Heads of Terms
If you have just agreed terms on a new lease with a landlord but are unsure whether they are competitive, we can help. We can also provide advice on whether the terms can be enhanced to better protect your long term interests. For example, we might recommend that the conditionality of a break clause is altered slightly to reduce the risk of a technical breach occurring in the future. We might even be aware of more attractive tenant space that is available within the same building and which you might not necessarily be aware of.
Reducing Property Costs
There are many ways to reduce property costs. Here are just a few examples:
Extend (your Term). It may be possible to reduce your rent in the short term by agreeing to extend the term of your lease. You will find that most landlords value a longer lease as it will help to increase the residual value of their investment. They are therefore likely to incentivise you to extend your lease with the offer of some rent free or a discounted rent for a set period. A similar logic could apply if you have a break option that you could potentially surrender.
Downsize. An alternative strategy would be to consider downsizing within the same building or another property owned by the same landlord.
Exit. A more extreme option would be to exit your lease through an early surrender or assignment.
Sub-Let. Another cost mitigation option would be sub-letting the premises as a whole or if permitted, in part.
Plan (your exit). As hybrid working becomes the new normal, ‘downsizing’ and lease consolidation strategies are becoming increasingly popular particularly within the office sector. However, they bring with them a range of other challenges in particular, the negotiation of dilapidations and re-instatement liabilities. In some cases, hundreds of thousands of pounds can be saved by taking the right advice and planning your exit well before your lease ends.
Audit. Whilst exploring cost reduction strategies like the ones above, we might also recommend a full audit of all your property costs. For example, in some cases we have discovered that tenants have paid too much service charge for years. This has resulted in tens of thousands of pounds being recovered from their landlord, quite often ‘on demand’ (i.e. within 14 days).
It is vital in each of the above scenarios that you take independent advice before discussing these options with your landlord or its appointed agent. The reason being that these parties are likely to have significant conflicts of interest when offering solutions to you. For example, they are unlikely to reveal the true level of rents and incentives as this could undermine their negotiation position with you and other tenants within your building. This could in turn impact the investment value of the subject property which would do them harm commercially speaking. Similarly, they are unlikely to reveal the availability of competing ‘tenant space’ within the building as this would further weaken their position.
So whether it is a move to hybrid working or a one-off cost reduction exercise, there are many ways in which you can reduce your property costs.
Dilapidations Liabilities
It is worth remembering that when you vacate a leasehold property, your liabilities do not necessarily end there. Your lease will probably require you to meet certain repairing and re-instatement obligations before you vacate. It is essential that you know what these are well before you leave because rectifying them later will be far more costly than attending to them in advance. We can provide this information in what is termed an Assessment of Liability Report. This details the cost of meeting all your repairing and reinstatement liabilities. It therefore provides a basis for future negotiations with the landlord. It can also help you with the process of engaging your own contractors if those negotiations fail.
Floor Areas
The measurement of floor areas became more complex after new rules were introduced on 1st January 2016. The scope for errors is therefore far greater which means you should always have your floor areas checked by an experienced surveyor acting independently of your landlord before you agree your annual rent calculation. (Top Tip - negotiate your rent on a rate per square foot basis and make the floor area measurement subject to a joint measurement).