Meeting documents

Specific Policies - Revenue Portfolio

SP R1. Definition

The Council owns significant property investments the majority of which are known as the commercial estate. This estate, together with a small number of non operational corporate estate holdings, is managed in accordance with this Section of the policy.

The commercial estate comprises approaching 400 properties and produces a significant income flow to the Council. Corporate estate let properties are less significant but still produce a level of income and will be subject to constant challenge at service and strategic level.

SP R2. Commercial Estate Aims and Objectives

The commercial estate will be managed in accordance with the aims and objectives for the time being. These are currently as approved by the Property Board around the concept of total financial return.

The current aims and objectives revolve around total financial return. These are currently under review as part of the establishment of the Property Board and the Property Holdings Review and may be further amended once this is confirmed. The Asset Management Plan also contains an evolving section concerning the management and challenge for the Council's property investments.

SP R3. Capital and Revenue Expectations

The commercial estate provides a significant revenue flow to the Council and this income is managed in a commercial manner so as to maximise returns.

The estate also has a considerable capital value which could be realised to provide resources to contribute to the council's capital programme or specific projects.

Management of the Commercial Estate is undertaken in a commercial manner but always subject to the provisions of Financial Regulations, Contract Standing Orders etc.

SP R4. Performance Management - Property Performance Model

The performance of non operational assets will be measured using Internal Rate of Return (IRR). A property performance model is being developed to assist with decisions concerning retention, management or disposal.

Property Performance Model. The purpose of the model is:

• To provide an objective decision making framework for comparison of properties in order to ascertain both their financial and non-financial performances.
  
• To provide a basis for year-on-year measurement of the past performance of the portfolio.
  
• The key basis for assessing the performance under the model is the internal rate of return (IRR).
  
• Assess the feasibility of proposed expenditure out of the Development Fund This fund is an allocation from the Capital Programme for improvements and refurbishment to property to increase performance and return.

SP R5. Property Management - Let properties

The Council's commercial estate is held to satisfy the aims and objectives of the estate. In other circumstances parts of operational properties may become available for letting without the whole property becoming surplus to requirements. Such occupations will be dealt with in accordance with the terms of this policy. The remainder of this part deals with specific aspects of this.

The Council holds the commercial estate which produces significant income for the Council. This income is derived from rents achieved through lettings. There are also some cases within the corporate estate where properties or parts of properties are let to third parties. In certain other circumstances properties may be made available during site assembly or whilst consents are obtained.

Generally lease terms are put in place to protect the value of the Investment.

SP R6. Commercial Estate Voids

From time to time certain units in the commercial estate will become void. Such properties will generally be available for reletting and remain in the commercial estate. Such properties will therefore not be declared surplus and will not be dealt with in accordance with the surplus land procedure. Where all or part of a property is physically void then the requirements of the Council's insurers must be adhered to strictly.

Commercial estate units may become void through the expiry of the lease or the early vacation by the tenant for whatever reason. These properties will generally be available for reletting and not therefore become surplus to the requirements of the commercial estate. They will nevertheless be managed under the void property procedure.

The exception to this is where another service area submits a bid in which case the surplus land procedure will apply.

During such time as any property is physically, as opposed to legally, void then the provisions of the void property procedure must be implemented strictly, especially the requirements of the Council's insurers in relation to services and security.

SP R7. Breaches of Covenant

Property Services will enforce the terms of all leases and other occupational agreements through effective estate management including where necessary taking appropriate legal action to support this.

Covenants can include the obligation to pay rent, repair the property, not to assign or sublet, use it lawfully and hand it back at the end of the lease. Breaches of covenant can be either remedial or irremedial and this must be distinguished to determine the appropriate course of action. Failure to deal with breaches firmly and promptly may result in the Council's reversionary interest being damaged, particularly where a lack of repair is involved. Early identification of these matters will allow the Council to take appropriate action including legal action for specific performance of the obligations, damages or repossession of the property.

SP R8. Use

All property in the Council's ownership will only be used for lawful purposes both in terms of the need to comply with planning permission and other statutory requirements as well as contractually under the provisions of any lease or other occupational agreement. Where leases provide, Property Services will provide assistance to the local planning authority by enforcing the terms of such leases including where necessary taking appropriate legal action.

Leases will generally provide for the use of the property to be restricted to some extent in order to protect adjoining properties or the estate in general. The Council is also the local planning authority with responsibilities to ensure that land is only used for purposes for which planning permission has been granted. Where a property is being used unlawfully Property Services will work with the planning authority to supplement their powers of enforcement.

SP R9. Repairs and Dilapidations

Leases of buildings let as a whole will generally be granted on fully repairing and insuring terms which provide for the tenant to be responsible for all repairs to the property.

Where part of a property is let the council will repair and maintain the exterior of the building with the tenant paying a proportion of the cost and the tenant will be responsible for internal repairs and decorations.

Leases will generally provide for the tenant to be responsible for repairing the property wherever possible and also for handing it back to the Council in good repair at the end of the lease. It is not possible to pass this responsibility on directly where part only of a building is let, therefore the landlord retains the primary responsibility but the cost is passed on to the tenant either through a service charge or by direct recharge.

In exceptional circumstances, eg where the property is in need of restoration and/or refurbishment it may be necessary for the Council either to repair the property to a basic standard or alternatively account for the requirements in the remaining terms of the lease.

Letting to voluntary bodies under the concessionary lettings scheme will generally provide for the council to retain responsibility for the exterior of the building.

SP R10. Granting of Leases

No Lease or other occupational agreement will be granted until the suitability of the prospective tenant/occupier has been investigated fully and in particular the financial standing and trading experience of the person or organisation. Any lease proposed will also reflect the long term proposals for the property.

To grant a lease to a tenant with an unsound business plan would leave the Council open to higher management costs and the possibility of rental voids and possibly bad debts with the consequent effect on Income expectations. The method of achieving this will depend on the individual circumstances and may include acceptance of a rental deposit or the obligations being guaranteed by somebody other than the tenant.

The nature of any lease can be tailored to the long term requirements for the property, for example the lease may only be for a short period, or provisions may be entered enabling the Council to recover possession when it is likely to be required in the future.

SP R11. Renewal of Leases and Agreements

At the end of the lease if the existing occupier has kept the covenants of the lease, he will generally be offered terms to renew within any statutory constraints and subject to any service delivery issues. Where the property is required by the Council for its own occupation or in order to facilitate a redevelopment of the property or where the tenant has not observed the covenants in the lease any such renewal will be resisted and the Council will seek to recover possession or offer renewal terms that reflect the Council's aspirations.

The majority of leases commercial are governed by the Landlord and Tenant Act 1954, as amended, and this legislation provides for any business tenant to remain in occupation on expiry. The procedures to renew the lease or resist such renewal are subject to strict rules and timetables. It is possible, by using the mechanisms under the legislation, to resist a new lease being granted in certain circumstances which include the landlord requiring the property for owner occupation, redevelopment, or breach of covenant. Where there is a future requirement for the property then terms for any renewal can be tailored to suit these requirements, for example a short term renewal pending a redevelopment proposal.

SP R12. Landlords Consents

Where leases provide for the landlord's consent to be obtained under the terms of any lease, licence or tenancy such applications will be considered under the terms of the document and in accordance with the terms of this policy. In particular the Council will seek to recover from the applicant the Councils costs in dealing with the application, whether or not any consent is granted.

Leases generally provide for the Council's prior written consent to be obtained where for example the tenant wants to sell or transfer the lease, or where he wants to make alterations to the property. Leases will also provide for any such consent not to be unreasonably withheld, and in addition certain statutory constraints may apply. All of these statutory and contractual matters will be considered as part of the process.

SP R13. Rent Payments and Arrears

All Rents shall be payable in advance. Where new agreements are being put in place all rents will be set at a level that ensures that such rents are sufficient to cover the costs of collection and management. In all new agreements the Council will include provisions to charge interest on late payment of rent. Where rents remain unpaid such interest will be charged and early recovery action instigated.

There are numerous miscellaneous and minor agreements in place which cost a disproportionate amount to administer. New agreements should avoid this situation, and attempt to put in place revised arrangements, for example rolling up rent into bulk one off payments.

Rent arrears are to be treated robustly and swiftly in order to improve cash flow and also to minimise the exposure to potential bad debts.