Renegotiating Lease

[Travelling Sam]

We have an office in a popular small business unit company in East London.

Our lease is coming to an end - and they have offered a new lease - for a 44% increase!!

We've never negotiated before as have leased off our investors and been happy.

We're fine here, but I find that ridiculous. The units are never completely full as it's an unpopular area. There are also plenty of other available units nearby.

Now, we've got time to look elsewhere, and also to negotiate with them. We're good tenants, but I wasn't quite expecting a Thai style increase (where they start at a ridiculously high price and expect you to bargain them to about 50% of where they started).

They say they are achieving these rates here (which may I say is rubbish, there is a continual stream of empty offices, and ours was for months before we moved in).

So, what is the best way to go forward? Do we simply put in a counter offer? I was expecting to pay our current rent plus about 5%? Do I have to put in an offer of our current rent?? Tips welcome!

 

[british steve]

Hand in your notice but also be prepared to move if need be! If you hand in your notice they will know that you mean business, they are more likely to start having a sensible conversation with you about your rent moving forward.

 

[herewegoagain.]

Hand in your notice but also be prepared to move if need be! If you hand in your notice they will know that you mean business, they are more likely to start having a sensible conversation with you about your rent moving forward.

Hello Sam, I have to agree with Steve, it is a buyers/renters market out there, they have got a downright nerve requesting that sort of increase.

My previous landlord tried this on at a 33% increase last year, his reason being because the business had done well... - if my business had have gone with this increase it would have made it no longer viable!

We moved 10 doors up the same street into a bigger better unit for for less than the cost of his proposed increase... and we are now busier than before !!

I would start looking for a new suitable premises, if you want to stay where you are I would go in at a 4% increase and go no more than 6% - I know it is harsh, but your landlord is stuck with the empty unit, you can move your business anywhere !!

Do these idiot landlords out there not realise the volume of empty units and ask themselves why?

 

[Travelling Sam]

That's what i'm thinking. I'm going to chat to couple of other offices and see what their experiences are. Unless they have interesting stories about rent increases, I anticipate:

- Offer to continue on existing terms (with warning we will hand in notice)
- When that's rejected, hand in notice stating we will continue to discuss if they can be more reasonable. Start searching.

And just as I type that a UK Business Forum e-mail comes into my inbox with the title 'You're rubbish at procurement' - that's below the belt

 

[herewegoagain.]

That's what i'm thinking. I'm going to chat to couple of other offices and see what their experiences are. Unless they have interesting stories about rent increases, I anticipate:

- Offer to continue on existing terms (with warning we will hand in notice)
- When that's rejected, hand in notice stating we will continue to discuss if they can be more reasonable. Start searching.

And just as I type that a UK Business Forum e-mail comes into my inbox with the title 'You're rubbish at procurement' - that's below the belt

Good luck with it Sam and watch out for the dodgy emails ! lol

 

[Blood Lust]

We have an office in a popular small business unit company in East London.

Our lease is coming to an end - and they have offered a new lease - for a 44% increase!!

We've never negotiated before as have leased off our investors and been happy.

We're fine here, but I find that ridiculous. The units are never completely full as it's an unpopular area. There are also plenty of other available units nearby.

Now, we've got time to look elsewhere, and also to negotiate with them. We're good tenants, but I wasn't quite expecting a Thai style increase (where they start at a ridiculously high price and expect you to bargain them to about 50% of where they started).

They say they are achieving these rates here (which may I say is rubbish, there is a continual stream of empty offices, and ours was for months before we moved in).

So, what is the best way to go forward? Do we simply put in a counter offer? I was expecting to pay our current rent plus about 5%? Do I have to put in an offer of our current rent?? Tips welcome!

Go across to the other units and find out how much they are.

Inform your landlord that you're still deciding but because theres other units which are going to be cheaper it looks at the stage that you'll be cancelling your lease with them.

See what they comeback with.

 

[Moneyman]

It is not always the buyers market that you presume.
Make a couple of calls to the local agents and ask about rentable space that way you will be able to get to grips with the local market. You might have got in super cheap or something. The change is not important as parts of london have shot up. it is the relative cost to others in the area that matters.
get a plan b so that you are ready to leave and ask about delapidations etc. that way they will know that you are serious.

 

[Travelling Sam]

It is not always the buyers market that you presume.
Make a couple of calls to the local agents and ask about rentable space that way you will be able to get to grips with the local market. You might have got in super cheap or something. The change is not important as parts of london have shot up. it is the relative cost to others in the area that matters.
get a plan b so that you are ready to leave and ask about delapidations etc. that way they will know that you are serious.

I'll partly agree with that - that's why we moved our office from Shoreditch!

But there is nothing about where we are now to justify the increase - especially as many units here remain empty - as they have been for the last 18 months! Our unit was empty for around 6 months before we moved in. 40%+ is just cheeky. Is this a typical landlord offer in most people's eyes? I know they have to maximise the amount they receive, but this amount is so ridiculous, it's hard to imagine I would get something around my expected 5% level.

 

[Talay]

Email back telling them that they must have got the + mixed up with the - and you are happy to accept their offer of a new rent, 44% below the current rate

 

[Talay]

Seriously though, unless the current lease is mega cheap, asking this is just pushing the tenant towards the door.

However, as already mentioned, you have to look at what else is around and even then, think about the cost and disruption to business if you had to move.

 

[herewegoagain.]

It is not always the buyers market that you presume.
Make a couple of calls to the local agents and ask about rentable space that way you will be able to get to grips with the local market. You might have got in super cheap or something. The change is not important as parts of london have shot up. it is the relative cost to others in the area that matters.
get a plan b so that you are ready to leave and ask about delapidations etc. that way they will know that you are serious.

Moneyman, it IS a buyers market out there.... not always, but certainly in the current climate.... the landlord is being greedy in this case, when there are other long term empty units round there -

London is well overpriced... full stop.... high six figure numbers for a small back street run down terraced house ! the agents are 'having a laugh' !! - I should imagine commercial properties are no different... I suppose in this case the landlord is hoping some 'idiot' - no disrespect to the OP in any way - will pay the increase!!

 

[Moneyman]

Moneyman, it IS a buyers market out there.... not always, but certainly in the current climate.... the landlord is being greedy in this case, when there are other long term empty units round there -

London is well overpriced... full stop.... high six figure numbers for a small back street run down terraced house ! the agents are 'having a laugh' !! - I should imagine commercial properties are no different... I suppose in this case the landlord is hoping some 'idiot' - no disrespect to the OP in any way - will pay the increase!!

I am connected to a commercial property company in central london ...92% occupancy and a waiting list.... It is totally mad. i certainly wouldnt pay it.

 

[Travelling Sam]

Thanks everyone! I've put a few feelers out, and just to emphasise we are not central London - certainly not a popular area, and the offices here have never been empty.

I spoke to a couple of other tenants and the buildings manager who is furious. We're popular within the complex (namely as we're normally here weekends and evenings so end up signing for most peoples packages, and we're the most social office!) - and t
the feeling is that this is a ridiculous attempt to hope we sign the lease to avoid the hassle of moving. The trouble is that the increase is so ridiculous, so offensive that it actually feels like they are trying to kick us out.

So, i'm almost tempted to move to spite them (or put it this way, quite happy to make threats to leave and follow it through if needbe). Puts me in a stronger position anyway. I'm going to go back to them offering an inflationary increase year on year. And actually make the point that we are offended.

What is interesting is that the lease mentions that if we cannot find a acceptable term, we can request a court sets the rent. Is that a practical way forward? Or just terminology / technicalities that I should ignore.

 

[Travelling Sam]

Just to rub things in, returned from holiday to discover a demand for Overspend Against Budget on Service Charges upto the year 31 March 2012. This totals over £500

I'll be digging out the terms of the lease - but - can they really come back to us and demand an extra £500 (which means they got the estimated Service charge wrong by over 30%) - and then take 8 months to work out they had a shortfall?? It strikes me as terrible they can get their figures so badly wrong, and then claw it back from us. I wasn't even aware they could... especially as they can't even clean the bloody toilets regularly.

And I presume part of this is because they couldn't fill the units during this period (the Service Charge I presume is a fixed cost - so shared between all units)? Although i'm awaiting confirmation of this from them (they have ignored other tenants trying to complain).

Other offices are in the process of handing in their notice - the landlords are not popular.

So, is this a common issue? Or can they even do this? Incredible.

 

[Kirsty H]

Hi this is my first post so please bear with me!

Whilst everyone knows about getting a solicitor when you sign a lease, very few know that you should get a commercial property surveyor to act alongside them. As a surveyor I could advise on all the aspects raised in your posts, and tell you ways to avoid some of these issues by negotiating at the outset, and what you can do now - to minimse costs and also how to renegotiate your lease if you do want to stay. In this market it is also very likely you could reduce your new rent, but of course you need to know how to justify it to get the best deal.

You have more negotiating power if your lease has security of tenure under the Landlord and Tenant Act 1954; ie the landlord cannot simply kick you out at the end of the lease and has to follow certain procedures. (As do you) If it doesn't, you would have signed a notice at the outset to agree to this, as you are effectively giving up your rights to renew the lease.

The reference to the courts setting the rent that you refer to is more likely to be in relation to rent at each rent review. However if the lease is covered under the 54 Act (mentioned above) then the law is that if you and the landlord cannot agree then you can go to court and get the judge to determine the rent. However this is only cost effective where the difference in rent is massive as the court costs will soon mount up. It is still a very good tool used in the right way.

Yes the landlord can potentially charge you an overspend 8 months later for the service charge, but it depends on the wording of the lease. Hope that helps a bit - I could go on for ever! All I would say is Please Please Please get a surveyor's advice, they are not as expensive as a solicitor and can save you a lot of money and hassle in the long run (but you still need a solicitor to complete the lease for you).

I would be very keen to advise you further if you want to take it up, but would need to look at all your documents to be able to do so properly.

Regards

Kirsty

 

[Travelling Sam]

Thanks Kirsty,

That's a really helpful constructive post. Whereas you make a valid point about soliciters and surveyors, this is a unit in a widely know small business unit organisation, so we took the view that this was unneccessary (maybe wrongly).

We do have has security of tenure under the Landlord and Tenant Act 1954 and we have been served notice under this, and have the option of going through a court to seek them to apply terms (I will look further into this as an option..). I suspect it won't be worth it legally as we're a relatively small unit. And as you say, I know how legal costs can add up...

I'll bare in mind your comments, i've been promised full justification about the overspend, but been advised it's nothing to do with the empty offices they had during this time (I struggle to believe that...).

I'm still about the whole situation. When we rely on service and repeat business so much, I guess I should remember that not everyone else does!

 

[arcon5]

So what happened with regards to the rent increase or have you looked to move ?

 

[Travelling Sam]

We have 5 months - i've been abroad so couldn't take much further, although I have been looking at alternative properties.

I havn't made a counteroffer yet. But I know that a couple of offices are handing in their notice over the next week or two - which I think would be a good time to make an offer (of perhaps 5% increase, and better terms).

 

[Kirsty H]

Hi Sam,

As you have got 54 Act protection, make sure that your solicitor serves the appropriate notices otherwise you could lose your rights. This doesn't mean you have to go to Court, but do you have to follow the process.

From the info you have provided I really don't think you should be offering any increase - you should be holding out for a reduction of at least 20%. That's not taking the mick but rents have fallen drastically over the last 5 years, and at my previous employer (national retailer) we were securing discounts in the majority of the lease renewals.

Hold fast, don't be intimidated and just remind them they have got vacant units. They won't want to lose you.

If you offer any increase you are throwing away money!

 

[Travelling Sam]

Thanks again Kirsty,

That may well be the case with national retailers with massive spaces, but for Small / Medium Businesses probably less so. Thus you see this post on here for general advice (as opposed to being dealt with by our Surveyors / Solicitors - what are they !).

I suppose we can't be all things to all men, and we have lots of expertise in certain areas, but we have been fortunate with office space in the past (had previously secured at peppercorn rent from an investor), so it's not an area that I have substantial knowledge with / of. And to be honest i'd prefer not to.

You mention 20% discount vs their request for 40% increase. I'd be happy for somewhere inbetween so I can just get on with what's important - but I like your style!

 

[Chris Ashdown]

Dont forget to watch the small print about how and when you can cancel the lease, late one day or not followed to the letter and maybe caught for another period

 

[isurveyor]

You mention (I think) that you have 54 act rights. has the landlord served a section 25 notice? You need to get a solciitor or surveyor and have them advise you to respond to the notice to keep you rights in place. If no notice has been served by the landlord, you have the ability to serve your own notice telling the landlord that you want to stay, alternatively if both sides do nothing, you "holdover" on the existing terms.

If you want to stay in the property, and want to keep the rent down, I would instruct a surveyor asap. The retail market is very weak at the moment, so you should be looking for a nil increase or a discount. Ask the landlord to give evidence supporting the rent increase. And analyse (or get a surveyor) the information. But also remember to consider other parts of the Lease. It is very easy to get fixated on the rent, that is an important part, but not the only aspect. under the 54 act the landlord should not be changing terms of the Lease apart from modernisation unless they are changing the rent in line with any Lease changes. This is just the tip of the iceberg, you should really get a surveyor/solicotr on these matters as leases are complicated and can be very expensive to get out of.