How to avoid the re-letting headache
PUBLISHED: 14:16 04 April 2019 | UPDATED: 14:23 04 April 2019
Dan Evans, partner at Cozens-Hardy solicitors, looks at the key areas for consideration when re-letting a property.
As a commercial landlord, the re-letting process is likely to be a stressful time. Letting voids can be damaging to the profitability of your investment and getting the property re-let in an efficient manner is key.
There is sometimes a perception that agreeing the letting via agents is the end of it, but in reality that is only part of the process. The legal documentation needs to then be negotiated and agreed.
While minimising the letting void is important, so is ensuring that good legal documentation is prepared and entered into. You might get a tenant in quickly using ‘off the shelf’ documentation, but if you do not have a proper and well-considered lease in place you are asking for trouble in the future should a dispute arise.
A key area of a commercial lease is the repairing liability, about which there is often the most negotiation. In the current market, tenants are pushing for limited repairing liabilities, primarily to cap the repair liability at the state of the property on day one. This can be an appropriate and reasonable suggestion in some circumstances, but is often one a landlord resists. A landlord, in light of advice from their solicitor and agent, needs to weigh up a balance between having an empty property and having a softer repairing liability then they would like.
Another common area for negotiation is the inclusion (or not) of a Break Clause. In uncertain economic and trading times, tenants like the ability to terminate their lease early if things are not working out for them. Again, in a good market these are often resisted, but in tougher times it is worth considering whether or not this concession be made.
Rent-free periods are also more common in recent times. While rent-free periods are by no means a new phenomenon, they now exist in the majority of lettings. It can be galling not to receive rent for a short period, and landlords need to balance that against giving a tenant the best chance of succeeding long-term. It is also worth noting that while rent isn’t paid, the tenant will be responsible for insurance payments and business rates, thereby taking away that liability from the landlord.
The re-letting process can sometimes feel combative, but in most cases it is simply a case of parties trying to find a fair balance. From the perspective of a solicitor, negotiation is expected and is not necessary a sign that things are going wrong.
As a landlord it is very important that you have a strong lease in place that fully protects you. A properly drafted lease will take away a lot of the grey areas and will give you certainty going forward, and in my view it is worth taking your time and getting it right.