Lease Negotiations With Your Landlord
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Landlord negotiations start here
There are two points in time where you will have to carry out negotiations with your landlord; one being when you move into the property, the other being when you are trying to move out of the property.
Market conditions dictate who has the upper hand in lease negotiations
In theory, the occupier should have the upper hand, but this really depends on the market. Market conditions can dictate your negotiating power when purchasing a lease. In an upward market, or even a level normal market, though you would think as the future purchaser, or occupier, or leaseholder of a property you would have the upper hand, often it can feel as though the odds are stacked against you.
The commercial agents, or estate agents are they are commonly known, will typically withhold information, making you make decisions with very little information to guide you. They will offer a heads of terms, which will be talked about as if it is cast in stone but will often be negotiable. They are simply doing their job to represent the sellers, or the leaseholder's best case and this is why, as they are literally negotiating everyday with future occupiers or tenants and it can feel like you are banging your head against a brick wall. We would recommend that you need your own specialist independent advice, which is what we can do.
Where to seek advice when purchasing a lease (watch out for vested interest)
First of all, although it is tempting, you do not get good advice from someone with a vested interest. In this case the commercial agent, or the estate agent, has a vested interest in getting the property sold and therefore won't give you the best advice.
No matter how friendly they become you need to remember that becoming a friend and feeling as if they are on your side is part of the salesmanship, even if the commercial agent has been doing it for so many years they don't even realise they are doing it as a sales technique, just be aware that they have no responsibility whatsoever once they've sold the property, and indeed will have very little interest in you once they've sold the property as they will have got their fee.
Negotiating the right price with your landlord
You must negotiate the right price with your landlord at the start. If you get the figures wrong at the start and you can't make a profit whilst paying for the rent you are effectively working to keep the landlord in a custom to which he sees fit! You also have the added difficulty, as if you negotiated in a good or upward market, or even a level market, you may have taken the rent at a relatively high level as surprise, surprise commercial agents are always pushing the rent levels upwards, as they get paid on a commission percentage basis of the rental feels. So, to get out of your lease, you may even have to carry out work or subsidise the rent of the new person coming on.
Let us look at bit more about negotiations with your landlord on a new lease.
Negotiations with your landlord on a new lease
Firstly, if you could actually speak directly to your landlord we feel this is far better than speaking via a commercial agent. Plus you get the real truth and you also get their undivided attention, as usually a commercial agent is dealing with several properties at once, if not more, and knows it is to their advantage not to get back to you quickly. They want to sell to a desperate purchaser rather than appear to be a desperate seller.
You need to work out what the lease is worth to you and this needs to be your absolute top price. You need to remember that in most cases, unless it is an established business, the figures that you produce may be on the pessimistic side, even the figures that you said you think are low expectations tend to be on the pessimistic side, so you need to be realistic. Often the best way to do this is to get opinions from other people in the industry; if you know someone that you can trust that won't be looking to take advantage of the same opportunity that you have spotted, or to get a reality check from someone that you trust generally.
Appointing a building surveyor
The next step, we believe, is to appoint a building surveyor to actually survey the property and see what problems there are. There are inevitably always problems. You need to then establish whether they are problems to you and if you need to negotiate on the price. You also need to understand your level of risk, for example a super low rent may be present because the level of maintenance required is vast and you are about to sign a full repairing and insuring lease, which means that you will be liable for it the very next day.
Schedules of Condition
We provide a building survey and schedule of condition on all leases, as:
1. Although we are aware that some surveyors charge separately for them you need to check this, as you do their knowledge and experience of this type of specialist dilapidation work.
2. The rent stated is never the only rent option. We have in the past had the rents reduced and we have had the rents stepped, which means that they start off at one level and gradually step up to the rent that was originally advertised. We have equally obtained rent free periods, where there has been a lot of maintenance that has been discovered and the landlord doesn't want to carry it out but wants you to carry it out and in some cases, where the maintenance has been extreme, managed to exclude the four storeys above the property (it was originally a large hotel) and just have in the actual bar and front of house areas required, such as the toilets and the back of house areas required, such as the kitchens, etc, leaving the landlord to be responsible for the maintenance on the rest of the property.
From our experience landlords and landlords agents wish to do little else but collect rent. Any maintenance requirements will be at the back of their minds, or in the long grass, to coin a phrase that we recently heard that we like.
You only get one chance to negotiate the lease right
We are very serious when we comment that many businesses have gone bankrupt because they didn't negotiate the lease at the correct level. This is at the start because of the rent level that they agreed or the repairs that they became liable for and the number of times that we have heard the future occupier or tenant say that the rent was X and they have managed to reduce it to half X or ten per cent off X, or whatever. The problem is that X is a figure that the landlord thought of and is not the figure that the property was actually worth to you, and this is what you need to establish.
Negotiating with the landlord when you are ending the lease
There are two times when you come to the end of a lease:
1. Planned. This can be at a break clause point or at the end of the lease
2. Getting out because you simply can't afford to be there any more.
Let's look at the planned stages first.
Break clauses; negotiating your way out of a lease
Any fool can get a lease it's getting out of one that's the hard bit
If you are considered a good client to the leaseholder they will, at the negotiation stage, generally negotiate in break clauses to entice you into taking the lease. They will, if they know what they are doing, also make these break clauses fairly hard to adhere to and you have to ensure that the property is to the standard that they require, the rents are paid, the insurance is paid, etc, etc, etc.
There are many examples where companies thinking that they had broken the break clause then carried on being charged rent but followed a legal case where it was deemed that they hadn't met the requirements of the break clause and therefore it was quite right for the landlord to carry on charging them rent and of course they have to pay rates, etc, plus whatever new building they had moved into.
The end of a lease
When the lease comes to an end it may be a time of joy because you can move onto a new premises, perhaps one that's a more appropriate size for your business, as it now is bigger or smaller. Equally, it can be a period of pain when the good rent that you negotiated finally comes to an end, although surprisingly, or should we say unsurprisingly we don't come across this situation very often.
Either way, the lease needs to come to an end in an organised manner. The landlord has the right to serve a schedule of dilapidations, which is a list of work that's required to be done. He doesn't have to serve this because it's your obligation as the occupier or the tenant to carry out the work. He doesn't have to serve this before you leave the premises, in fact it's quite usual and a general tactic that most large surveying practices deal with landlords recommend, even though the RICS (Royal Institution of Chartered Surveyors) Guidance Notes recommend serving a schedule before, or fairly soon after, the longer after it is served the more likely a monetary only solution will have to be made. This is literally where the landlord can have his cake and eat it. Sometimes, indeed, the dilapidations claim is a major reason for landlords buying property.
Having to leave (yield up) a lease because you are going under
Ironically, this can often be the easiest way to leave (yield up) a lease, as the landlord appreciates that you don't have much money and often just allows you to leave without investigating the work that will have been identified within the schedule of dilapidations.
However, remember that often leases are under written against the company director's houses, etc, so there can be a sting in the tail!
Free lease and dilapidations review for landlords and occupiers
We are more than happy to give one of our free reviews to guide you on future courses of action on either leasing a property or taking on a lease. Please free phone 0800 298 5424.
If you need help and advice with regard to leases, dilapidations, schedules of condition, dilaps claims, scott schedules, building surveys, structural reports, engineers reports, specific defects report, structural surveys, home buyers reports or any other property matter please call 0800 298 5424 for a friendly chat. Please note we are independent surveyors.
We hope you found this article interesting and if you have any experiences that you feel should be added to this article that would benefit others, or you feel that some of the information that we have put is wrong then please do not hesitate to contact us (we are only human).
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See our other articles on Dilapidations: