RE-NEGOTIATION OF COMMERCIAL LEASES

Coming into 2011, it is likely that most commercial tenants, who are 18 – 24 months plus into their current leases, are paying over market value for the lease on their premises. As a result of this over-valuation of tenancies, commercial rates liability and insurance are grossly exaggerated in most instances. There is a huge divergence between rateable valuations and working market value and this this puts commercial tenants at a financial disadvantage, depending upon their relevant local authority.

Since 2009, Buyers Broker Ltd. has been working with cash-strapped businesses, struggling to honour lease commitments entered into during more solvent times. The first step is to re-negotiating pricey, and in some cases fundamentally unfair, medium and long-term leases. Most leases are very pro-landlord, without any break clauses and upward-only rent reviews provided for, with little or no protection for the tenant. This is a typical example of the standard offering that is issued by landlords but usually the tenant’s solicitor will reject and modify many clauses, which then balance the lease to a less biased and mutually fair agreement.

Critically, many tenants never check this out and no advice is taken, they agree to every term and condition as presented. This leads to a number of associated issues, other than rent payable. For instance, landlords also have a tendency to ‘approximate’ charges for services and insurance, it might be worth breaking down those figures.

Buyers Broker are generally able to re-negotiate several of the terms of the lease, including a price reduction, in line with current values and a compensatory rent-free period, without taking any legal action.

In relation to commercial rates, local authorities are slow to act on individual revaluation cases. What we tend to do is re-negotiate a commercial leases to the extent that it can constitute a new lease, if appropriate. Once it can be re-valued by a member of the local authority’s panel, the new valuation is used to challenge the basis of its previously rated status. In some cases, it may be possible to broker a compromise of arrears, depending on the timing of the lease.

Most tenants are unaware that new legislation was introduced in February 2010, which prohibits upward-only rent review clauses in all commercial leases going forward. Standard lease agreements should be amended to reflect this change prior to completion. Tenants need to assert their new position of strength but this can only be down with knowledge of the process. For example, how many tenants will have, over the lifetime of their lease, received and accepted the proposed valuation contained in the Proposed Valuation Certificate, which resulted in a Final Valuation Certificate issuing thereafter without note?

Pre-budget 2011, it has never been more pertinent to reign in unnecessary spending so now is a good time to re-visit your current lease, negotiate well and save thousands of euro in 2011 and going forward. This is particularly relevant in light of the budget proposals to introduce a public services levy for businesses with immediate effect.

For an evaluation on your current lease and/or rates obligations and to work out your current level of over-payment, contact caroltallon@buyersbroker.ie in confidence for independent advice.

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