Some 200 ‘commercial’ properties owned by Thanet council have not had lease renewals since as far back as 2016 due to chronic staff shortages – meaning tenants are paying either a fraction of the market value rent or are not paying at all.
Of Thanet council’s 727 commercial properties, 338 are active sites and almost two-thirds of those cannot have rent reviews until the leases are dealt with.
One example, raised at a council meeting last week, is Margate’s Harbour Arm which Thanet council took back management of last year after revealing the lease with then landlord Margate Harbour Arm Ltd (MHAL) would not be renewed.
MHAL had leased the harbour arm for a nominal £1 per year from 2008 until February 2021. But, interim corporate property director Mark Peace, said the council inherited a ‘difficult situation’ with just two of 13 tenants having current lease agreements and traders demanding repairs are made before they pay any more rent.
He said: “Out of 13 properties just two leases are in place. Tenants are resisting paying rent until we sort issues with the toilets, roof and various other things.”
Thanet council currently receives a yearly rental income of £2.2million but the market value would be £3.14million. That additional income is needed to pay for a properly staffed department to get on top of the backlog, says Mr Peace.
As well as reduced rent income, expired/out of date leases means the authority often cannot implement service charges for electricity and heating so is also incurring those extra costs.
Speaking to a Thanet council governance meeting last week Mr Peace also revealed a huge backlog for repairs and maintenance for the commercial assets is likely to need an extra £1million allocated in the next budget, going up from £115,000 to £1.138million.
The commercial properties owned by Thanet council range from land and parks to museums and theatres but also shops, kiosks, industrial units, sport club sites and, since last year, the commercial units on Margate’s Harbour Arm (Stone Pier).
Mr Peace said: “There are 200 outstanding lease renewals and rent reviews and many of those outstanding rent reviews pre-date 2016, so are six years out of date.
“(There are) about 200 properties where people are in occupation, their leases have expired and they require lease renewals before we can enact those rent reviews.”
He added: “In addition to the rent we have issues in the portfolio we need to address. There is a significant backlog in repairs and maintenance and statutory compliance that we need to do.”
Mr Peace said there would usually be an annual schedule for those repairs and works but due to staff shortages there wasn’t a schedule and some 350 sites have had to have surveys commissioned.
He added: “Last year we had £115k (general fund) allocated for repairs and maintenance, I estimate next year that figure will be about £1million higher, £1.138million… putting those properties into hopefully a safe, or at least wind and water tight, condition.”
Another 125 properties require energy performance certificates (EPC). EPCs, which are a legal requirement for rented properties, rate how energy efficient a building is using grades from A to G (with ‘A’ the most efficient grade). From April 2023 all rented commercial property will need to have a rating of band ‘E’ or better and failure to achieve this will see landlords face potential fines of up to £150,000.
Work on Thanet council’s priority one EPCs should be complete before the end of January, said Mr Peace.
He said as lease renewals and rent reviews are carried out, officers would not look to backdate further than 12 months.
He gave an example of someone paying a rent rate that was eight years out of date and a quarter of the current market value but added that asking for backdated rent for the whole period could not be justified because it is “due to mismanagement by ourselves and not the current tenant’s fault.”
Mr Peace said it would also be “a painful year” catching up on repairs and maintenance but within 18 months that work would mean rental values going up “considerably.” He said 70% of rent arrears were from concessions, including beach businesses.
Mr Peace told councillors industrial unit rents were not slowing down much and offices with parking and good locations were still in demand but retail units, which TDC does own although in small numbers, were “a problem.”
He said: “This is a tough time for retail coming out of covid but coming into a cost of living crisis, we are trying to encourage enterprise and employment and that’s a reason we are not going back six years on rent reviews for someone who is just trying to break even.”
Sites owned by the council and leased out include Kent Innovation Centre, units at Pysons Road industrial estate, kiosks including at Dane Park, Dumpton Gap, Joss Bay, Pier Yard, Viking Bay and Margate’s Marina Esplanade. port and harbour properties including Military Road units in Ramsgate and shops in Ramsgate, Westgate and Margate.
Mr Peace said the issues have stemmed from the department being “monumentally understaffed” with just four officers – 2 estate surveyors, 1 acquisition/disposals surveyor and a rent officer.
Mr Peace started his role in July and there have also been two more estate surveyors and a compliance officer taken on with plans to expand that with two more estate surveyors, In the next financial year there will be more staff including three more surveyors, a data expert and four decarbonisation staff.
Increases in rent revenue would initially pay for the staff salaries and investment in the properties with a long-term aim of increased revenue going into the budget.
Finance director Chris Blundell said staff shortages are a symptom of 10 years of funding cuts with councils delivering the same services but with greatly reduced staffing.