There is no statutory framework for either re-structuring or re-gearing a commercial lease; instead it depends on the willingness of both landlord and tenant to amend their existing lease obligations.
Circumstances often change for both landlords and tenants and using our expert market knowledge we can alert clients to their opportunities. Varying commercial lease terms can be a win-win situation for both parties. Securing a rental concession and enhancing capital value are not mutually exclusive concepts.
Where does a tenant stand in relation to the market place? The tenant needs to have quantified the financial exposures of his/her lease, understand current levels of rent and incentives in the market and the general availability of alternative buildings. These need to be assessed before opening a negotiation.
What about the landlord’s position? How marketable is the building compared to its competition, what are the availability levels now or in the near future, the dilapidations recovery versus the cost of refurbishing for re-letting, funding issues. Such factors will influence the stance to be taken with the tenant.
The more answers that are found, the greater the leverage will be for either party.
Structuring the proposal is the key starting point. The next phase is, of course, negotiating the best deal in light of all the factors.
Lease events such as a rent review or a break option typically trigger such discussions. With the ever increasing incidence of break options and shorter leases with looming lease expires, we demonstrate an in depth understanding of where value can be released for landlords and tenants.
What are the potential advantages for a Landlord?
- Enhance the capital value by extending the income stream (eg; extending the lease term, removing tenant break)
- Secure occupier levels to mitigate void outgoings
- Pre-emptive re-gearing of leases close to expiry to preserve investment value (eg; ahead of a planned sale or financing)
What are the potential advantages for a Tenant?
- Expansion or contraction requirements (perhaps through issues created by merger and acquisitions of more or less space)
- Revise lease terms to better meet current needs (eg; wider alienation, return of rent deposits, reposition of break options etc.)
- Obtain capital payments or other incentives from the landlord in return for an extended income stream
- Permit longer amortisation of additional tenant improvements
Job Centre Premises, Chesterfield and London NW6
Acting on behalf of landlord clients, we were approached by agents for the Job Centre seeking to renegotiate the terms of their leases in advance of forthcoming tenant break options.
These two cases highlight how each case must be treated individually with a careful eye on the client’s needs and their attitude to risk. Our advice was tailored accordingly.
One client could not afford to take the risk of the tenant breaking its lease and negotiations were handled accordingly. Due to our negotiations, the concession was reduced significantly from the tenant’s original proposal and the impact was reduced by phasing the rent reduction.
The other client had the freedom to take a completely different approach to risk partly because the break date was over 12 months away. Following our assessment of the tenant’s case our advice was to reject the tenant’s approach. We were fully vindicated when the tenant advised that it had no intention of breaking its lease.