GREEN NEW WORLD

The conversation around net zero, energy efficiency and all things ‘green’ has really stepped up over the last few months. Aimee Barrable, a partner at Stephens Scown LLP, looks at how this is affecting the Commercial Real Estate sector.

In the property world, the forthcoming change to the requirements around energy performance ratings and commercial leases is a particularly hot topic. While 2018 saw the introduction of minimum energy ratings for new leases, this April brings current leases within that scope too. As such, a landlord won’t be able to let or continue to let a commercial property with an energy rating below “E”. With buildings accounting for about a third of all carbon emissions in the UK, and given that about two thirds of non-domestic property is rented, this new phase to the Regulations is significant.

Aside from the ‘green’ impact of the Regulations, we’re likely to see investors increasingly looking to more sustainable assets attracting better rents and returns, avoiding concerns around penalties for non-compliance. Tenants are less likely to be attracted to inefficient premises, particularly given the increase in energy costs, and will be less likely to make longterm commitments.

Advice to commercial property owners letting premises:

• Assess your portfolios urgently to ensure you can comply with the Minimum Energy Regulations and avoid penalties;

• Be alive to the fact that the Government has confirmed its intention to raise the minimum rating to “C” by 2027 and to

“B” by 2030, and implement the plans to upgrade and refurbish as necessary, engaging with your tenants to carry out those works;

• Consider the use of “green leases” or “memoranda of agreement” on environmental issues so you and your tenants can play your part in reducing the environmental impact of the property.

For our full blog on this topic, visit the Business Cornwall website, or to discuss any of these issues contact enquiries@stephens-scown.co.uk Aimee Barrable is a partner in the Commercial Real Estate team at Stephens Scown, advising clients on a wide range of property matters.

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Lynsey comments: “With residential sites coming forward in Tolgus, Liskeard, Bodmin and Newquay, we are seeing strong pent-up demand for these new build homes. The market remains buoyant, in particular the rental market which isn’t showing signs of slowing down, and we are receiving enquiries about our schemes daily from local people who are looking for open market rent, affordable rent, shared ownership, and open market homes.”

Treveth currently has three live residential sites which are under construction: Gwel Basset in Tolgus; Park Lanneves in Bodmin and Bann an Hyns in Liskeard. Gwel Basset is a market leading, low carbon estate housing scheme, with all 185 new build homes at this site designed to meet challenging energy saving targets set by the industry for 2030.

Across the commercial sector, Treveth is still seeing good occupier demand within the commercial tenanted estate and future development opportunities.

Robert Churchill, senior commercial property manager at Treveth, says: “Our tenanted estate is fully let, and we have a number of live enquiries from businesses looking for commercial workspace. Generally, interest is for both freehold and leasehold accommodation with purchasers sometimes seeking to place the property within their personal pension and then rent back to the business.

“Looking forward, Treveth anticipate rents will settle at a good level and construction costs will stabilise due to the continued lack of supply and the high pent-up demand for modern, sustainable units in the region. This will provide more cost certainty on construction and help with closing the viability gap to a level where projects can be brought forward.”

Treveth’s current commercial projects include the refurbishment of a 7,250 sq ft unit in Redruth which will be starting imminently with works aiming to be completed by the summer. Several large companies in the region have expressed an interest in taking the unit on a long lease term and good rental values have been offered.

It has also submitted for planning a proposal for eight smaller double height industrial units at Walker Lined Industrial Estate in Bodmin. The aim is to complete these units by the end of 2023.

Treveth is also bringing forward a number of mixed-use schemes. Land was recently acquired at Coinagehall Street in Penzance for which plans are anticipated to be submitted in the summer. Treveth’s portfolio also includes the high-profile mixed-use schemes of the flagship garden village, Langarth Garden Village and the proposed transformation of the Pydar Street area of Truro into a vibrant new neighbourhood.

Take-up 000s sq ft Headline rent £psf

5 year average 168,000 sq ft 5 year average 254,600 sq ft

55% 6% 300

6% 200

55% 100

6% 400 168

200

150

58% 100

250 150 170 100

58% 0

10% 50

10%

6 4

8

10% 350 380 145 230 18192021 22

245 175 18192021 22 9 9 9 10 11 0

10 18192021 22

2

Supply 000s sq ft 29% 0 100 200 300 400 168 350 380 145 230 18192021 22 0 50 100 150 200 250 150 170 100 245 175 18192021 22 9 9 9 10 11 0 2 6 4 8 10 18192021 22 5 year average 168,000 sq ft 5 year average 254,600 sq ft Data supplied courtesy of Alder King’s Market Monitor 2023

Companies and partnerships holding residential property that falls, or may potentially fall, within the Annual Tax on Enveloped Dwellings (ATED) charge must ensure such property is revalued every five years.

The 2023/24 chargeable period is the first that will be based on the most recent valuation date of 1 April 2022 with any tax arising payable, and returns due, by 30 April 2023. If that revaluation has not been done, time is getting short.

The charge relates to residential property owned by a company or a partnership with a corporate member and valued at more than £500k at the last revaluation date, or new acquisitions costing more than £500k since that date.

The previous valuation date was 1 April 2017 and with a recent survey indicating that property price inflation in the south west since the 2016 Brexit referendum exceeds 33%, any property previously valued at £750k or above must be at risk of falling into the higher band, and any property valued at £375k or above is at risk of falling into ATED for the first time this coming year.

Control over the ATED regime has previously been quite lax but a recent reorganisation has seen a stricter approach to penalties and the failure to submit a return, even if no tax is due because of eligibility for relief, can result in severe penalties - £1.6k if a year late!

Properties in the £500k to £1m range will suffer an annual tax charge of £4,150 for 2023/24. The charge is £8,150 for those valued between £1m and £2m, and there are further bands for properties above £5m with charges ranging from £28,650 to £269,450.

Properties used wholly for certain commercial purposes are eligible for relief, but those reliefs are highly conditional and an ATED return must be submitted to claim the relief. Properties such as hotels, guest houses, boarding school accommodation, hospitals, student halls of residence, military accommodation, care homes and prisons are exempted from the tax.

If you would like to discuss whether your company may be liable to ATED, or how your residential property business may be affected, please contact Robert Bailey, tax director at rbailey@bishopfleming.co.uk or on 01872 247086