore, if your property is subject to transition due to a large increase in your rateable value following the national revaluation last year, you may have an additional increase being phased in.

How has my Rateable Value been worked out?

National revaluations occur every 5 years with current valuations effective from 1st April 2010.  Your Rateable Value is based on what the Valuation Office calculates your property would rent for hypothetically in the open market in April 2008.  As this is just before the full impact of the credit crunch, there are wide percentage differences between assessments.

How does my Rateable Value relate to my actual bill?

At its most basic level the Local Authority multiplies your Rateable Value by the annual Business Rates Multiplier.  The Multiplier is set by Central Government and is 43.3p for 2011/2012 and for those qualifying for Small Business Rate Relief, the Multiplier of 42.6p.

However, many rates bills also feature transitional arrangements which phase in large shifts in payments, whether upwards or downwards.

How do I know if I am receiving Small Business Rate Relief on my bill?

Currently qualifying businesses with a Rateable Value under £6,000 pay zero rates until 30th September 2011.  Between £6,000 and £12,000 there is a reducing scale proportionate to the size of rating assessment and they have their Business Rates calculated using the lower Multiplier of 42.6p.

Businesses with a Rateable Value between £12,000 and £18,000 do not receive a discount but still have their bill calculated using the lower Multiplier of 42.6p.

My property has been empty for a while, and last year I didn’t have to pay Business Rates, but this year I have received a bill?

The threshold for not paying rates on empty property has significantly reduced from April 2011.  For April 2010 an empty property with a rateable value under £18,000 had no business rates to pay.  From 1 April 2011 the rateable value limit is reduced to just £2,600 and those over this threshold will have to pay full business rates.

I don’t agree with my Rateable Value – can I appeal?

Appeals can be lodged with the Valuation Office which could reduce your assessment over the 5 year period of the revaluation.  Usually, it is best to seek professional assistance for this process as it can be quite complex and tends to be carried out by experts.

Businesses suffering hardship may apply for Hardship Relief.

If you wish to apply for Hardship Relief, contact your Local Authority who are likely to request your latest set of financial accounts.

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