Opportunities for All

Landlord & Tenant Issues

In the current economic climate landlords and tenants have each had to stand back and reappraise how they occupy or manage their properties.

Whilst the playing field of established legislation and case law has not altered substantially, over the past few years, the goal posts in the market have. We are in times when it is more important than ever to communicate efficiently and to understand the other side's stance.

For the landlord, there are opportunities to renegotiate the terms of the lease. Landlords usually hold properties for investment purposes, that is to receive income, and they may well consider a longer term lease but at an initial drop in rent to be more attractive to them than squeezing the tenant for every last penny at review or lease renewal.

The landlord may also wish to consider monthly payments on rent, thus assisting the tenant in the cash flow for his business.

With lease renewals and tenant insolvency etc., vacancies are always a threat to the landlord and especially in the light of the current rating legislation which ensures that after a fairly short period of time, and in a poor market, full empty rates are payable.

The tenants are therefore in a commanding situation in this particular market where they can ask for longer than would normally be considered equitable rent free periods, capital sums paid to them on taking possession of the building, works undertaken to alter the premises and so on. The landlords are likely to be considerate of these requests and again, they may feel that for long-term gain, a short-term dip in rental income or capital expenditure is appropriate.

The landlords can of course try to fore-shorten this drop in income by having the first review after, say, only a 3 year period rather than a 5 year period, to recoup some of the loss of rent, this assumes the market improves in this time period!

As for lease terms, they are coming ever shorter. Tenants in all types of commercial property are not willing to commit to long term leases. They do have to amortize any fitting out costs over a shorter period but if the lease is within the parameters of the 1954 Landlord & Tenant Act, the tenant is more likely to rely on his renewal rights under the Act.

Alternatively, the tenant may seek a longer lease term, say, 10 years, but with a tenant's only break at the 5^th year - thus ensuring a potential period of occupation for 10 years but with the option to fore-shorten this at the 5^th year if their business is either suffering, coming to its natural end or is likely to need to relocate to larger premises.

With lease renewals there is also a question of whether or not for the landlord to serve a Section 25 Notice or for the tenant a 26 Notice to bring the lease to an end and here, parties need to consider their stance very carefully from the point of view of existing lease terms compared to what may be negotiated in the current market. Never forgetting, rents can go down on a lease renewal whereas it continues to be the norm for rent reviews to be upwards only.

With new lettings it is also likely landlords may require more stringent adherence to guarantors being provided and for rent deposits being taken to protect them - that is to reimburse them for tenants failing to comply with the terms of the lease for whatever reason or to have long term compensation for any capital expenditure carried out by the landlord on behalf of the tenant.

In these changing times it is ever more appropriate to employ a Chartered Surveyor to consider the situation that either a landlord or tenant is in and to advise them the best way forward, having regard to a specific playing field and moving goal posts.

For further information, please contact Jackie Crisp.

Date Added: September 2nd 2009