With the medium term economic outlook remaining
unsettled and the EU Referendum in June causing some uncertainty,
it is commercially unattractive for most tenants to enter into a
medium or long term financial commitment under a
In such unpredictable times, taking legal advice early on puts
the tenant in the best possible position to negotiate flexibility
which could well be in the interests of both parties. asb law's
Chris Worthington shares his top five tips on how tenants can try
to build in some flexibility in lease negotiations.
1. Break clauses
A tenant's break clause can provide the opportunity to end a
lease should trading conditions become too difficult. Tenants
should however be aware that break clauses are only operable after
an agreed period of the term has elapsed, and they should resist
attempts by the landlord to impose conditions to the break or it
may become inoperable.
A landlord's break option should also be avoided as this
gives control over the term and the business to the landlord. The
potential for a shorter term may affect the marketability of the
lease to a potential assignee or sub-lessee so this should also be
carefully considered. Although, as accounting principles generally
mean that businesses need to reflect the rolled-up outgoings under
leases, there is a balance sheet advantage to a shorter term
2. Rent-free periods
Landlord's generally look to protect their headline rent
levels and may be amenable to offering a rent free period rather
than offering an overall lower rent. A surveyor can advise on the
open market value of rentals in the area and what period of rent
free could be requested in the local market.
3. Rent deposit vs. guarantors
A landlord may request a rent deposit to mitigate the risk of
non-payment of rent in an uncertain market. Paying a rent deposit
can seriously hamper a tenant's cash flow at a potentially
expensive time so an alternative would be to offer a form of
guarantee instead. No guarantee should be signed without seeking
4. Assignments / sub-letting
These provisions are crucial in providing the tenant with an
opportunity to provide an additional income source should business
conditions mean that it is required. Legal advice should be sought
on the conditions attached to assignment and sub-letting and make
sure they are easily fulfilled. Ensure that you fully understand
any on-going legal obligations that are attached to either course
Remember that the opportunity to negotiate maximum flexibility
in these terms is at the outset. When the tenant needs to assign
and finds the terms attached to landlord's consent are onerous,
it is too late.
5. Due diligence
Now is the time to undertake your searches and do your due
diligence. It is crucial that the tenant is aware of anything that
might affect their use of the property as soon as possible. This
gives them the opportunity to assess whether any potential problems
affect long term business plans or to negotiate a lower rent. Take
advice early on to ensure that exposure is limited to any liability
for such things as inherent defects, contamination or uninsured
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