Insight
The Scottish commercial property market continues to recover following the pandemic, according to research by agents Colliers.
Its research shows that investment in Scottish commercial property increased from £1.4 billion in 2020 to £2.2 billion in 2021.
The trends in those figures make interesting reading, and tends to show the impact that the pandemic has had on everyday life. For example, whilst shopping centre and office investment have both increased substantially from 2020, they both remain below the 10-year average. By comparison, investment in the retail warehouse sector is 75% above the 10-year average.
The changes in investment activity act as a signpost for where commercial property related disputes are likely to go in the future. As employee and consumer attitudes have evolved during the pandemic, we are likely to see an increased focus on maximising space to allow distancing between people. That may require alterations to existing layouts, which will likely have a knock-on effect for dilapidations down the line.
Similarly, as warehouse premises become more prevalent, we are likely to see those who are longstanding in that market take stock of their current premises, with a view to making those sites a more attractive proposition. That likely means that sitting tenants are more likely to see service of schedules of dilapidation looking to replace roofs that are well past their sell-by dates at extensive cost, amongst other general “make it look new” works.
It follows that tenants ought to be particularly cautious when looking to negotiate their exits from those types of properties in the next few years. Focus ought, in particular, to be on what the lease actually requires, whether the alleged wants of repair have been superseded by other events, and whether what is sought by the landlord goes beyond putting the property into the required condition and seeks something better.
That being said, landlords in those situations ought also to consider whether replacement is more cost effective than repair, whether the tenant ought at least to contribute towards the cost of repair irrespective of whether that amounts to an upgrade, and whether what is proposed is really just a modern equivalent of what was originally in place.
Irrespective of which side you are on, the current levels of investment suggest that an increase in lease disputes regarding retail warehouse properties is inevitable. Landlords and tenants would be well advised to look carefully at their repairing clauses moving forward.