"Whilst the changes will undoubtedly be welcomed by landlords and developers, I suspect most businesses are oblivious to the impact they will have on rents and other property costs."
In a 33-page report, recognised author on commercial property issues and founder of the Tenant Advisory Group, Martyn Markland, warns that the new International Property Measurement Standards (IPMS) which were introduced on 1st January 2016 could cost UK businesses £1 Billion a year.
Markland, who runs one of the few Chartered Surveying firms in the UK that acts exclusively for commercial tenants, has written a report to highlight the concerns many within the industry share but are unwilling to voice in public. He comments: “Whilst the changes will undoubtedly be welcomed by landlords and developers, I suspect most businesses are oblivious to the impact they will have on rents and other property costs.”
The issue will affect every business that leases office space as well as the professionals that work in the sector including lawyers, architects, accountants and facilities managers. According to Mark Whittaker, Deputy Chair of the British Institute of Facilities Management, North Region: “The whole issue of the new IPMS 3 measurement is something that Facilities Managers need to be aware of, particularly given the potential upward pressure on office rents and frequency of disputes.”
In Markland’s opinion, the replacement of the existing measurement standard that applies to offices, namely, Net Internal Area (NIA), is unnecessary. He points out that the majority of the world’s property markets including the UK use NIA because it reflects the true value of space from the end user’s perspective.
Markland explains: “The IPMS alternative to NIA requires columns, buttresses, party walls and other structural intrusions to be included in the floor area measurement, which effectively means that business owners will now be paying for space they cannot physically use.”
According to Markland, the majority of UK office tenants are unaware of the switch to IPMS. An example cited in his report demonstrates how this lack of awareness might result in tenants paying more rent than they should. Under the old system the lettable floor area of the office used in the example was 1,745 sq.ft. (NIA) but from 1st January it will rise by 12% to 1,955 sq.ft. under IPMS. Unless the landlord reduces his previous quoting rent of £14.50 per sq.ft. (NIA) down to £12.94 per sq.ft. (IPMS), which Markland argues is unlikely, an unsuspecting tenant will end up paying £3,000 per annum more rent for the same amount of net internal area.
During the consultation period initiated by the IPMS Coalition in 2014, concerns were raised that IPMS could have a negative impact on the market and that some of its methods were flawed. The critics included one of the UK’s leading surveying firms as well as several international branches of the RICS itself. These included representatives of the RICS in Finland, Hungary and Austria.
It is clear that legal documents such as leases and development agreements will need re-drafting as a result of the changes. Rather surprisingly though, the majority of the legal profession seems unaware of IPMS and its potential impacts. Markland recently spoke at a national law firm’s internal seminar and, when raising the issue of IPMS, it was evident that the vast majority of the firm’s real estate lawyers were unaware of the forthcoming changes.
Markland concludes: “The RICS is forcing its members to produce inflated floor areas which could easily mislead business consumers and result in them paying higher rents for no good reason. However, business owners can do something about this by instructing their property and legal advisors to use Net Internal Area (NIA) and not IPMS as the basis for lease negotiations.”
A free copy of Markland’s full report entitled Business Face £1 Billion Bill For Office Space They Cannot Use can be requested from Tenant Advisory Group by emailing firstname.lastname@example.org quoting ‘Report’ in the subject line.