COMMERCIAL
Lets negotiate
Panikkos Euripides of Colliers International has some advice on timing of lease negotiations.
W
hen times are good and the bull market is in full flow, landlords often have the upper
hand when signing up new tenants. However, when times are less prosperous and the bear shows its teeth, tenants are often in a better position to renegotiate! Around 90 per cent of UK
commercial property is tenant occupied with approximately 60 per cent of landlords comprising institutional investors. Larger investors differ somewhat to their smaller counterparts in that the capital value of their portfolio is often used as collateral for additional borrowing rather than predominantly being motivated by rental income. When a property lease is approaching its expiry, the capital value
of the investment diminishes due to risk and uncertainty of the projected income stream. Once the lease has been renewed and a longer term has been secured, the capital value increases.
60 NOVEMBER 2011 PROPERTYdrum
This cycle in the leasing process often highlights potential opportunities for tenants to renegotiate more favourable terms when approaching their lease expiry and to share in the added value their tenancy creates. As commercial property
City centre flagship store or back street nick-nack shop, same rules apply.
consultants to many tenant occupiers, we advise our clients to commence the renewal process at least 18 months prior to their lease expiry or break option in order to leave sufficient time to achieve the best possible outcome. In the current economic climate, the process should be considered even sooner, as landlords are now often willing to
renegotiate lease terms up to 24 months pre-expiry. A landlord’s willingness to renew a tenant’s lease early stems
from the rise in capital value associated with securing a longer income stream and in addition, avoiding the prospect of being left with a vacant property and its liabilities. In return, a tenant has the opportunity to renegotiate its own terms which could include:
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