By Rebecca Evans, Associate In Real Estate Department At Fox Williams LLP
With the economy still spluttering and increasing pressure on landlords to fill vacant property, now's the time to challenge your current lease terms. Here are ten tips on negotiating your lease.
Looking for a better rent deal on your office space? Before you approach your landlord, read our ten top tips on negotiating your lease terms.
1. Heads of Terms:
Agree clear and detailed heads of terms from the outset. Engage a local surveyor and your solicitor to negotiate and review the terms of your lease to ensure you secure the best deal possible, saving time and money at the drafting stage.
2. Rent and rent review:
Landlords are currently willing to compromise on rent to secure a tenant and avoid irrecoverable liability for rates, service charge and insurance on empty units. Where there’s a glut of empty properties in the locality, take the opportunity to negotiate a reduced rent on a new lease or to limit any increase at your rent review. Propose a monthly rather than quarterly rent to ease cash flow. Push for upwards or downwards rent review provisions in a new lease.
3. Rent free:
Landlords can be sensitive about reducing annual rent to below market rate and are more likely to agree to longer rent-free periods instead, particularly where fit-out works are required. Alternatively, try to negotiate a capital contribution to your fit-out costs.
4. Term, breaks and options to renew:
Consider how long you want the lease to run. It may be preferable to agree a shorter period with an option to renew rather than a longer period with a break clause given the potential for a greater Stamp Duty Land Tax liability on a longer term. Whatever the term, insist on a clear and unconditional break clause and remember if the break date coincides with a rent review, a threat to terminate the lease may be the key to negotiating a reduced rent. Beware of calling the landlord’s bluff if your space is readily marketable.
5. Service charge:
Make sure you are clear what’s included, how it's apportioned and when payment is due. With a new lease, request estimates and agree a fixed or capped rate or an RPI increase for peace of mind. For subsequent concerns, check for compliance with the RICS Code of Practice for Service Charges (2006).
Avoid obligations to keep the property in repair or good condition — this may mean repairing the property if it was in disrepair at the start. Limiting liability by reference to a schedule of condition attached to the lease is ideal.
Provisions for assigning, subletting and sharing possession of your lease are essential for business flexibility. Resist landlord restrictions as far as possible. If you do assign or underlet the premises, thoroughly check the financial strength of the assignee or undertenant since if they default liability may fall back to you.
Whatever you may be told, it is not market practice for tenants to pay landlord’s costs on a new lease. You will be asked to pay costs for approving fit-out works or signage if these are not approved at the outset.
9. Landlord & Tenant Act 1954 Act renewals:
Timing of service of notice to renew your lease can make all the difference in a rising rental market.
10. Go for it!
Be confident in negotiating your lease terms with your landlord. It is in his interests to let the property and if you don’t ask, you don’t get.
Rebecca Evans is an Associate in the Real Estate department at Fox Williams LLP. She can be contacted on firstname.lastname@example.org