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Negotiating Lease Terms

There is often scope for prospective Tenants to negotiate on a variety of matters.  It is generally in the interests of Landlords to grant Leases, notwithstanding they may have to give concessions to in-going Tenants in order to entice them to take a Lease.

Even if the Lease is granted at a very low rent the Landlord will not have to continue to pay rates and to secure the Property from squatters.  Security costs and insurance premiums for empty properties can be high and the cost of removing squatters higher.

Empty properties generally attract higher building insurance costs, and Landlords have to bear the insurance costs until the Property is let.

Sometimes the potential Landlord’s interest in a Property may be as a Tenant.  The Lease under which the Landlord holds, in addition to imposing normal liabilities to repair etc, may impose an obligation on the Landlord (in his capacity as Tenant) to continue trading from the Property until the Property is let to another Tenant.  This is commonly referred to as a “keep open” covenant and applies regardless of whether the Landlord (in its capacity as a Tenant) is incurring substantial losses.  If there is a keep open covenant and the Landlord is incurring losses, the potential Tenant is likely to have a good negotiating lever if he has notice of those facts.

In clarifying their negotiating strength and tactics, Tenants should try to ascertain (where appropriate) how long the Property has been empty, or where the Landlord itself is a Tenant, the reason for it wishing to vacate the Property.

In considering terms, potential Tenants should appreciate that most Leases do not merely impose monetary obligations limited to the rent.  They are likely to impose additional obligations to pay rates, Value Added Tax, fire insurance premiums, service charges, undertake repairs and bear the cost of complying with statutes, etc.  All these potential liabilities should be considered, and should be reflected in the rent that is agreed.  Obtaining details of (if appropriate) the service charges and the fire insurance premiums that have been incurred in the last three years is often a good starting point for ascertaining future liability.




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