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Rental Negotiations, 21 April 2011

Obviously, a substantial overhead for many businesses will be the rent payable under the lease of their premises.

In the tough economic climate confronting us all at present, a reduction in the sums payable under the lease, will often greatly relieve the financial strain on any business and (in some cases) actually save a struggling business from going to the wall.

However, generally the tenant will be tied into a lease for a specified number of years. The rent will either be fixed for that period or (where the lease term is for more than five years) it may provide for rent reviews. Further, even if the rent is to be reviewed, in the vast majority of commercial leases there will be an express statement to the effect that these reviews are upwards only. Therefore, even in the current depressed property market where rental values in most sectors have dropped, this will not be reflected in the rent review and the rental being paid by the tenant will simply remain the same.

Historically, landlords would not consider reducing the rent payable (even if their tenant was in financial difficulty) due to the fact that if they lost this tenant, there would be many other interested parties out there willing to pay rental at the same level, or possibly even more, than that currently being paid by the tenant. However, with many businesses struggling or even going under, landlords are finding it increasingly difficult to secure tenants for their properties. As a result, many landlords are now willing to enter into a dialogue with their tenant to discuss relaxing the terms of the lease, either by changing the frequency of the rental payments (eg from quarterly to monthly) or even by reducing the level of rent payable, in order to ensure the tenant?ǨѢs survival and thus keep them in occupation of the premises and paying rent for the foreseeable future.

Where this outcome is achieved, it will often benefit both parties. The tenant survives and can continue trading and the landlord retains its tenant and thus its income stream, rather than facing losing its tenant and having a vacant unit.

Our commercial property director, Ian Anderson would be happy to offer any initial guidance in such matters and, where appropriate, we can also put tenants in touch with useful contacts who may be able to negotiate such matters with their landlord and hopefully bring about a positive outcome for all involved.

Last updated: 4.06pm, Thursday 21st April 2011

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