Always keep eyes on your assets

Guest Author:
Darren Williamson, Partner and national head of real estate at law firm Freeths

Read time: 4 mins
Category: Invest

A common perception is that once the deal has been done and the asset has been fully let an asset manager can relax a little.

Unfortunately, that is rarely the case and, in fact, asset managers need to remain vigilant at all times and have clear oversight of the properties within their portfolios.

This was made abundantly clear in a recent case where Manchester City Council served an enforcement notice on the landlord of a café in Manchester’s Curry Mile. This happened because the landlord’s tenant had turned the café in part into a shisha bar without planning permission.

On receipt of the enforcement notice the landlord did nothing, presumably thinking it was the tenant’s problem. But then the landlord was prosecuted and ended up with a fine and costs bill of around £20,000.

In addition – and what has made the case stand out – under the Proceeds of Crime Act 2002, the landlord was also pursued to pay around £175,000 in respect of rent received from the tenant whilst the landlord was the subject of the enforcement notice.

Inaction here led to the landlord getting a financial hit, not once, but twice.

Freeth’s Darren Williamson commented: “You can’t take your eye off the ball when it comes to asset management whether you own or manage one or hundreds of assets.

“In this case, the landlord needed to act swiftly as soon as it got the enforcement notice to stop the breach.  Instead, the landlord just seemed to think it wasn’t their problem. Being a pro-active asset manager is vital in avoiding this and other issues.”

Chancerygate’s George Jerram said: “This case is a classic example of poor asset management where not reacting in a timely manner and assuming the tenant was at fault has cost the landlord dearly.

“At Chancerygate, we always try to look ahead and mitigate any issues that can arise on our portfolios as soon as possible.

“It is incredibly important to keep up with legislation and have good relationships with all our tenants. As the world of asset management continues to evolve so must we.”

Another area where asset managers can be caught out is by adverse possession. This is where there is occupation of a property by a third party without the consent of the property owner, effectively ‘adverse’ to the property owner’s interest.

If such occupation occurs over a certain length of time it enables the third party to claim ownership to the detriment of the ‘paper title’ owner.

Adverse possession is not that common in commercial premises, as to apply it requires a hefty ten year occupation by the third party. It also tends to arise more on mixed use properties or residential, but another recent case has a cautionary tale to tell.

This case involved a property owner challenged for ownership where they had allowed a third party to occupy the property for more than ten years on an uncertain basis. It was not clear if the arrangement was, or was not, with the permission of the property owner as there was nothing in writing.

Bizarrely, the third party argued it had been given permission to occupy the property and was a licensee which it seemed to think would enable it to gain possession as the owner had allowed it into possession.

This was strange as, ultimately, it defeated the claim for adverse possession as a property owner giving consent to a third party was contrary to the principle of adverse possession. The third party had to occupy without consent.

Whilst the case established no new law per se and was ultimately defeated by the owner due to the third party getting it wrong on being a licensee, it does point out the importance of an asset manager understanding what needs to be done to prevent any claim for adverse possession.

Keeping aware of who is in the property regularly, and for how long, and appropriately documenting that, or regaining possession at an early stage, is crucial for the asset manager to retain control.

George added: “It might seem obvious to know who your tenants are and who you are collecting rent from. However, with long term income, it is important to keep aware of what the situation is and maintain a line of communication with your occupiers.

“Regular inspections and meetings to establish what tenants want to do will go a long way to preventing costly mistakes. If in doubt, legal advice at the outset is significantly cheaper than a protracted possession claim.”

Darren remarked: “It foxes me as to why the claimant tried to make out an argument based on being given consent, which clearly defeated its claim.

“That said, whilst you find adverse possession more in the residential context, this a trap that an asset manager or property owner of mixed use or commercial property could potentially fall into.

“This is particularly the case if they are managing a vast portfolio. For instance, a third party could move in when another tenant is not in occupation.

“Alternatively, a third party can come in and do, or be doing, something perhaps beneficial, such as paying rates or refurbing, and no agreement is put into place.

“It can get very messy if not dealt with correctly and proactively at the beginning of the arrangement.”

To discuss your real estate legal requirements, contact Darren Williamson at Freeths on DL: 0345 634 1742, M: 07801 530 444 or E: darren.williamson@freeths.co.uk.

 To find out more about Chancerygate’s urban logistics assets portfolio, call George Jerram on DL: 020 7657 1854, M: 07817 475 371 or E: gjerram@chancerygate.com.

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