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FAIR RENTS
Page 34
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Hauliers renting property need to know how to negotiate the most favourable lease terms. Stuart Darlington sets out the guidelines.
For many hauliers, rent is one of their biggest expenses. Operators seeking to reduce costs should start by looking at fixed overheads such as property, and, in particular, leasing costs.
It may be possible to renegotiate more favourable lease terms, including the assessment of rent, or, if your premises are proving too expensive, to bring the lease to an end. Opportunities will depend on the lease terms but also on the state of the market.
Having signed the lease, you are bound by the covenants and conditions it contains for the duration of the term.
However, if your lease contains an option to break you may be able to bring the term to an early end. Care needs to be taken with options to break and you must strictly comply with any pre-conditions.
Some leases state that you will lose the right to break if there are any arrears of rent or any breaches of your lease obligations at the break date. You should make every effort to ensure that you have strictly performed all your obligations.
The lease may require that you give a minimum period of notice to exercise the option, so the decision to break the lease must be made well in advance,
Break clauses
You should also consider that the premises will have to be brought up to the standard of repair and decoration that the lease requires, which can prove expensive. This cost alone may persuade you to remain at the premises.
Just threatening to exercise the break option can be a useful tool. Even if the landlord has a new tenant lined up, rent-free periods and other inducements may mean months, or even years, before the rental stream is reestablished.
If there is no break clause, your lease may be coming to an end in any event, As a business tenant, in the absence of any provision in the lease to the contrary, you are protected by the Landlord & Tenant Ad 1954.
This means that at the end of the lease, you have a statutory right to a new lease unless the landlord can establish one of the statutory grounds for refusal.
Lease variation
If you do not have the luxury of a break option and your lease still has several years to run, you could ask the landlord if he would accept a surrender of your lease.
There is no obligation on the landlord to accept your proposal of surrender; he may simply refuse and hold you to your lease obligations, until the contract expires.
An alternative is a variation. This is where you keep the lease but agree to vary some of the terms.
As a further alternative, most leases will permit you to either assign or sublet the premises. Either of these options will often require the consent of the landlord who, among other things, will want to be sure that the proposed new tenant is of satisfactory financial standing.
However, with both assignment and subletting you will remain liable under the terms of the lease.
If you assign (transfer) the lease, and it is dated before January 1996, you remain liable for the obligations in the lease if the new tenant defaults. If the lease is dated after i January 1996, you are likely to be required to stand as guarantor of the new tenant—but only until that new tenant itself transfers the lease.
If you sublet the whole or an unwanted part of the premises, you still remain the tenant for the purposes of the lease. Accordingly, you pay the landlord, but the sub-tenant pays you. Similarly, you will remain liable to comply with the lease obligations, although in reality these will be performed by the sub-tenant, in relation to that part of the premises that you have let.
Lease terms
Once you have successfully opened negotiations with the landlord for more favourable lease terms, you may wish to consider some of the following issues: • Rent review. A lease without any review of rent would be the most favourable option but you are unlikely to successfully negotiate this in any long-term lease without paying a higher-thanmarket rent at the outset. The next best thing is a lease with an upwards-and-downwards rent review.
As an alternative, some landlords have begun to offer an annual RP ninked review, which allows tenants to more accurately predict the rent as well as spreading the cost of the increase over time, rather than having to suffer a large increase every five years. • Rent-free period. Obviously it is advantageous to negotiate as long a rent-free period as possible, particularly if you intend to carry out any other works to the premises.
• Alterations and dilapidations. Be certain any alterations you envisage are permitted under the lease, and request that you are not obliged to reinstate any work and alterations when you vacate the premises.
On the renewal of a lease, request that any current disrepair does not have to be remedied at that time, but is rolled over into the new lease.
• Repair. Request an exclusion of liability for fair wear-and-tear and/or that you need not maintain the premises in any better standard of repair and condition than at the date of the lease.
• Term. Request a shorter-term lease with an option to break to provide flexibility and the possibility of renegotiating the lease terms in the near future.
• Assignment and sub-letting. Ensure that there are not any onerous restrictions on assigning or sub-letting of the premises, to give you flexibility, and consider whether you need the ability to share occupation of the unit with concessionaires, franchises or group companies.
• Stuart Darlington is a solicitor specialising in property law at City law firm Fox Williams.