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Ed Barnes

Solicitor - Sevenoaks

21st May 2019

13 lease concessions that could benefit retail tenants

If you are a retail tenant considering taking a new or renewal lease of commercial premises, have you thought about instructing a commercial agent to negotiate the heads of terms and seek concessions from the landlord? Comprehensive heads of terms will save you money and time and the concessions could give you the flexibility you need to allow your business to breathe. In this article we summarise some of the common concessions.

Concessions

Landlords do not want empty premises and the corresponding rates bills. Here are thirteen concessions from landlords retail tenants could ask commercial agents to negotiate for the lease heads of terms:

  1. Schedule of condition – Limit maintenance of the premises to the existing condition, which is less onerous than entering into a full repairing lease. This will help the tenant avoid significant schedule of dilapidations claims (a list of items that are in need of repair and which are the responsibility of the tenant because of its repairing obligations under the lease)
  2. Rent-free periods – A period at the beginning of the tenancy during which no rent is payable by the tenant to recognise the fact that until the tenant’s fitting out works are complete, it cannot use the premises for its business
  3. Capital contributions by a landlord to fit out works – A payment by the landlord to the tenant to cover all or part of the cost of the fit out works as an incentive for the tenant to enter into the lease
  4. Service charge caps – Limit the amount of the service charge, the mechanism in a lease which allows the landlord to recover its running costs from the tenant, to an agreed level
  5. Monthly rather than quarterly rent – Monthly rent should improve a tenant’s cash flow
  6. Turnover rents – This is where the landlord takes a percentage of the turnover generated by sales from the premises without any base rent being payable
  7. Turnover top up leases – This is where the tenant has to pay a base rent and the amount by which the turnover rent exceeds the base rent. The advantage to the tenant is that its rental liability will reduce in poor trading conditions. If the tenant manages to trade above expectations, the landlord will benefit
  8. Options to break – An option to break allows the tenant to terminate the lease early. Limit any break conditions to payment of the principal rent. Never agree to the option to break being conditional on giving up vacant possession or there being no breaches of covenant relating to the state and condition of the premises
  9. Further rent-free period – If the tenant does not exercise an option to break, the tenant should have a further rent-free period, which benefits the tenant but also the landlord because the landlord does not need to waste time and expense looking for a new tenant
  10. Wide use clause – This will improve the tenant’s chances of disposing of the premises and allow the tenant to offer additional services
  11. Underleases of part – This will allow the tenant to downsize if it needs to
  12. Resist any automatic right for the landlord to obtain an authorised guarantee agreement on assignment – The outgoing tenant should try and avoid liability for another retailer’s failure
  13. Soft strip out – Instead of a full reinstatement at the end of the term, a soft strip out following reasonable written notice should enable the landlord to relet the unit more quickly

If you’d like us to help put you in touch with a commercial agent to negotiate your heads of terms and seek concessions from the landlord, or if you would like us to take a look at the heads of terms already negotiated, then contact Ed Barnes, Commercial Property Solicitor at Rix & Kay
e. edwardbarnes@rixandkay.co.uk

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