Where can you achieve operational cost savings from your portfolio?
14 February 2024
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Property costs make up a significant proportion of expenses for most businesses and, whilst there are contractual or statutory obligations to comply with, there are often opportunities to reduce costs if you are aware of the potential areas of challenge. These savings can be reinvested back into the business or realised as increased profits.
From an occupier perspective, having a full understanding of your liabilities for rent, service charge, insurance, and business rates through accurate and meaningful data is key. It is important to develop an annual budget and monitor this for variances on a regular basis to enable strategic decisions to be made. Often these costs may seem to be fixed and non-negotiable but there are opportunities to challenge and reduce costs in all these areas.
Rent – You may have agreed to a contracted rent but there are likely to be opportunities to negotiate favourable terms at rent review, or on expiry. In addition, you may be able to leverage break options within your lease to either exit early or remove in exchange for a premium payment, depending on your overriding strategy. Rents are generally due whether demanded or not so it is important that you are set up to make payment in line with lease terms or you may incur penalty interest or jeopardise your future occupation of the property.
Service charge – Service charges are typically part of leases within multi let properties. The costs and the method of apportionment will be set out in your lease and the RICS Professional Statement ‘Service Charges in commercial Property 1st Edition’ dictates how service charges should be managed. However, careful review of a service charge budget or the reconciliation of previous service charge accounts may highlight areas of challenge to charges. Landlords cannot generally charge tenants for improvements, for example. You may also be due money back where there have been historic underspend and a forensic audit can assist in this. It is important to carefully check invoices and ensure that all charges are reasonable, fair and in line with what the lease dictates. Where this is not the case, you may be entitled to withhold payment, until costs can be verified, or receive a credit or refund for overpayment.
Insurance – It’s important to understand how your insurance compares with the general market. If the landlord insures, has the policy been competitively tendered and is the cover in line with what your lease dictates? There may be areas of challenge with landlords to ensure that these charges are fair and reasonable.
Business rates – Rates are a significant cost equivalent to around 50% of your rent, determined by the Valuation Office and based on the rateable value of the premises. There are various opportunities to challenge your rates assessment as well as opportunities to obtain relief under certain circumstances such as nearby development works, or if your property is vacant.
Our occupier management team has extensive experience in managing property related costs for our clients and ensuring that are minimised as much as possible, whilst maintaining compliance with lease obligations.We can offer a wide range of reporting to suit your needs and help make the processing and payment of invoices more efficient.
Other areas where we can help with reduction of costs include:
Identification and disposal of under utilised or surplus space
Advice on reduction of energy consumption
Negotiation of dilapidations liability
Negotiation of Landlord fees for licences
Strategy advice on identifying and exiting poor performing properties
