Case Study - Rent Review & Lease Renewal 1

Published on Thursday, July 12, 2007

Ref: JH/12/7’07           Jean Howe – Partner Kirkby & Diamond

The clients occupied a retail property in the town centre of a large market town. The profitability of the branch was marginal therefore the objective was to renew the lease for as little increase in rent as possible.
Retail rents in the period from 2000 onwards have seen huge growth in value. The property formed part of a 1960’s build parade which had suffered badly during the recession in the 1990’s as a result of rumours of redevelopment.
Significant thought was given to the terms that were proposed under a Section 26 tenant’s claim for a new lease, subsequently the Landlord objected on the grounds of redevelopment.
As a result of very complicated and long term negotiations, a new lease was subsequently agreed on the basis of the tenants having a new ten year lease and the Landlord’s having a break clause for development purposes, which was not to be served within the first five years of the new lease. The rental that was subsequently negotiated showed an uplift on the previous rental payable but was less than those on directly comparable property to reflect the uncertainty in terms of ongoing occupation of the property. Side letters were also agreed to reflect that if any redevelopment did take place that Kirkby & Diamond’s clients would be given first option of taking a lease of a unit within the new development.
The Result

The understanding of the client’s business needs was taken into account throughout the negotiation to reflect the offset between the need of the Landlord for the right to redevelop the property and the need for the client to reduce his outgoings and allow for a refurbishment of the unit in order to maintain and increase future profitability.
An acceptable lease agreement between two parties who had very different objectives at the outset enabling the client to continue in business at the property and to increase profitability.