Time is right for lease restructuring

Uncertain economic conditions and changes to the law mean that there has never been a better time for property occupiers to improve the terms of their leases, according to experts at national commercial property firm Lambert Smith Hampton (LSH).

Lease advisors in LSH’s Lease Advisory team say that strategic renegotiations of leases could mean that tenants can get lower rents, more flexible and less onerous lease terms or other financial incentives for staying in their existing premises.

Danielle Sheppard, regional director in LSH’s Lease Advisory team said, “With weaker economic conditions, landlords want to avoid tenants vacating premises and leaving them with lengthy voids and expensive holding costs, particularly rates on empty buildings. In addition, a new tenant is likely to want extensive incentives.”

She added, “Recent changes to law have favoured occupiers. Tenants are now able to walk away from a property on the contractual lease expiry date without giving the landlord advance notice. These factors combine to place tenants in a stronger negotiating position. Now is a good time to consider property options and open negotiations which could reduce costs and mitigate risks.”

She said that these negotiations could cover three key areas: lease re-gearing, lease restructuring or lease purchase.

“Re-gearing could involve reducing rent, securing a rent-free period or funding improvement works. Restructuring could mean adding break options to a lease, reaching more favourable dilapidations agreements or amending service charge provisions. Lease purchase could involve buying the freehold or undertaking sale and leaseback.

“At LSH we have been working with a number of large property-occupying clients and have successfully delivered savings to them. These include lease restructuring projects, estates strategies which align tenure with business planning, identifying opportunities for creating value from a property portfolio and negotiating better terms and rent free periods in exchange for extended lease commitments. There’s never been a better time for these kinds of conversations,” she said.