Vacant Commercial Property : Reducing Risk and Pitfalls

Question: As a landlord, how can I reduce the risks associated with a vacant property?

Colin Bailey, Associate Director in DTZ’s corporate real estate management team answers:
“Since the economic downturn the demand for commercial property of all types – retail, office, industrial – has significantly reduced. This combined with a significant number of business failures has lead to a significant increase in the number of vacant properties in the UK. Currently over one in 10 High Street Shops are vacant.

Landlords, property holders, investors and developers all face management problems and increased risk when a commercial property becomes vacant. Failure to manage vacant property correctly can result in expensive repairs, unnecessary costs, management problems and potential litigation and costs. The other concern is to keep the property in a reasonable condition in order to attract new tenants or occupiers.

So what can landlords do to reduce these risks, issues and property management headaches?

If you, as owner, insure the property it is more than often a legal requirement to inform your insurer when that property (in part or whole) becomes vacant. You should check the terms of building insurance policy as soon as the property becomes vacant to make sure the building is adequately covered. Failure to notify your insurer can either invalidate or reduce the cover on your policy as vacant property is generally more costly to insure and requires additional cover.

If your landlord insures the building you should also check the provisions of your lease to identify whether there is a contractual requirement to notify him when the property becomes vacant. To avoid potential litigation it is always best practice to notify your landlord in writing as soon as the property becomes vacant.

Vacant property inspections and security
Vacant properties run a far higher risk of attracting squatters, trespassers, criminal damage, arson or theft. Also, on vacant properties, defects such as leaking pipes run a far higher risk of causing significant damage and cost to a building owner if left unattended. It is also worth mentioning that there is often an insurance requirement to undertake routine inspections on vacant properties by building owners.

As soon as a property becomes vacant a regular inspection and security regime should be implemented to minimise the risk of criminal action or damage to the building and to ensure that standards are maintained. Other security measures include, perimeter fencing, CCTV monitoring, alarms and security screens.

Key holding
The holding of keys on a vacant property can be a management headache. Keys on vacant properties all too often go missing or cannot be found when there is an urgent requirement to inspect the building. This can result in a lock change which is costly and unnecessary. There should be a record kept when keys are handed out to contractors or agents.

During the winter there are additional risks of owning vacant commercial property. Either central heating and water systems should be drained down to prevent damage from freezing temperatures or heating system should be set to ‘tick over’ to prevent burst pipes and other damage.

There are a number of organisations that should be notified when a building becomes vacant:
You should advise utility companies
Notify the police and fire departments that the building is unoccupied. You should provide them with key holder information in the case of an emergency
Mail and deliveries should be stopped
If there is a security alarm installed you should notify your company and provide them with key holding information.

Maintenance & Health & Safety
Ensure that an appropriate maintenance programme is established for automatic sprinklers, fire safety equipment, boilers, smoke alarms….etc. It would be advisable to ensure regular maintenance inspections are continued to keep the property in reasonable condition to attract new tenants or occupiers.

Empty Property Rates
Subject to the type of property and rateable value of the building, the property may be subject to full exemption or an exemption period for rates while the property remains empty and unoccupied. You should contact your local authority to discuss what empty rates relief you are entitled to.