This is a question that commercial property consultants Vail Williams is regularly asked at a time when businesses are faced with tough trading conditions and ever increasing pressures on budgets. In reality, rents are not immune from the wider economic conditions and for most types of property have fallen over recent years from their peak in 2007/8.
Our market insight and knowledge, honed from 25 years' experience, tells us that the reason many occupiers have not seen a fall in their rent is due to existing property lease arrangements being agreed or subject to upward only rent reviews, when rents were at their highest.
Many occupiers will now find themselves paying a rent higher than that offered to new occupiers. The obvious question is "can an occupier do anything to address this issue when they are subject to an existing lease?" Our clients trust us to deliver business-focused property solutions, and the answer is certainly "yes", but you need to be proactive.
Landlords are like any other business, with their cashflow being made up of the rents they receive. However, the level of the rent is not the only influencing factor; income security is equally as important. With landlords trying to balance rental levels with income security, this creates an opportunity for occupiers.
It is now common practice for revised lease terms to be discussed well before a lease comes to an end, or if there is an opportunity for a tenant occupier to exercise a break clause. If the tenant wishes to stay, both these events give the opportunity for the tenant to change the terms of their lease, including the level of rent, in return for offering the landlord greater security of income.
The value for a landlord of extending a property lease or removing a break clause can be significant and the normal principle followed is that the increase in value should be shared equally between the parties. The value is assessed by looking at the change in the investment value of the property before and after.
While a reduced rent, rent-free period or other form of contribution from the landlord may appear to an attractive proposition, tenants need to carefully consider whether they are right to remove the flexibility of their remaining short-lease length or forthcoming break clause. Does this fit in with the overall business strategy? Do other property options provide a better solution? Are the costs of staying an issue - will there be increased costs from repairs and maintenance?
The proactive step that an occupier needs to take here is a review of their current leases to identify relevant opportunities - either a lease coming to an end or a tenant break clause in the next five years.
We are committed to understanding our clients' specific business - our experience suggests that most landlords are willing to discuss revised lease structures that could be beneficial to both parties.
It costs nothing to ask.
Associate - Vail Williams LLP
Tel: 07799 760 323
Vail Williams LLP is one of the largest independent providers of commercial property consultancy regionally.
In 2013, Vail Williams celebrates its 25th year anniversary - a milestone of experience reflected in the firm's market insight and knowledge. This expertise, combined with the firm's innovative approach, enables Vail Williams to provide clients throughout the UK and Europe with business-centred property solutions, adding value and giving them a competitive edge.