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Lease Consultancy

We act on behalf of Landlords and Tenants from our offices in London across the retail, office, industrial, leisure and motor trade sectors throughout Greater London, the Home Counties and the South East.

Whether you require professional assistance for a rent review or lease renewal, we understand that each case is unique and will require detailed bespoke advice. Our surveyors consistently maintain their knowledge of market conditions and have a thorough understanding of the intricacies of business leases. Our recommendations are given in the context of strategic advice with explanations provided on how certain negotiated settlements may affect longer term company or investment objectives.

Our surveyors are experienced negotiators skilled in supporting crucial arguments with robust evidence, ensuring the best possible results are secured for our clients. 



Rent Reviews


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Lease Renewals

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Lease Surrender


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How to renew your commercial lease?

To have a commercial lease renewal, you need to inform your landlord 6-12 months prior to the lease’s expiry date that you wish to renew. Make sure you state the terms of the lease, such as the amount of rent paid and the duration of the new lease in the renewal notice.

Your landlord will have two months to dispute the granting of a new lease on one of the grounds listed below.


Landlords Grounds for objection to the renewal of a lease


Under the Act, a landlord can only refuse to grant a new lease in the following circumstances:
  • The tenant has breached their obligations, i.e. failed to keep the premises in good repair, or has regularly been late in paying rent
  • The landlord offers to provide other, suitable premises
  • Where a sub-tenant who is occupying part of the building wishes to renew their lease, but the landlord wants to rent the premises as a whole
  • The landlord wants to demolish or rebuild the premises
  • The landlord wishes to occupy the premises themselves
  • If the landlord decides not to renew a tenancy protected by security of tenure on one of the above grounds, they must issue a Section 25 notice to the tenant. A failure to respond to a Section 25 notice means the business tenancy will end on the date specified.

If the landlord decides to end the tenancy on one of the grounds that does not involve ‘fault’ on the part of the tenant, i.e. they wish to re-occupy the building themselves, the tenant may be entitled to compensation; however, the court will not order the lease to be renewed.


Tenancies outside the Act


A tenant that does not have security of tenure under the Act will have to leave at the end of its lease, unless it can agree terms for a new lease with its landlord or its lease contains a right to renew.  In any event, it will be important to ensure that any deal for a new lease is agreed well in advance, so that there is plenty of time to find alternative premises if the landlord pulls out.


Finally, tenants that wish to remain in occupation for short periods after the expiry of their leases will usually negotiate short leases or licences with their landlords.


Recommended action points


In order to avoid being caught out, we recommend that you:

  • check the expiry dates for your leases;
  • review whether you have rights under the Act; and
  • consider your renewal strategy at least 12 to 24 months in advance of the expiry date.
To ensure you do not encounter a stressful dispute when renewing your lease, it is recommended you seek professional advice prior to applying for renewal.

If you are thinking about renewing your commercial lease, please speak to our 
Lease Advisory Team to find our more.

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Key commercial lease terms that affect your rent

Whether you are a Landlord letting your commercial premises or a Tenant signing a new Lease you need to be aware of key lease terms that may have an impact on the rental value. These are as follows:-

Term


A lease is granted for a set period of time which is referred to as the Term. Commercial Leases are usually granted for a “fixed term” which means the Lease will start and end on the fixed dates specified in the Lease. The Lease may, however, provide for either party to terminate the Lease at an earlier date; this right is referred to as a Break Right. 


Both Lease Term and Break Right have an important impact on the rental value. For instance, shorter leases tend to attract higher rent compared to longer lease terms. Interestingly, if the premises require a high fit out capital expenditure (such as some restaurant premises), longer lease terms may be more preferential for the Tenant, with shorter leases attracting a discount.


With regard to the Break Right, Tenant only Break tend to increase the rental value, while Landlord only Breaks tend to attract a discount due to a reduced term certainty for the Tenant. 


Rent Review Pattern

The Lease usually provides for the rent to be increased during the Term. There may be set dates within the Lease for the rent to be reviewed. The Lease will set out the procedure for the 
rent review. The rent may be reviewed to the market rate, in which case the reviews will usually take place every 3 to 5 years. Alternatively, the rent may be reviewed by reference to an index (usually the Retail Price Index (RPI)) or by reference to the open market valuation and if so, the review will commonly take place more frequently than every 5 years.

Rent Review clause may impact your rental value where more frequent rent review pattern may attract a discount to the initial rent agreed.


Repairs


The Lease will usually impose repairing obligations on the Tenant. In some situations, the Lease may also impose repairing obligations on the Landlord. The Tenant may be required to “keep” the property in repair, which means that the Tenant must put the property into a good state of repair, even if it was not in a good state of repair at the date of the Lease. Alternatively, the Tenant may be required to repair the property in accordance with a schedule of condition, which will be attached to the Lease, which is a less onerous repairing obligation.


The general rule is that the more repairing obligations the Tenant has – the higher is the discount on the rental value. In addition, onerous repairing obligations may also attract a discount.


Alterations and Improvements


The Lease may impose certain restrictions on the alterations and improvements the Tenant is entitled to make. Such provisions are included within a Lease to protect the Landlord from alterations which could damage the Landlord’s investment interest in the property. The Lease would usually also provide for the property to be reinstated to its original configuration before the end of the term.


The standard Alterations Clause allows non-structural alterations (with landlords consent not to be unreasonably withheld or delayed), while structural alterations are prohibited. Absolute restriction on non-structural repairs may attract a discount to the rent agreed.


Assignment and Underletting


A Tenant may want to sell its interest in the Lease; this sale is referred to as an Assignment. A Tenant may want to keep its interest in the Lease but allow someone else to use part of the whole of the property by way of an underlease; this is referred to as an Underletting. However, there are likely to be a number of the restrictions associated with the assignment and underletting of the property which need to be considered in detail at the outset.


Most leases provide that the Landlord’s consent will need to be obtained before the grant of an assignment or an underlease. The Tenant must ensure that such a consent is obtained prior to granting an assignment or underlease.


Some leases may have absolute restriction on assignment. This restriction may have a strong impact on the rental value of the property and typically attracts a discount as the Tenant will not be able to assign the lease if they choose to relocate or close their business.


Use


Generally, a Lease will expressly set out how the property may be used which will usually be defined as the Permitted Use. The Lease will either express the permitted use positively i.e. “the Tenant shall use the property for [a permitted use]” or negatively i.e. “the Tenant shall not use the property otherwise than for [the permitted use]”.


Some leases may have the use or the property restricted to Tenant’s business only (for instance a barber shop). This reduces Tenants options when it comes to lease assignment and therefore may attract a discount to a market rent.


Contracting Out of the Landlord & Tenant Act (LTA) 1954


Under the LTA 1954, if a Lease is regarded as a business lease, the Tenant may have certain rights to renew the Lease at the end of the contractual term, or receive compensation from the Landlord for its inability to do so. The Tenant may therefore be required to agree to forgo the rights under the LTA 1954. If so, this would have to be authorised effectively and recorded within the Lease.


If the Lease is “contracted out” of the LTA 1954, the Lease will contain an express clause which confirms that sections 24-28 of the LTA 1954 have been excluded. The Tenant will have no right to renew the Lease and it will terminate at the end of the term at which point the property must be vacated immediately.


If the Lease has not been “contracted out” of the LTA 1954, it will not contain such express provisions and will continue until the Lease has been properly terminated under the LTA 1954, or renewed. Until such point, the Tenant will have the right to remain in the property; this period of time is usually referred to as the “holding over” period.


Despite the growing number of leases being contracted outside the LTA 1954, this may still attract a discount to the rental value for your commercial property due to reduced terms certainty for the tenant.


If you are in the process or letting, acquiring our renewing a lease and would like to find out how lease terms may impact your rental value please speak to our 
Lease Advisory Team.
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Rent Reviews – How is the new rent determined?

Whether landlord or tenant, rent review clauses can be daunting and it is important to understand the key point tata may have an impact on the rental value.

The rent review clause in the lease agreement will define how the rent is to be calculated and will reference ‘assumptions' and ‘disregards'. Both assumptions and disregards are, in the main, similar across most commercial property leases. However, slight variations can have a significant impact on the rent calculation when it comes to review time.


Let’s have a look at these in more detail:


When calculating a revaluation in the open market, certain hypothetical assumptions are made about the lease for the purposes of the valuation. Examples include:



  • The Property is available to be let by a willing Landlord to a willing Tenant
    It is important to assume that on rent review the Property itself is marketable or this will adversely affect the potential rent achievable.

  • The premises are vacant and fit for their use
    Essentially the property is being treated as if there is no Tenant or as if the Property had never been occupied and as if there are no fixtures and fittings at the Property currently. The lack of fixtures and fittings could have a negative impact on the potential value of the property and could have a knock on inference that a tenant should have a free period to allow them to ‘fit out’ the Property.

  • The lease has a term which is preferred by tenants based on the current market conditions
    Some leases specifically stated the hypothetical term for the purposes of rent review. An assumed term that is not in line with current market trend may have an impact on the reviewed rent.

  • No premium is paid or a rent-free period is granted
    It may diminish the rent if for example, any incentive paid by the Landlord to new tenants was taken into account on rent review or if a capital sum has been paid for the lease by the Tenant

  • The tenant has complied with their obligations under the lease
    What if the Tenant hasn’t complied with their obligations? It is usually perceived as quite ‘fair’ to include this provision from the Landlord’s perspective as it’s not their fault that the Tenant has not complied. 

In addition, certain matters are disregarded, such as:


  • The tenant's occupation and goodwill
    Goodwill is considered an ‘asset’ and has an actual monetary value in itself. Therefore, if the business is particularly profitable and well thought of then the asset is worth more. In turn the profitability of the business could improve the general area in which the Property is situated. As such, this could increase the possible rent and the Landlord would not want this to be disregarded.

  • Improvements made to the premises by the tenant
    For tenants improvements to be disregarded, it is important that these are undertaken with all necessary consents, approvals and authorisations. Improvements could increase or decrease its value. If it’s a positive improvement and you disregard the improvement to the Property entirely then this is great for the Tenant but perhaps over generous from the Landlord’s perspective.

All too often, our Lease Consultancy and Commercial Agency teams at Copping Joyce Surveyors come across situations where landlords or tenants have been financially disadvantaged as a result of not seeking professional advice in good time when it comes to rent reviews.


For landlords, the benefit of a well-negotiated rent review can result in an uplifted rent which, in addition to improving cash flow realised from a property asset, can have a positive impact on the capital value of the property. For tenants, a poorly negotiated rent review can see increased overheads for the business.


If you are in the process of reviewing your rent, please speak to our 
Lease Consultancy Team to see how we can be of assistance.

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