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Time to make savings
June 2009
Time to make property savings
In these undoubtedly challenging times, there are opportunities to reduce costs or extract value from what you perceive as being your fixed property costs. Whilst the property market may have slowed, if you have a lease with four years or less until expiry then now is the time to consider your options.
Significant savings can be achieved dependant on circumstances. It is essential for tenants to receive clear and timely advice on their “exit strategy” and to review possible rental changes, lease terms, dilapidations and also potential alternative space requirements. All of this attracts their own set of costs and issues and plays a major part in any decision making process.
A typical scenario as a tenant nears their lease expiry date is that the landlord serves notice to quit (a Section 25 Notice) between six and twelve months before the lease end. The tenant forwards this to their solicitor who tells them their basic legal options; however by this time your opportunity may be lost. At the same time the landlord serves a schedule of dilapidations asking for all outstanding repairs to be undertaken, the cost of which can run into £1,000’s. The landlord reassures the tenant that they know these are difficult times and in light of this is prepared to agree to defer the dilapidations provided the tenant agrees a new lease at the same rent. This appears to be a good deal until the tenant realises that the current rent was agreed at the last rent review at a time of better economic conditions and the dilapidations simply roll over into the new lease.
With forward planning and an early dialogue with the landlord it may be possible to re-gear the current lease to benefit from the difficult market and enable the avoidance of the dilapidations costs and to remain in the current building at a more favourable rent and perhaps most significantly, also agree a rent free period.
The benefits extend beyond pure financial savings and allow the tenant to focus on their core business activity and remove the risks, costs and stress associated with any relocation.
The full range of issues needs early consideration, from factoring the expense and legalities of dilapidations to altering the lease terms to suit changing business requirements. In some cases, it might also be possible to encourage the landlord to carry out any outstanding repairs to the building before signing a new lease.
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