Lease Consultancy
Professional services: Landlord and Tenant
We advise both Landlords and Tenants on proposed or existing lease terms and obligations including negotiating agreements and settlements for the following events:
Rent Reviews
Commercial leases typically for industrial and warehouse units, office buildings and retail premises as well as leisure and other peripheral property types have Rent Review clauses.
Property owners require rents at the market value and are usually reviewed at 3 or 5 year intervals. Generally, the review periods are agreed at lease commencement.
The Rent Review clause in the lease will define how the new rent is to be calculated, and will set out the assumptions (length of lease, use, state of repair etc.) and disregards (goodwill, tenants improvements etc.) that are to be made.
Whilst most rents are reviewed to a Market Rent which is assessed by reference to comparable transactions, other rents can be reviewed to pre-agreed fixed amounts, or by reference to RPI (Retail Price Index).
The majority of Rent Review clauses require the rent to be reviewed on an upward only basis i.e. the new rent is to be the higher of the Market Rent or the rent passing immediately before the review date. It is possible (where the tenant or his agent has managed to negotiate it at lease commencement) for rents to be reviewed on an upward or downward basis, although this is often strongly opposed by Landlords (except during weaker market conditions where tenants hold a stronger negotiating position).
Lease Renewals
Most business leases benefit from Security of Tenure, meaning that Tenants have a right to renew their lease in certain circumstances in accordance with the Landlord & Tenant Act 1954, as amended.
The decision of when and upon what terms to serve Notices can be tactical depending on whether the current passing rent is higher or lower than the Market Rent and Courts can take a dim view on serving Notices with unrealistic terms. It is therefore essential to obtain valuation advice at an early stage.
We would normally advise a Landlord or Tenant 6 – 18 months prior to the expiry date of the lease to ensure that the correct action is taken to protect their position and to ensure that the appropriate Notices are served within the required timescales, in conjunction with your legal advisors.
Not all tenants under a commercial tenancy agreement have the right to a lease renewal when the tenancy expires. In those cases an earlier start to rent negotiations by the tenant is vital, to allow for the terms of the new tenancy agreement to be agreed before the lease expiry date. If the decision is made to vacate then negotiating terms on new premises and, where appropriate dilapidations, will need to be completed.
Assignment of Leases & Sub-Letting of Leases
Tenants of commercial premises who want to dispose of their premises will have to obtain their landlords’ consent if they want to transfer or ‘assign’ the lease to someone else. This also applies to under-letting or sub-letting.
Some leases contain an absolute bar on assignment, underletting or sub-letting. In this case, the property owner may still be prepared to give consent but is entitled to refuse it.
Obtaining landlord’s consent may seem a simple matter but it can never be regarded as a mere formality. Failing to obtain the property owner’s consent when it is required can lead to severe financial penalties. Consent should always be formally documented to avoid arguments.
Surrender of Leases
Occupiers will seek to surrender their lease or leases when they no longer have a need for their premises; such as a need to lessen liabilities or to consolidate a number of premises.
In an unstable or weak market, with high vacancy rates, Landlords will be averse to accepting a lease surrender unless a substantial premium is offered. To be able to negotiate with the Landlord, the tenant will need to know what the property market is like for their type of property (i.e. demand, vacancy rates). we will provide detailed advice in this respect, together with calculating the liabilities of your lease so an informed decision can be made.
From a Landlord’s perspective being confronted with a tenant seeking to surrender a lease will be concerning. However, it may also be an excellent opportunity to improve and add value to an asset. We can provide guidance on the possible opportunities available to you.
Schedules of Condition and Dilapidations
The Schedule of Condition
The Schedule of Condition is prepared prior to completion of your business lease. It is prepared, almost exclusively for the benefit of tenants, but can also be prepared for landlords.
It is factual record of the property at the beginning of the tenancy. The purpose of the Schedule of condition is to prevent tenants being made responsible for repairs to elements of the property in poor repair at the start of the lease.
This often-overlooked document can potentially save tenants tens, if not hundreds of thousand pounds in repair costs alone and help to mitigate areas of inevitable dispute at the end of the lease. In most cases, if there is no Schedule of Condition then the tenant will be exposed to unnecessary costs for defects existing at the start of the lease.
If you are thinking about taking a lease of commercial property, then speak to us about obtaining a Schedule of Condition before you sign your lease.
The Schedule of Dilapidations
A Schedule of Dilapidations can be prepared during, towards the end and after the lease has ended. The purpose of the Schedule of Dilapidations is identify tenant breaches of covenant, usually items of disrepair, decoration, reinstatement and statutory compliance. Failure to deal with dilapidations claims properly can potentially cost landlords or tenants tens, if not hundreds of thousand pounds.
Schedules of Dilapidations are usually prepared by the Landlord’s Surveyor and are intended to represent the landlord’s opinion of tenant works, which are required to put the property into the condition required by the lease.
If prepared in time, the Schedule of Dilapidations can be served on the tenant so that they can complete the works before vacating. If prepared after the lease has ended, the Schedule of Dilapidation will form the basis of the landlords claim for compensation.
We can prepare Schedules of Dilapidations for landlords or defend Schedules of Condition for tenants.