Article

Surplus land solutions

The question as to what should be done with surplus land or office buildings requires careful consideration for most businesses. Whether due to corporate merger, sale, acquisition, a change in business practice or even a downturn in fortunes, businesses can find themselves with surplus land or office space. This can range from whole sites to a few floors in an office building.

The first issues that businesses should address in these circumstances are likely to be commercial ones. Is the land or office space really surplus? Will a disposal now lead to space shortages in three or four years time? Does the land provide a useful buffer against neighbours? We recently heard of a case of a manufacturing company who, having sold land for residential development, faced allegations from the new home owners that the activities of the business caused a nuisance to them. Good planning and advice at an early stage can avoid problems such as these. If the decision to sell all or part of a site is reached then many issues will need to be discussed including the following:-

= What use will provide the best price for the land and is it possible, if necessary, to change the current planning use to a more marketable and possibly valuable use?.
= The land being disposed of may be adjacent to your business. If so, consider what restrictions on use you might want to impose on future owners so that your business is not adversely affected. This will need to be carefully structured so that all future owners are bound.
= Consider what rights you may need to retain over the land sold, for example, rights of way to access your property or rights to go on to neighbouring land to repair your property.
= What are the tax consequences of the disposal? If the surplus space comprises an office building or even one or more floors in the office building the considerations are different and include the following.
= What type of business is appropriate to occupy the building? This is especially a consideration if only a few floors are to be let. If it is important for your business to have the building secure at night, a tenant who requires 24 hour access will probably not be suitable.
= Will the business, as landlord, need to carry out works to make the space work as a separate lettable unit? The costs of any such works will have to be considered against the potential rental income. These works may also need to be reversible if the business requires the space back in the future for expansion. If these works are to be done alongside a tenant’s fit out works how will this be managed? A detailed agreement for lease with provision for landlord’s and tenant’s fit out works will be necessary in these circumstances.
= If a whole office block on the site is to be let then the control of underlettings and assignments is an important issue. If dealings are not restricted and if the immediate tenant disappears or becomes bankrupt then the business may be faced with a number of lettings on random terms which causes a management problem and may not produce an income at market rates.

Many of these issues will be quite familiar to businesses who operate in the property sector. But for those businesses who do not and are faced with the decision as to what to do with surplus land, the above examples illustrate how important it is not to enter into arrangements lightly and to take appropriate advice.

For further enquiries please contact Nick Horton (view full profile) on 01892 701313 or email nhorton@ts-p.co.uk.

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