Lease renewals: Back in fashion?
We have seen increased activity in lease renewal negotiations over the last twelve months or so, however there can be quite different reasons for landlords or tenants wishing to negotiate new terms at the end of an existing lease.
The industrial sector has been strong in the recent past, with demand for modern industrial units outstripping a relatively short supply. As a result rents have been increasing. This is encouraging landlords to be proactive in negotiating new lease terms with a view to increasing their rental income.
In these circumstances the landlord must decide whether it is in their interest to maximise rental income or to forego some of the rental increase for the added security of a longer lease. We are seeing landlords with good quality tenants seeking the latter option, to secure their income stream for a longer term.
The retail market is quite the opposite. It is the tenants who are keen to re-negotiate leases. With the fall in retail spending in the high street and with well-known brands going into administration, empty units have appeared even in the best retailing positions. In some towns, or in some of the secondary retailing positions outside the main shopping centres, there are numerous empty units, where landlords are keen to secure new tenants to set off some of their property costs.
This desire is forcing down rental levels which the tenants of occupied units are using to reduce their rental payments. Landlords need to be very realistic where the tenant is looking to reduce their rent because if they lose the tenant they risk their property being empty for a long period. Landlords are often reluctant and can take quite some persuading to agree to a reduction in rent. However, this may be the best course of action in the medium term.
In both cases, taking advice from a Chartered Surveyor active in the market will be beneficial in understanding your position in order that you can achieve the best result.
