Jeremy Redfern, a Partner in the commercial property team with QualitySolicitors points out that ‘Every lease negotiation is different, because each landlord and tenant will come to the table with different priorities’.
Jeremy sets out some key issues to think about before you start.
Agreed or statutory renewal?
The first thing to establish is whether you are looking at an agreed renewal or one based on the statutory process under the Landlord and Tenant Act 1954. If you are not sure, your solicitor can explain.
The advantage of a 1954 Act renewal is that there is a presumption that you will get a new lease unless your landlord successfully opposes this – they have very limited grounds on which to do so. You can try to negotiate a deal that suits you both but if you cannot reach agreement, you can apply for the court to set the terms of the new lease. The starting point is that the new lease will be on the same terms as the previous one. While this protects you from your landlord seeking to change the lease in ways you do not want, it also limits your scope to negotiate a better deal.
If your existing lease is outside the 1954 Act, you and your landlord each have a completely free hand when it comes to agreeing the terms for a new lease.
Alterations, refurbishing and reinstatement
When deciding which terms you might negotiate on, you should think about your longer-term plans for the premises. A lease renewal is a good time to look at the layout of the premises and the facilities you have available. Now that hybrid working has become the norm, many businesses want fewer fixed desks and more flexible space for collaboration and socialising. If you think you may want to reconfigure or refurbish, you could explore whether your landlord is willing to allow more flexibility over the types of alteration you can carry out and how far you will have to remove any alterations and reinstate at the end of the new lease. With greater awareness of the need for sustainability, reinstatement provisions in new leases have evolved away from a strict requirement for the tenant to rip out all the alterations they have made during the term. If your landlord has granted other leases with more flexible provisions, they may be willing to do the same for you.
In return, your landlord will probably ask for an express right to come into the property to make energy efficiency improvements. This would have been unusual before 2023, but since the new rules on Minimum Energy Efficiency Standards in commercial leases came into force landlords often want to be able to get in to make improvements. This should be at their expense and your solicitor will negotiate provisions to keep disturbance to your business to a minimum.
You may also be able to do a deal to get your landlord to carry out refurbishment and upgrade shared facilities. For example, if more of your employees cycle to work than when you first entered into your lease, you may need better bike storage, showers and drying facilities.
Rent review mechanism
If you are taking a lease for more than five years, now could be a good time to ask your landlord to consider an alternative to a traditional upwards only rent review. These look likely to be banned in the near future, so your landlord should be willing to discuss other approaches. Index-linked rents are increasingly common but you could also explore a stepped rent, with fixed increases at agreed points during the term of the lease.
If you have a retail or leisure business, you may be able to agree that part of the rent will be calculated by reference to your turnover. Turnover drafting can be complex, so make sure you discuss this with your solicitor. Bear in mind that you will have to provide the landlord with financial information at regular intervals.
Most landlords prefer to receive rent in four quarterly instalments but if paying monthly would suit you better, this is something else you could bring into your negotiation.
You could also discuss a rent free period at the start of your new lease, particularly if the landlord is keen for you to stay, saving them the effort and expense of finding a new tenant. You should have a fairly strong bargaining position, as any new tenant coming in would expect a rent free period. Alternatively, your landlord may be willing to make a financial contribution to alterations you plan to make at the start of your new lease.
Length of the lease
Leases are generally shorter than they were in the past, so if a shorter commitment suits you better, you may be able to agree a three or five year term. If your landlord wants a longer commitment, try negotiating for a break clause part way through. This would give you the option either to end the lease early or continue with it. Make sure you discuss any conditions your landlord wants to attach to any break right with your solicitor, as they can contain traps for the unwary.
How we can help
Once you have agreed terms with your landlord, our experienced property lawyers will make sure that they are set out clearly in your new lease and that you know exactly what to expect.
For further information, please contact Jeremy Redfern or a member of the commercial property team on 01905 721600 or via email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.