Q&A

All the answers to your liability outsourcing questions.

Key Questions

IN THREE SIMPLE SENTENCES, HOW DOES IT WORK?

You transfer your leasehold liabilities and all associated obligations, using a power of attorney governed by a legal agreement, to Surplus Property Solutions (SPS).

Against the liabilities, based on an agreed price per property, you annually (or other) transfer a reverse premium to SPS.

SPS manages the out the liabilities and you are free to focus on your operational business.

WHY SHOULD I CONSIDER OUTSOURCING MY LEASEHOLD LIABILITIES?
  • To put your problem in the hands of a specialist with an outstanding track record
  • To get rid of your leasehold liabilities far more rapidly than otherwise possible
  • To remove management responsibility for your portfolio allowing you and the property team to focus 100% on your core business
  • To provide you with financial certainty
  • To reduce headcount and/or managing agent costs
  • To reduce your balance sheet provision to a nominal sum
  • To gain the business and political benefit of solving an intractable and potentially historic problem
WHAT ARE THE CONS OF TRANSFERRING MY LEASEHOLD LIABILITIES?
  • Gathering liability data in order to transfer to SPS may require a time commitment and some costs may be incurred on legal and surveying fees
  • If you are under-provided then you may need to make an additional provision
WHICH COMPANIES HAVE OUTSOURCED THEIR LIABILITIES?

Over the past 18 years many major UK companies have completed leasehold liability transfers. These include Rentokil, Santander, Morrisons, Carillion, RBS Equity Finance, Virgin Media, Wolseley, EMAP, Barclays, Whitbread, B&Q and Natwest.

WE ARE GIVING YOU A LOT OF MONEY AND YOU ARE A SMALL COMPANY – WHAT PROTECTION DO WE GET?
  • The reverse premium is paid through staggered payments and you have a charge over all your monies, providing you with financial security
  • We do not get rewarded until YOUR goals are achieved
  • All of our key people have blue chip corporate backgrounds and understand reputational risk. We will protect your reputation – please speak with any of our current or past counterparts to understand how sensitive we are to this
  • At no additional risk or cost to your business, you get the best in the liability business working for you
  • Although we are small we have a great pedigree with blue-chip senior management experience and a very robust balance sheet – and finally, our own reputation is our greatest currency
WHY IS SPS THE BEST PARTNER FOR MY LEASEHOLD LIABILITIES?
  • A strong track record: over the past 18 years we have completed 10 property liability transactions comprising over 340 leases, seven million square feet of property and a gross liability of over £650 million. Most of these portfolios are fully worked out
  • We are the most experienced liability outsourcing partner with a demonstrable ability to work out both simple short stub surrenders and more complex multi-dimensional liabilities
  • Many landlords are known to us and we can gain speedy traction
  • We have extraordinary bandwidth and can take on both large and small portfolios
  • If we don’t make a success for you we don’t get paid
  • FOCUS, FOCUS and FOCUS – getting rid of leasehold liabilities is all we do
WHO IS SPS?
  • SPS was founded in 2006 for the sole purpose of undertaking leasehold liability outsourcing and has offices in London and Glasgow
  • SPS has a core team consisting of principals, general and building surveyors, administrators plus a scalable set of top advisors
  • For dilapidations we have a 35-strong construction team and decades of commercial experience
  • We have shareholder funds of more than £10m and over 100 property assets are owned and managed by the SPS group
HOW DOES SPS MAKE MONEY?

SPS is remunerated by getting rid of all of your leasehold liabilities for less than the reverse premium amount. We only make money once you no longer have any risk associated with the leasehold liability portfolio – what we term as “off-risk”. Specifically, this is when the remaining reverse premium is greater than the remaining liability and this usually occurs within the first three years after the transfer of liabilities.

HOW DO I SAVE MONEY?

In two ways: by getting rid of your liabilities below provision and the outsourcing allows you to rationalise and optimise your property management costs.

WHEN DO I PART WITH THE REVERSE PREMIUM?

Although the reverse premium is agreed at the outset of the transaction, it is only paid over to SPS on a quarterly, semi-annual or annual basis, depending on what is most appropriate for your organisation. Amounts can be pulled forward from the reverse premiums to pay for surrenders.

WHAT LEGALS AND DILIGENCE ARE REQUIRED, AND WHO PAYS FOR IT?

Assuming we receive clear and complete information on each leasehold liability, we then perform due diligence on the documents and the properties at our own cost.

Normally a master and management agreement are put in place. Over the past eight years these documents have become broadly standardised. Limited legal work will be required to customise the agreements.

WHAT’S THE ACCOUNTING TREATMENT?

The accounting treatment will follow the transaction structure. Under the Management Agreement the corporate’s provision will be locked in at the transaction price. If there are monies in excess of the transaction price in the provision, then the corporate has the option of releasing the surplus.

If a guarantee is put in place from SPS to the corporate, then the provision, net of the deal price, can be released.

DO I REALLY TRANSFER THE LIABILITY TO YOU? PROVE IT!

Although we may not be able to replace you on the lease we take over all the responsibilities associated with the liabilities and replace you in every other way. This includes all interactions with the landlord, paying and receiving rents, dealing with and paying the rating authorities and utility companies, managing lettings and sub-tenants, physical maintenance and dilapidations and security. We also have the right to litigate if necessary, with your consent.

WILL THE LIABILITY EVER COME BACK TO MY COMPANY?

We can provide an insurance policy that will, in most cases, guarantee that the liability never comes back. Most of our counterparties don’t take this insurance because it is significantly cheaper to rely upon our abilities, as demonstrated by our track record.

WHY AREN’T MORE COMPANIES DOING THIS? WHAT ARE THEY SCARED OF?

Many large corporates in all sectors have outsourced their liabilities. These include Rentokil, Santander, Morrisons, Carillion, RBS Equity Finance, Virgin Media, EMAP, Wolseley, Barclays, Natwest and B&Q.

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