Tenants’ Hidden Treasures
Having moved into their commercial property, most tenants forget about their lease, pay the rents when demanded and never look at the lease document again. But are they missing a trick?
Most leases that are granted now have a tenant break clause.
Tenants should consider break clauses for a number of reasons. Maybe they want to move because their staff numbers have grown or contracted since the lease was signed. However, a tenant which likes its property, and has no intention of moving, should still consider whether a break clause can be used to its advantage.
Will the landlord be concerned if the tenant operates the break? If the landlord will gain an increase in the value of its building if the tenant agrees not to exercise its break, what will the landlord give the tenant in return? A break clause, or the threat of its exercise, can turn an upward only rent review to a downwards review. These are points a tenant should take professional advice on and do so in plenty of time. There is no point in approaching the landlord when there are only two weeks before the last date for serving the break notice because the commercial deal and the necessary document to record this will not be completed that quickly and the landlord will have no incentive at that stage to rush it through.
The time by which a break notice must be served is absolute. If a notice is served late it will not be valid.
Service charges are demanded with the rent and then supported with a certificate of landlord’s expenditure at the end of the year leading to a balancing payment or credit. Tenants should check that all the sums claimed are properly due under the terms of their lease.
Is there a cap on the amount the landlord can recover in a year? Can the landlord recover the cost of improving (as opposed to repairing) the building? Can the landlord recover the cost of buying allowances under the Government’s CRC Energy Efficiency Scheme? A legal analysis of the lease and a scrutiny of the expenditure by an expert surveyor may well result in the tenant successfully challenging some of the expenditure. Where there are large sums at stake or where a tenant has a sizeable portfolio of properties, such professional work will probably be carried out on the basis that the professionals are simply paid a percentage of the savings achieved.
Landlords insure their buildings and their tenants reimburse the cost of such insurance (or, in a multi-let building, a proportion of it). But does the lease permit the landlord to recover the cost of insurance valuations? If so, how frequently can the landlord recover the cost of such valuations?
At the end of the term the tenant should hand the property back in accordance with the provisions of its lease. Does the lease contain a Schedule of Condition that limits the tenant’s liability or can the protection given to tenants by legislation be used to reduce the landlord’s claim? Expert advice from solicitors and surveyors may well lower the tenant’s costs of exiting their property.
In this economic climate nobody wants to spend money unnecessarily, yet there are many tenants who do not use all the benefits their lease contains to their full advantage.
Our lawyers at Marriott Harrison regularly advise tenants of commercial premises on these issues and the tactics they can employ, as well as working with surveyors to help tenants achieve costs savings. Please contact Mark Lavers (firstname.lastname@example.org – 020 7209 2013) if you wish to discuss this further.