Viewpoint - 11/10/2010

Lease expiry in less than three years? Take action now.

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These are undoubtedly challenging times, but even in this climate there are opportunities for occupiers to reduce costs and extract value from what is often perceived as fixed property costs.

While the property market may have slowed and rental levels maintained, if you have a lease with less than three years until expiry then now is the time to consider your options.

Timely advice essential

It is essential to seek clear and timely advice on exit strategies, review possible rental changes, lease terms, and dilapidations liabilities, and also potential alternative space requirements - all of which attract their own set of costs and issues, and play a major part in any decision making process.

Many occupiers leave it too late

A typical scenario as occupiers near lease expiry is the landlord serves notice to quit (a Section 25 notice) approximately six months before the lease ends. The occupier then forwards this to his solicitors who explains the basic legal options, but time is now running out.

At the same time the landlord serves a schedule of dilapidations asking for all outstanding repairs to be undertaken the costs of which can run into thousand of pounds. The landlord reassures the occupier that they know these are difficult times and in light of your relationship they are prepared to agree to defer the dilapidations provided you agree a new lease and for the rent to remain the same. This appears to be a good deal until the occupier considers that the current rent was agreed at the last rent review which was possibly at the height of the market and the dilapidations simply pass into the new lease.

Forward planning can reduce rent and avoid cost of dilapidations

Forward planning and an early dialogue with the landlord could enable a lease re-gear reflecting the falling rental market, allowing the occupier to avoid the cost of dilapidations and to remain in the current building at a potentially reduced rental. The benefits extend beyond pure financial savings allowing the occupier to focus on your core business activity and remove the risks, costs and stress associated with any relocation. The full range of issues needs early consideration, from factoring the expense and legalities of dilapidations to altering the lease terms to suit changing business requirements.

A thorough understanding and knowledge of how these issues interrelate and how they can be delivered is required in order to fully consider your options. In addition other advice may be required such as local taxation, business rates, town planning and more.

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