Commercial Property Lease re-gears and renewals

Commercial Property lease renewals and re-gears aren’t often considered by occupiers until close to the expiry of their lease term, or until receipt of a Section 25 Notice from their landlord. However they provide tenants with a rare chance to take stock and evaluate their position and property needs. To ensure the best outcome, planning for lease expiry should commence approximately 18 months prior to the end of the term, especially if the tenants lease is contracted out of the Landlord and Tenant Act 1954.

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Office and Industrial Premises Lease Renewals

In the case of lease renewals, the 1954 Landlord and Tenant Act allows the tenant to state their intentions and request a new lease within the terms of within 12 months of the expiry of their current lease term. The same legislation applies to shop lease renewals, office lease renewals and industrial lease renewals. The legislation has led to some interesting anomalies and subsequent case law means that detailed knowledge is required if tenants are to avoid losing out and achieve a positive outcome that meets their business needs.

Commercial property occupiers are now in an exceptionally strong position. Whereas at the height of the market in August 2007 the rent quoted for a property was the price paid there are now substantial rent discounts and incentives on offer to occupiers to stay in their existing accommodation. Equally, excellent deals are on offer from potential new landlords. Lease renewals are an interesting part of the commercial property landscape. Whereas institutional leases have led to upward only rent review mechanisms being the norm (in spite of the Code of Commercial Leasing Practice), lease renewals are one of a few occasions that may enable a reduction in your rent liability. It is imperative that occupiers take advantage of this opportunity. Now is the time to take advantage of the current economic climate and reduce your commercial property costs. Once the recovery starts, opportunities for substantial incentives, such as rent free periods, capital incentives and low rents, will reduce as demand again begins to exceed supply.

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Office and Industrial Lease Re-gears

An alternative method to lower your commercial property overheads is through a lease re-gear. There is no special statutory framework for lease re-gears which depend on the willingness of both landlord and tenant to amend their existing lease obligations. Landlords are now more receptive than ever regarding lease re-gears as they provide an opportunity to limit their future risk. Typically a re-gear will involve the tenant extending their lease term or removing a break option within the existing lease in exchange for a financial incentive. This incentive could be in the form of a cash lump sum, rental reduction, rent free period or the removal of onerous terms from the lease.

Typically the value of a commercial property investment relies on a few fundamentals, one of which is the length of the unexpired lease term. Landlords, especially the larger funds, may be open to paying for a lease re-gear through payment of a reverse premium – a cash sum paid to the tenant - or alternatively a reduction in rent. Whilst not all landlords would welcome this many would benefit from an increase in the value of their property as a result of the increased lease term and corresponding reduction in risk of a rent void.

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Lease renewal and re-gear consultancy.

We offer a lease renewal and re-gear service to occupiers. We act on your behalf utilising our detailed market knowledge and understanding of the legal framework to ensure exceptional results for our clients. Our fee structures can be adapted to suit you and we are more than happy to work on a performance related basis; meaning you will receive excellent value for money with no upfront costs. If you would like to discuss your current situation with us and see how we can help reduce your commercial property costs please contact the Turner Southern Office. Our initial consultation is free and without future obligation. We are regulated by the Royal Institution of Chartered Surveyors so you can be sure you will receive a professional service of the highest quality.

Should you require any further information or have any queries then please do not hesitate to contact us.