LANDLORDS: How to minimise chance of void and increase speed of re-letting
As economic performance data begins to be released showing the negative GDP being experienced globally, it does indicate that Landlords may experience a more difficult period in the short to medium term and increased level of void.
We set out below 7 key recommendations:-
1. MANAGE YOUR CURRENT TENANT - Be flexible with your current tenants. Whether it be amending rental payments to monthly, deferring a % of rent to be paid back in an agreed timescale or agreeing a rent-free period. There is no right or wrong answer and the outcome will be dependent upon your opinion of your tenants financial strength and resilience as a business going forwards in a changing landscape.
2. COMMUNICATE LEASE DISPOSAL OPTIONS TO YOUR TENANT - Make sure your tenant is aware what lease disposal rights they have under their lease. These are typically by way of an Assignment or Sub-Lease. It is better to take a proactive approach early on rather than reactive when your tenant has become insolvent and you are in limbo whilst you wait for the lease to be disclaimed / terminated and you commence a marketing campaign with a cold start having inherited the liability of the property with no income being received.
Many people are surprised to hear that at any one time around 10%-15% of our Commercial Agency instructions are lease disposals where we are acting for tenants to market leases/properties that are surplus to requirements.
On occasions, the marketing of a lease results in a surrender (termination) of the existing lease subject to the grant of a new lease to a new tenant. This is common where a new tenant requires a lease length greater than the residue of the existing lease. Therefore, creating improved term certain for the Landlord.
3. ENSURE GOOD CONDITION – For any company looking to let a commercial property as a result of downsizing, upsizing or relocation, one of the key criteria will be limiting liability. Tenants will not be willing to inherit any liability linked to a buildings condition, with disrepair being the main item. It will be very important that your building is in a state of repair and good decorative order. This will have a very large influence over a tenant choosing your property over another. The aim is to remove reasons for dismissal as there will be alternative properties for them in the market. There can be a direct correlation between condition and speed of letting as tenants are attracted to buildings that they feel they can occupy quickly without disruption and rising initial expenditure. Our Building Consultancy department are already seeing a rise in requests to produce Photographic Schedules of Conditions to document condition at lease commencement.
4. QUICK OCCUPATION – On the assumption that we will be entering a more competitive market, being able to turn around the ‘legals’ quickly will be an advantage. Maintaining momentum in a deal will be fundamental. It would be prudent to begin working with your solicitor as soon as possible to produce a draft contract pack including a draft lease, draft rent deposit deed, replies to Commercial Property Standard Enquiries (CPSEs), lease plan, service charge budgets, planning consents, statutory safety certificates (services) & buildings insurance documents.
The shorter the term, the shorter the length of the lease document. There is likely to be no Alienation rights (sub-letting or assignment) and no rent review provision.
Depending upon the nature of your building, you may wish to consider a short form lease such as a Law Society Lease – a short form generic well balanced document. These are much less comprehensive than standard leases but can be quicker to produce and complete and keep costs lower. You should take legal advice first before deciding which route is best for you.
5. BE FLEXIBLE WITH TERMS – When there is any uncertainty in the economy, flexibility is another very key feature. Businesses need to remain agile and adapt to market conditions, whether that be sharp increase in recruitment of staff or the opposite. Landlords should consider reduced lease terms and more regular break options. The concern for many Landlords is this is a big shift in the characteristics of the asset they have been used to. However, there are ways to combat this. The more flexible the terms, the greater a Landlord should be compensated An example of increased rents is visible in the serviced office sector where providers offer excellent, flexible accommodation but charge accordingly. As a Commercial Agent, we can present terms that create the right balance for both landlord & tenant to crystallise a letting.
6. INTERNET CONNECTIVITY – It will not be new to you that internet connectivity is a key requirement. However, many Landlords do not know what capabilities their properties have in terms of existing connection. Providing this information early on to tenants is very helpful as will have a large influence over decision. If your connectivity is week, investigate what options you have available to you and consider implementing them so a tenant can inherit.
7. HIGHLIGHT THE NEED FOR MUTUAL UNDERSTANDING – Negotiations are a two-way discussion. Occupiers can sometimes lose sight of that fact that property is a Landlord’s business. A good agent will not be afraid to highlight this point which can help re-align perspective.
A Commerical Agent can have a huge infleunce on the performance of your Commerical Property. Draw on our experience, expertise, market knowledge, technical skill and creative solutions to crystallise viable risk reflective solutions.
Discuss your pro-active Commercal Property strategy today - Hampshire 023 8022 2292 Dorset 01202 013015