Agenda item

To receive a report from Councillor John Batteson, Cabinet Member for Climate Emergency, Jobs and Business and Mark Grant, Assistant Director of Property on Commercial Property Portfolio.

·  Management of commercial leases including rent, repairs and marketing

·  Increased revenue targets. Letting Southwark properties, Debt Recovery Plans

The commission first heard from Ben Davies (Blue Bermondsey business district) on the management of commercial leases including rent, repairs and marketing covering the following points

• 366 Businesses in the Business Improvement District (BID) area, Retail businesses in High Street where Southwark Council is the commercial landlord.
• Affordable workspaces in the BID to open in early Q1 2026; Small family-owned businesses in the BID and challenges faced, legal advice, rent reviews, issues carried over from Covid and rent reviews backdated 5 years which is allowed by legislation.
• Overdue repairs on business/commercial units especially with housing above; Local business owners unable to reach points of contacts for repairs within the council, lack of process to receive updates and identifying dates of overdue repairs.
• Empty commercial units with ongoing legal processes; Usage of BID units not as intended, such as consumer facing business with closed shutters or barricades.
• Impacts of admin work due to pending rent reviews and overdue repairs in flourishing BID that are mainly family-owned small businesses in a deprived area such as Blue Bermondsey.

The commission then received a report on Commercial Property Portfolio from Councillor John Batteson, Cabinet Member for Climate Emergency, Jobs and Business and Mark Grant, Assistant Director of Property on Commercial Property Portfolio on the following themes

• Costs of running small businesses post Covid; Commercial properties is a key asset to the councils for revenue generation; 40% funds/income generated from Housing Revenue Account (HRA) assets that are Commercial Units with housing properties above and 60% from General Fund Assets which are larger industrial/commercial units.
• HRA assets with occupied Housing properties above have access issues for repairs. New budget expected to include recently acquired and developed commercial properties and increased revenue from rent reviews due to increase in market rates.
• Annual income for 2025 year £25.5m up from £18m pre-Covid. Reviewing High Street Markets to ensure best value for the units, diversifying to encourage more footfall, review of the lettings policy for commercial properties and discussions on empty units in high streets.
• Void properties less than 3%, reviewing commercial property leases for supporting the Voluntary and Community Sector (VCS). Affordable workplace strategy and using commercial property planning applications to allocate business units for affordable workspaces in the borough.
• Council Covid period Debt and Commercial income; resolutions: payments plans and legal options; Repair in commercial units, rent-review and pragmatic payment arrangements.
• Helping small businesses understand complex law around covenants in plain English and reviewing their circumstances for payment options.

The commission then asked questions on the following topics

• Proportion of properties curated by the council in the high street compared to other boroughs; reassurances on approaching businesses for rent reviews in a timely manner.
• Rent arrears and legal costs to councils; repairs in HRA commercial properties with leaks from above; Disposal of Land and commercial lets from the council.
• Criteria for rent review and market value rates; Communicating to residents regarding access for repairs; Tenants selection, tenants needs, protection of the neighbourhood character and assessment of local impacts.

Councillor Batteson explained to the commission that there have been instances where the council has used its commercial portfolios to save businesses that are important to the community. The council is now conducting rent reviews a lot earlier and covering any backlog of rent reviews from the Covid period.

Mark informed the commission that in instances like the Lloyd’s Bank on Warship Lane, which was vacant for a considerable amount of time, disposal of land sale in this scenario has been carried out to bring it into economic development use. Two units in high street have also undergone a similar process. However, in cases of general fund our powers to bring it back into use is diminished as it is contained of a few big assets (under 300) when compared to the ones under HRA (900). Furthermore, the difference in rules between HRA and the General fund means that there is a higher possibility of bringing social and financial value in the latter rather than the former where you need to achieve market rates.

The commission learnt from Councillor Batteson recovering rent arrears by legal means is not the most cost-effective way for the council to recover debt. Commercial Assets in HRA are an income revenue stream. However, repairs carried out by the housing department in HRA assets are also a strain on the HRA funds. The council does provide housing tenants with a guidance pack including points of contact within the council, providing such guidance packs for businesses is a commitment that the council has agreed. Furthermore, Void commercial properties would require a significant investment from the council to bring it back into commercial use.

The commission heard from Mark that disposal of retail assets that are located under housing assets would not be a viable asset management option, as the retails assets would be on a 999-year lease making it almost impossible to build additional housing on top. Furthermore, accessing houses with leaks over a commercial property is a time-consuming and frustrating process for residents, businesses and housing colleagues.

In addition, it’s imperative that repairs for leaks are communicated urgently and effectively to residents due to the amount of significant damage that can happen very quickly. On rent reviews, the rent is assessed based on rules and regulations within the lease agreement, and market value on the end date on the lease agreement. Some leases have indexation like Consumer Price Index (CPI) and Retail Price Index (RPI) which sets the upper limit (the cap) and a lower limit (the collar) on a variable price, like an interest rate or rent. The legislation around Leaseholds is changing and this would mean rents could go up or down, historically rents always gone up. Furthermore, you would have fixed rate increases and wouldn’t have CPI linked cap and collar increases. Some tenants might benefit from council indexation and others might have to pay fluctuating market rates; it is important a balance is made to ensure businesses stay open.

The use of lettings agents is important as they are Intune with the local needs of the neighbourhood which then goes out for bids and that it is reflected in the tenant selection process. The planning use for that unit is also shared with bidders and criteria such as business plan, sustainability, track record, startup, other businesses in the areas and not just the highest rent bid. It is important to maintain a blend of financial, economic and social value.

The Chair then highlighted the following areas for recommendations

• The current pilot between housing and waste and a need for a similar pilot between housing and commercial given their relationship
• Backlog of cases where businesses are affected and their experiences (Survey)
• Making it easier for businesses to navigate the council processes
• Need for agility in the council processes when dealing with businesses and their issues they face.