How resilient is your commercial property portfolio?

A commercial property portfolio is just like any other investment - to get the best out of it, you need to manage it well, and sometimes it will benefit from being restructured. The unforeseen impact of Covid-19 on the whole of the UK economy has underlined the importance of keeping on top of your property investments, so you are able to move quickly when you want to grab an opportunity or mitigate risk. Careful planning and regular reviews of your property investments will give you the best chance both to prosper in good times and withstand unexpected shocks, such as the coronavirus.

Acquisition opportunities and due diligence

If you are in a strong position financially, then you will be on the lookout for investment opportunities.  The key to a successful property investment is careful research before you buy.  You will need to do a physical inspection of the site and your solicitor may be able to join you, looking out for evidence of issues such as rights of way, drainage and rights of light.  

Your Converse legal team will carry out searches and enquiries against a wide range of data, which should enable to them to spot potential problems early on.  For example, you may need to know about any planning permissions granted for sites nearby or intended schemes for road or infrastructure improvements.

Selling uneconomic property

As market conditions change, you may want to offload properties that are no longer performing well. High street retail, entertainment and leisure have been hit hard by Covid-19 and it may be more difficult to adapt older buildings to allow for social distancing in line with government advice. As well as handling the legal process, your solicitor may be able to introduce you to other contacts looking to invest.

Return on investment

You need to keep a close eye on how the properties you retain are performing.  The impact of lockdown on retailers in particular may mean you need to regear leases to keep your tenants. Across the market, tenants are seeking short-term rent holidays, often in return for postponing break rights or taking additional years at the end of the current lease. There is also a growing trend for rents to be based partly or wholly on the tenant’s turnover, especially in retail villages and outlet centres. This inevitably means the landlord sharing more economic risk. Your legal team will ensure these arrangements are properly documented.

Structuring deals

You may be investing on your own but if you intend to buy and hold a property jointly with others, you will need advice on the structure, whether that is a joint venture, a partnership or a company. Getting this right will make a big difference to how quickly and easily you can trade your property in the future. For example, if you find yourself in a joint venture with a struggling business that can no longer fulfil their side of the bargain, you need to know you have a clear exit procedure.

You should also take advice on the best way to hold property in your portfolio.  This will depend on your own tax position and your long-term plans. Holding individual properties in separate companies can make future sales more efficient and give you more flexibility, particularly if you are investing in sites that are used partly for commercial and partly for residential purposes.  

Risk and compliance

As we face a world where social distancing is likely to be required for some time to come, advice on regulatory issues such as health and safety is more important than ever.  A property owner retains some responsibility, even for property occupied by tenants.  

As well as ensuring buildings are Covid-19 safe, owners need to be aware of their potential liabilities in relation to areas like fire safety and energy efficiency.  Regulations can change fast and penalties can be tough.  

On top of that, the scope for insurance to cover many of these issues is currently a matter of debate, all of which means that property owners will need regular updates from their legal team to make sure they keep pace with a changing risk landscape.

Strategic advice

Our team will give you the benefit of their experience of successful investment strategies and possible pitfalls.  They will bring a different perspective on the market and will be able to look ahead to how things are likely to change in the coming months and years.  Nobody can avoid market changes altogether, but investors with well managed and structured portfolios will be in a strong position to capitalise on opportunities as they arise.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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