It’s uncanny.

“If only our tenant clients would hire someone like you! It would be so much quicker and easier for us – and cheaper for the client. Not only that, the client would get a better deal!”

It happened again the other evening, in Winchester. There I was chatting away in a group that included a Commercial Property Lawyer and out came the same comment I always hear when I tell a Commercial Property Lawyer what I do for my clients.

Businesses lease and purchase premises all the time, but without the business owner seeking bespoke commercial property advice – a DIY job. The transactions mostly go through and sometimes there is not very much contention but it is often a struggle for the tenant’s solicitor to undo the damage without being so frank that they lose the instruction; and usually, some uncomfortable compromises are forced on the business owner who is unaware of just how much they have given away unnecessarily.

Time, money and stress are the costs to the business owner conducting the transaction without independent property advice. The solicitors tell me so every time.

“The solicitors must be able to sort it out. Isn’t that what they get paid for?” You might think so, but in fact – to their frustration and their clients’ detriment – the deal has been done by the time it lands on their desk. Too late to change the fundamental terms. Too late to wind the clock back and begin where the negotiation should have started.

The usual wrangle ensues between landlord’s solicitor saying, “This is an agreement. We are not willing to change anything”; and the business owner’s solicitor trying to rectify the worst mistakes that have, in all innocence, been allowed into the agreement by the DIY business owner.

The curious thing is this is such a well-recognised and acknowledged scenario.

Often it is the things that aren’t included in the Heads of Terms, that have the greatest potential for detriment. Things the business owner ought to have thought of but it’s too late. None of it is rocket science but it has the potential to blow up. Worse still, those little errors and nuances can simply just sit there, ticking, almost unnoticed, until they go off and potentially cost the business financially.

“If only our ‘tenant clients’ would get bespoke property advice, it would be so much quicker and easier for us – and cheaper for the client; not only that, the client would get a better deal!”

Well, that is where I come in. Bespoke property advice that could save your business valuable time and money.

I noticed this old story circulating again, recently. It’s such a great illustration of what it is to be an expert and how others, who may be expert in their own field, can miss and potentially undervalue expertise in others.

You know the one – it’s about the expert engineer called in to fix the machine and the owner questioning his invoice. The punch line goes something like: “£55.00 for attending site and tapping the machine with my hammer – and £1,000 for knowing where to tap it”.

We might sum expertise up as the ability to notice, recognise and deal with things others simply miss. Expertise may not always have direct monetary value. It may not be so complicated it can’t be understood by others when explained (“it’s not rocket science”) but it can nevertheless have a remarkable outcome.

Another great example of what expertise is, was during the Olympics, in the diving pool. Watching the divers, we often become “arm-chair experts”. Looking at the slo-mo and replays, commenting on over-rotation and “ooh that that must have stung!”.However, we were not judging, the judges were; and what is remarkable about them is that they didn’t see the replay in slow motion from all angles as we, the arm-chair experts did. They were making their decisions in those few seconds it took the divers to get from the platform to disappear beneath the surface of the pool, based on their expertise and the ability to see the detail in a dive “in real-time”. Quite clearly, they could see at that moment so much we missed, often even after the replays! They are experts and that’s why they were in the position of making decisions that led to medals.

In business, wise operators will surround themselves with experts who complement their own knowledge and experience. They don’t try to cover all the bases but focus on what they do best, buying in advice, support and guidance through their network. They don’t see it as a distress purchase but an investment.  IT, HR, property, law, marketing and so on; they are experts who deliver benefits that offset the time, cost and stress of “winging it”.

Who wouldn’t rather have an acknowledged expert on their side when they step outside their core skill set? What will we miss that the expert will (1) see, (2) understand and (3) either turn into an advantage or perhaps compensate for to mitigate a downside? The worst case is that we never find that out and go on paying for the mistakes! In our opening example, that could be the difference between the broken machine firing up as before because the expert dealt with it, or it is replaced as unrepairable because the expert was thought “too expensive”; a potential cost difference far greater than the £1,000 the owner questioned.

My expertise lies in commercial property. If you come to me for advice the likelihood is that I can save your business time and money. I can recognise and negotiate detail within commercial property leases that many business owners may miss. By using me to help take control of your commercial property decisions you will have an expert on your side.

You know the one about the butterfly flapping its wings in the Amazon rain forest? Or more pertinently, the end of double tax relief on owner-occupier mortgage interest (MIRAS) back in 1988/9? Well, adding 3% SDLT (stamp duty land tax) on buy-to-let purchases might have a similar effect on the property market. Apart from anything else, it is market intervention, which I thought wasn’t a particularly Tory thing to do.

If you are asking: what is a commercial property trainer/mentor/adviser doing concerning himself with the residential market? Well history tells us that the residential market broadly leads the commercial market in its ups and downs. So it matters a good deal to my clients, whether they realise it or not.

Many people prefer to rent rather than buy the place in which they live. For many, getting/having a mortgage is either not appropriate or not desirable. They are in temporary/contract work; they are students; they want to live in an area before they buy; or perhaps they just don’t want the burden of owning. For all those people, the availability of a good stock of well-maintained and managed residential property, large and small is vital.

“Well-maintained and well managed”? What about all the terrible stories we see on the TV about water dripping down walls and extortionate rents? That is again a supply and demand problem that the extra 3% SDLT isn’t going to improve. A ready supply of well-maintained and managed stock would help. And of course, the vast amount of well-maintained and managed stock doesn’t make headlines.

If the demand from buy-to-let investors dries up or even reduces, the availability of rentable houses and flats also diminishes. Demand will outstrip supply and the price (rents) will go up. That’s not too complicated to see. Added to which the same newsworthy “unscrupulous landlords” in the will have less reason to improve their stock.

The Government’s intention may be that a penal rate of SDLT will increase the availability of properties to owner occupiers and thus cause a fall in the price, helping as it does, first time buyers. Sorry, a key component of the buy decision is that the value of the property is going to increase afterwards? And which house builder will carry on building at the smaller end of the market when what they build sells for less than last year?

Of course many a fortune has been made and lost trying to second-guess a market but we can only hope that this innocuous little market intervention will not have the sort of unintended consequences that the end of double mortgage interest tax relief had.

One of my posts with this opening comment attracted more than average attention, perhaps because it rings true with many.  It was prompted by the following ironic scenario.

I was referred to talk to a couple of entrepreneurial young guys, eager to start a business together.  They were full of enthusiasm, which is always great to see.  They had identified the ideal unit for their business and wanted my advice and guidance on negotiating the terms of the lease with the agent acting for the landlord.

They had already identified the building, however, as their story unfolded and as they relayed their business model to me, there was a flaw in the plan they were telling me. It was so clear that I could not allow the conversation to go forward without explaining the basis and context of my concern to them.

Thankfully, after their initial surprise, they could see exactly what I was saying and why.  They understood my concern. Without the issue resolved, it was doubtful they would succeed in their plan.  My view was that it wouldn’t be worth the time and cost to overcome.

I suggested how they could ‘bottom out’ the matter and make a judgement about whether the object of my concern was truly fatal to their strategy.

The point of the story is this: whilst it had already been recognised by others that there may be an issue, they had been told by more than one person, “No, that won’t be a problem at all!”, which, in their enthusiasm, they had willingly accepted.  Where had all that advice been given?  Well, in the pub of course and clearly by people who lacked a professional understanding of the issues and the experience to advise!

The irony that struck me as I was explaining the reality and magnitude of the challenge, that we too were sitting in a pub.  Hence the conclusion of the tale is, you CAN trust advice from the bloke at the pub if that bloke happens to have over 35 years’ experience doing exactly what you’ve asked about!

You and I, walking along in the middle of Portsmouth. Someone calls out from a car: “I need to get the Isle of Wight Ferry! I am in a hurry!”

Sounds reasonable enough and if someone called through their car window asking for directions, we might well just tell them how to get to the ferry.  Why would we not?

But let’s unpick this a little and pretend for a moment, we’re experts in getting to the Isle of Wight. Who isn’t?
We have met our client’s needs. We answered their question, for which they might be entirely satisfied. Job done. In other circumstances, they might be quite prepared to pay our fee. But have we really done the best job we can for them – as experts in our field?

Our client has said they are in a hurry.  Because we are experts in getting to the Isle of Wight, we actually know there are many ways to do that.  All different and each one ‘the best’ in certain contexts.  So we take a moment to find out what the client’s ultimate objective is and what their needs are, beyond finding the ferry terminal.  We find they have a meeting in Cowes and then they’re coming back. We then find we are able to advise on the best way to reach that ultimate goal.
It turns out the ‘best way’ for them is, in fact, to catch the hovercraft.  It is quicker to cross and by leaving the car behind, cheaper too.

If a business comes to me with a specific request, for example, please help me buy this building to put my business in and all I do is help them buy the building then I am a service provider. If I enquire into the reasons behind the purchase and challenge the assumptions and motivations behind the request and if inform the client and build their understanding of the implications and consequences of purchasing a property to put their business in and if I help the client to use the right mechanisms for owning the property and leasing it back to the business then I have shown myself to be an expert and that in fact is what the business owner needed, rather than a service provider.

I have not just been helpful in meeting the client’s needs but have been an expert in guiding them towards a significantly better solution; perhaps one they had not contemplated. Even though they had all the data, they didn’t have the skills, knowledge and experience to realise that ‘better solution’ from it.

That’s what experts do.

There are so many factors to consider in relation to the space a business occupies. People tend to look at it only from their own perspective. What it really comes down to is whether you, as a business owner/operator, view your premises as an asset or as a cost. If you look at your premises in the same way you would a member of your staff, then simply put, you get out what you put in.

To begin with, you have to make the right decisions at the time you acquire (lease or buy) space. Allow plenty of time for this analytical stage to avoid having to make compromises you may live to regret. It forms the basis for everything else you do. How big, where, what specification and more subtle things like natural light, parking and mobile signal – think of it like a ‘job spec’ for the property. What does the business need? It requires interrogation of the business plan, which is not always an easy exercise from within the business.

Then, once you have committed your business, during the period it occupies the property you may need to adapt and alter to suit the changing requirements of the business so it can make the best use of what it has; moving internal walls, for example, or even just decoration and carpets. The comparison is training a staff member to keep them fresh and relevant.

Lastly, there needs to be an exit strategy which has been ‘planned-for’ and which does not disrupt the business with unforeseen costs and upheaval. This is the same as when it is time for an employee to move to pastures new. You don’t want a big bust-up or worse, for it to go legal!

Look upon your business accommodation as you do a member of your staff and it will become an asset, adding value to the business and facilitating its growth; and not just a high cost, inflexible business overhead.

Don’t have business premises unless you absolutely need them.  That is one of my mantras. I recently had my windscreen replaced.  The process was interesting but the really interesting thing was to hear from the guy on the tools, how the screen replacement company has changed working practices and so reduced its property overhead quite dramatically.

Instead of having a portfolio of industrial units across the country for fitting glass, at a cost of millions every year, they all operate from vans.  The orders are sent to the van and the materials are picked up from a sort of oversized safe-deposit box.  There is an office somewhere dealing with the administration but, for that business, the industrial units are a thing of the past.

The rationale is that carrying a vast property estate makes the business cost heavy and therefore vulnerable.  Better to run vans you can sell if you need to and flex the headcount to meet demand.

The main point being the company profits are increased by not carrying the massive liability premises represents, some of it unquantifiable, and using innovation and technology to deliver the service.

So, think about it – don’t have premises unless you absolutely need them!  If you do, have the right premises in the right location, on the right commercial terms.

 

If you need the flexibility to break your business lease; or if you believe you have a break clause in your lease and would like to use it, understanding more about the realities of break clauses could just save you enough to be able to take that cruise or dine out every weekend for a year.

A bit about break clauses:

For the purpose of this article, a break clause enables a tenant to end the lease and leave early, as if it were the expiry of the full term. They have become common, even ‘normal’ as the level of certainty in everyone’s markets has diminished. Do you know what your business will look like in three or five years, let alone in ten years’ time?

However, conditions placed on the operation of a break clause can have a catastrophic effect on the ability of a tenant to exercise the option

How conditions affect break clauses

A landlord concedes a break clause to entice a tenant to take a lease but is allowed to add ‘conditions’. The effect is that what is given with one hand is taken away with the other.

The tenant may have made compromises like accepting a shorter rent free period or paying a higher rent in the belief he has secured a break opportunity. In fact there is only cost and disappointment to come, not a break.

This is because any condition will be strictly interpreted and if not fulfilled, enables the landlord to refuse to accept notice. The lease is not broken but continues to the end. There are dozens of court reports of failed litigation by tenants seeking judgment in their favour when a landlord refuses to accept a break has been validly operated.

Conditions include the requirement to give vacant possession, to maintain the property or even to pay the rent. None is necessary to activate the clause save perhaps, for providing reasonable notice of the intention to break.

At first sight, you might say “well fair enough, the landlord doesn’t want to let the tenant off if there is a breach of a lease clause”.

Conditions relating to lease clauses are all unnecessary because, by definition they are already in the lease along with another clause saying you can’t escape from a breach at expiry.

Don’t be caught out with a conditional break clause in your lease. Ensure, preferably at “Heads of Terms” stage, that it is worded in the simplest terms without conditions whose purpose is nothing more or less than to stop you from operating that break clause.

In the world of networking, there are hunters and there are farmers.

Hunters go to an event armed with leaflets and their elevator pitch with one objective: to sell, sell, sell.

They will ram raid groups of people, hijacking conversations and talk, talk, talk.

If they have a simple low-cost offering, they may claim some success. If they can make sales they may come away thinking their time was well spent and of course, at one level it was – at least for them.

That, however, is not networking… it is selling.

Let’s look at what has really happened and then at the farmer’s approach.

The hunter is out for as many sales as possible in as short a time. Along the way, he will alienate people, be shunned by others and avoided by the rest.

Networking is about forming, building and developing relationships. It is about knowing, liking and trusting. It is about being able to identify the sort of business your network members are seeking and making a referral – putting the requirement with the provider.

So what about farmers? Well, they are networkers really but they prepare their networking ground, sow seeds of business relationships, nurture those relationships and reap rewards through referrals.

They are in the room, talking, yes but also listening. Listening to what others are saying, looking for common ground, finding connections and getting to know.

Not everyone the farmers meet will become a member of their networks. Sometimes the relationship doesn’t get beyond the ‘know’ stage. That is not to say that a referral cannot result.

The farmers will keep moving around the room and metaphorically, ‘touch’ as many people as possible. Renewing and reminding those they already know and meeting as many new people as they can. They don’t get stuck in one group; they don’t stay with people they already know. They give and ask for business cards.

The farmers may leave the meeting having not met anyone who would buy from them and yet knowing the time was well spent. How?

Because all of the people they met will in time hear the need which the farmers business can answer and make that referral.

If the farmer met 15 people at that event who each have 200 people in their network, that is 3000 potential customers for the farmer’s business. That is a lot more than the hunter can hope to get from that meeting.

If I had as many pounds as times I have heard that said…

When you have worked in any business sector long enough, you have a mental list of things you hear told or said, time and time again. For me, one such saying is: “Oh! It’s OK. My landlord is really friendly. He is very fair. He wouldn’t stitch me up. We have a really good relationship”.

The subtext is: I don’t need to bother too much about the actual lease terms I sign up to because we are best mates and he won’t apply those nasty terms to me.”

Of course, when this statement is made to stand up on its own, it is almost too obvious to mention, that the speaker is making a massive mistake or, at the very least, taking a huge commercial risk on behalf of the company he owns or is employed by.

The truth, obvious as it may be to others, is that not even the most benevolent landlord is going to put a lease together and then compromise the performance of its own investment to fortify a friendship.

The harsher and less predictable truth is that our benevolent landlord may choose to sell his investment one day. It is then prudent to assume that the new owner will apply and interpret the terms of any lease as rigorously and fully as the law allows.

A few hours and £s judiciously spent, before the lease is signed, learning and understanding the full meaning and implications of the words in a lease, will improve everything.

The landlord and tenant relationship will be more balanced and the business owner will know what his liabilities, duties and costs are going to be, from start to finish. If there should be a dispute, our prudent business owner will know his strengths (and let’s be realistic) his weaknesses in the argument to follow.