Occupiers Lease Case Study

Our Commercial Property Team has recently advised a firm of surveyors on its lease of a city centre commercial property from a local authority landlord. The transaction was particularly complex given our client already occupied another part of the building (the lease having been granted by the previous freeholder) and was to surrender its existing demise and take occupation of its new demise, following completion of the relevant section of the new landlord’s refurbishment of the building.

The transaction documents included the following: development agreement for lease; lease; deed of surrender of old lease; works licence; car park licence and collateral warranties.

Issues and Solutions

Heads of Terms – alongside our client we helped shape the commercial terms of the transaction and our involvement at the heads of terms stage ensured that our client was in the strongest possible position from the outset and removed the need for protracted legal negotiations which ultimately resulted in a significant cost saving for our client.

CRC Energy Efficiency Scheme – as the landlord was a member of the CRC scheme it required the ability under the lease to recoup a proportion of the costs it incurred from our client. As well as advising our client in relation to this new complex scheme and its implications, we successfully negotiated that such costs would be treated as a service charge item (as opposed to an ‘outgoing’) therefore ensuring that the expense came under the scope of the service charge cap and delivering to our client a potential future cost saving.

Break Option – having agreed the principle of a tenant’s break option at heads of terms stage we ensured via our understanding of the latest case law that the lease contained break provisions which avoided unrealistic conditions and subjections (by reference to terms such as ‘vacant possession’), in favour of certainty. The result was a genuine break option for the benefit of our client which will be readily exercisable in due course. We also advised our client on the practicalities of exercising its break option to ensure that it is able to proactively adapt to a changing market and plan with greater certainty in advance.

Lease Dealings - having recognised that our client’s business needs may change from time to time such that they may not want to be tied into a lease with the resulting fixed financial liabilities or that their need for space may change, we negotiated flexible alienation provisions which has given our client confidence and options going forward.

Landlord’s Works - in negotiating a multifaceted development agreement for lease we ensured that:
- the triggers for completion of the new lease and surrender of the old lease were structured to ensure that our client wouldn’t in any circumstance be without a fitted-out property to operate from; 
- risk in relation to the landlord’s works was allocated appropriately and that the landlord agreed to enforce the obligations of its contractor and other professionals in relation to matters such as the remedying of defects;
- our client obtained all of the collateral warranties to which it was entitled to on actual completion (as opposed to at some point (if ever) in the future) and the lease, for example, incorporated carve-outs to prevent the recovery of the landlord’s costs of remedying defects via our client’s repairing obligation.

Tenant’s Works – we also ensured that:

- via a licence arrangement, our client had the ability to obtain early access to the new premises to commence its fit-out works ensuring that it could enjoy its new premises as soon as possible and giving it the maximum period of benefit from its rental concessions;

- even though the full cost of our client’s fit-out works was unascertainable at the date of exchange, we came up with an innovative solution which resulted in the repayable element of the landlord’s contribution being rentalised over the full term of the letting meaning our client funded its fit-out without a big hit to its cash flow, at a zero rate of interest and without any additional stamp duty land tax liability;

- the reinstatement provisions under the lease were drafted so as to ensure that our client would not have to reinstate its works unless the landlord (acting reasonably) gave it sufficient notice.

Summary

Whether you are a landlord, tenant or owner-occupier of one property or multiple sites our Commercial Property Team will take the time to understand your business and commercial drivers and provide the very best commercial and specialist legal advice whilst dealing with your transaction efficiently and smoothly. 

Our clients operate in sectors such as retail, leisure, telecoms, financial institutions, healthcare and manufacturing.

From leases of new build industrial units to the management of nationwide portfolios, we will assist with all aspects of business occupation including development agreements; leases; purchases and sales; sales and leasebacks; FITs leases; planning agreements; environmental liability; green-leases; disputes; dilapidations; licences; surrenders and agreements.

For more information in relation to this or any other commercial property issue please do not hesitate to contact the team by calling 0345 872 6666 or filling in a contact form

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