How to: Negotiate your commercial lease conditions

How to: Negotiate your commercial lease conditions

Debenhams face store closures after going into administration, mirroring the struggles of local shop owners across our high streets.

On 9th April Debenhams announced they had gone into administration after negotiations failed and an offer from 30% shareholder Mr Ashley was rejected. The news has followed years of retail decline triggered by online shopping preferences.

Woolworths was the first major retailer to close back in 2008, since this time Colchester and Ipswich have lost, JJB Sport in 2012, Blockbuster in 2013, BHS in 2016 and Toy R Us in 2018. Debenhams currently have 165 stores nationwide, with stores in Colchester and Ipswich. It is likely that 50 of their stores will now close as they aim to rebrand and negotiate business terms, aiming to reduce costs, mainly through negotiating rent reductions with their landlords.

A similar approach was taken by high street clothing giants New Look in March 2018. They are reported to rent over 400 stores across the UK.

YOUR OPTIONS AS A LANDLORD

As a landlord you are under no legal obligation to reduce your rent due to your commercial tenants struggling to remain in business. These terms and conditions are outlined in your contract normally a fixed term agreement. Rent is therefore payable for the duration of your contract (lease).

However, you may feel a reduction is reasonable in exchange for additional non-money conditions, such as a lease extension or reducing the likelihood of your commercial property being left empty.

The implications of an empty commercial property are concerning, obviously this will have a direct effect on your yield, in addition to out of pocket expenses such as insurance, business rates and debt recovery fees.

As you know, Attwells Solicitors are property law experts, we work with both landlords and tenants to agree commercial leases that are beneficial and sustainable. Attwells Solicitors traded through the recession and understand the importance of a win-win scenario.
In Ipswich, where our head office is based, we are seeing a trend to commercial properties being turned into residential dwellings. This is another option for landlords with empty premises, converting a property into apartments or flats can create a capital value on sale or rental income.

In order to change the use of your property you will require planning permission. Attwells’ planning team would be able to assist you with this. Attwells are in a unique position as we are able to help you with every legal aspect until completion.

YOUR OPTIONS AS A TENANT

As a tenant you have a number of options, but we would always recommend talking to your landlord first. Open dialog and clear communication can often resolve issues and reduce the chances of them escalating, of course Attwells can help you with formally approaching your landlord or with a property dispute.
If your lease requires renewing within the next year or you are currently leasing your premises on a rolling contract basis then you can negotiate a new contract, amend your current terms and conditions including the amount you pay in rent. Our commercial property team would be happy to draft a lease extension for you and support you with any negotiations. We offer fixed fee solutions. these prices can be found on our website.

You could also approach your local council. For example, Ipswich Borough Council offer business rate relief depending on your turnover and a reduction based on your location. The local elections in May will have a direct bearing on this. You may also find local parking; bus services and bin collection will be affected too.

Additional factors you may wish to consider are: too much debt, increasing in size too fast (essentially having too many stores), rising overheads; suppliers and staff, consumer taste changing and the effect inflation and the slower increase of earnings is having on our disposable income.

For more information or advice regarding any of the services mentioned please click on the links embedded or for a free obligation chat please call Nick Attwell on 01473 229242 or email nick.attwell@attwells.com. Or please visit their website.