COMMERCIAL
Removing tenants’ bReak options
It is common for leases to have ‘one-off’ break options built into the lease. For example, many ten year leases have a break option after five years which the tenant can elect to operate and vacate the premises. If a tenant is happy in the premises and is not considering a move, it is still worth contacting the landlord to see what incentives (such as a rent-free period) are on offer for a tenant remaining in the property and not relocating. The negotiating strength of the tenant will reflect the availability of vacant units in the area, the type of landlord and the cost of the tenant’s fit-out in their existing premises.
Rent concession
For a number of reasons, landlords have traditionally resisted granting rent reductions when renewing or renegotiating a tenant’s lease. One way of overcoming this issue is to negotiate an appropriate period whereby the rent payable is either temporarily reduced or waived altogether. Utilising this strategy can potentially translate into substantial cash savings.
Reduced RepaiRing liabilities
Under the terms of most commercial leases, the tenant is obliged to keep the property in good repair and therefore potentially gives rise to a substantial liability at lease expiry. Addressing this point at the time of negotiation can provide the tenant an opportunity to reduce their liability and in turn offer an additional level of cost certainty. For example, a tenant could agree with the landlord to place a limit on their repairing obligations by agreeing to maintain
the building in no better condition than the decoration itemised in a Schedule of Condition.
moRe flexibility
Over recent years average lease lengths have fallen as occupiers have demanded more flexibility, with the result being that most tenants renewing their lease now will be able to achieve shorter lease terms and more frequent break options. The days of the 25-year lease are over!
otheR lease teRms
There are a number of other lease terms which might be varied in order to provide greater lease flexibility. These might include making changes to the permitted use, the ability to assign and sublet and perhaps even downsizing. The lease renewal and break option process has always offered
a perfect opportunity for the landlord and tenant to engage each other. The fragility of the current economic climate means that there has never been a better time for tenants to exploit their leasing options.
Panikkos Euripides is Senior Surveyor, Commercial Lease Consultancy at Colliers International. Email:
panikkos.euripides@
colliers.com Website:
www.colliers.com/uk
www.propertydrum.com/articles/commercialleasenov Do you have any views on this? Log on and add your comments.
PROPERTYdrum NOVEMBER 2011 61
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