WHAT are called "overage" agreements are well-established in the world of commercial property.
Under these agreements the seller shares in any uplift in value which follows the acquisition by a purchaser.
Now, according to lawyers Brodies, some investors are suggesting the introduction of "underage" agreements which just might work in a l
anguid market where investors want to postpone any acquisition programme until the market reaches what is regarded as the bottom.
Dale Strachan, a senior partner in the Brodies commercial property team, explains: "An underage agreement could provide a safety net against overpayment. It would afford the seller the possibility of a sale in an otherwise difficult market, particularly if they are under pressure to shore up their balance sheet as assets values continue to plummet.
"The drafting of an underage agreement would undoubtedly be complex but could provide a solution for both parties."
Reaction from other property professionals to the concept of underage agreements was mixed.
Miller Mathieson, senior director, CB Richard Ellis (Scotland), said the concept was to protect a funder from a future fall in value and provide the developer with a guaranteed minimum price.
He continued: "However, it will not remove the main challenges and obstacles of creating a financially viable development. As companies try and strengthen their balance sheets by raising cash, we have seen various sale and leaseback proposals under consideration. With all sale and leasebacks, the investor will need comfort on the strength of the tenant and the reason for the cash requirement.
"Exploiting the value of the property assets this way is an obvious way of raising cash in the current climate but it will always raise the question of why they doing this now when property values have fallen so far."
David Davidson, managing director in Scotland of Cushman & Wakefield, said he had not yet seen anyone using an underage agreement and would be extremely impressed with anyone who could come up with a workable solution.
He continued: "The mechanism would rely heavily on independent, and possibly highly subjective, valuations.
"However, we have seen a number of new arrangements being put in place by vendors to make buying more attractive in these uncertain times. The most common is for vendors to provide a loan to purchasers. Debt finance is extremely difficult to secure, so this guarantees debt for the purchaser usually on attractive terms and allows the vendor to take equity out. It also means the purchaser has 100 per cent equity interest and control.
"And we are seeing, for example on retail park sales, vendors guaranteeing rental streams from existing tenants. This means if any go bust or into default then the purchaser is protected for a period following their acquisition."
Stuart Orr, DTZ investment director, says that any initiative to help stimulate the market is most welcome.
He believes that the principle of the underage agreement is good but thinks that in practice it will not appeal to vendors and was unlikely to work on any real scale.
"Unlike an overage agreement where both parties have something positive to share, an underage agreement protects only one party, the purchaser," he said . It is not in the vendor's interest to accept a lower value today with a possible future payment if they could secure a higher offer now.
"And the fundamental issue is that if a purchaser is truly concerned about the continuing fall in value of a newly acquired asset, they should either adjust their appraisal downwards to reflect this – or they simply shouldn't be investing in that property in the first place."
Oil industry defies downturn with DyceTHERE have been two deals at Kirkhill, Dyce, which, according to Trevor Morgan of CB Richard Ellis, show that, defying the economic downturn, companies in the oil sector continue to thrive and grow. In the first deal oil services company Fugro Improv, part of a large Netherlands group, has taken a 15-year lease on an 18,200sq ft in the Kirkhill Commercial Park at an annual rent of £212,400. Graham & Sibbald, with Ryden, acted for developers Knight Property Group. The second was in the industrial estate part of Kirkhill with Unicorn Integrated Solutions, a supplier of offshore equipment hire and manufacturing, plus repair and inspection services to oil companies and drilling contractors in the North Sea, taking a five-year lease on a 5,085sq ft office and workshop facility Aberdeen, paying an annual rent of £100,000. The deal was on behalf of a private investor by CB Richard Ellis (Scotland)
SCARBOROUGH Group International has completed another letting within Buchanan Gate Business Park, Stepps – civil engineer C Spencer is relocating from Glasgow city centre to Buchanan Gate having taken a ten-year lease of 2,400sq ft at a rental of £14.50 per sq ft. Ryden and DTZ acted for Scarborough, with Spencer self-represented.
ITALIAN restaurant chain Bella Italia is to open its latest outlet at Fife Leisure Park, Dunfermline. The restaurant has secured a 15-year deal to let a 3,250sq ft unit, under construction by landlord Grosvenor Developments, at £81,250 a year, with nine months rent-free. Bella Italia has over 75 restaurants across the UK, and Fife will house its seventh in Scotland. Jones Lang LaSalle acted for Grosvenor, with Quirico Estates for Bella Italia.
ROSSCO Properties has signed up Everest for a 12,000sq ft unit on its Inveralmond Trade Park at Perth at £6 a sq ft on a flexible lease. Bidwells for the landlord, McMeeking & Co for Everest. The deal means that only one unit is left vacant in the 67,000sq ft development and Rossco owner Simon Howie says he is looking to acquire more industrial multi-let investments.
THE Mansfield House Hotel in Hawick has been sold by Ian and Sheila Mackinnon who are retiring from the hotel trade after 24 years at Hawick. The new owner, the Hodgson family, already has hotels in Newcastleton and Annan. Colliers Robert Barry was the agent and the hotel was sold off on an asking price of offers over £725,000.
• Send deals details to jimdow@lumison.co.uk
