How lease restructuring works

Did you know that restructuring a lease could be extremely beneficial to both the tenant or landlord? Those renting out commercial properties such as storage, warehouses, restaurants, office spaces and shops will usually own a property or rent it on a lease with a landlord.

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We take a look at how lease restructuring works and how it may well be in your best interests to look further into it.

What is included in lease restructuring?

Again, this will likely depend upon the circumstances affecting the occupier or tenant. However, any of the below can be included in lease restructures:

  • Changing the frequency of rental payments
  • Break options, to give the tenant of the property greater flexibility
  • Capping any service charges in the agreement
  • Lease extensions
  • Varying the demise
  • Rectifying errors in lease clauses for agreements

Why is lease restructuring a good thing?

Lease restructuring has become popular in the last decade as a result of relatively weak economic conditions. This means that landlords are much more concerned about tenant retention than they have been, as the possibility of having a premise empty for a long amount of time (and the expensive holding costs involved) makes landlords much more willing to negotiate.

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It’s a win-win for both parties – the tenant gets lower rent and the landlord keeps their tenant paying each month.

There are a number of other reasons why lease restructuring can be a good thing. Let’s take a look at some of the main factors why. It can provide a win-win scenario between occupier and landlord

There aren’t many things than can provide equal advantages to both the landlord and tenant alike, but lease restructuring is in fact one of these.

For example, if you occupy a commercial property that was agreed at peak market value, but you are aware that other competitors in your local area are taking advantage of incentive packages, it is highly likely that you will start to feel resentful about the lease you’ve agreed upon.

However, lease restructuring could help to easily resolve this problem without either party losing out. This is because it could provide more security to landlords by enhancing their investment value, as well as lead to savings on commercial rents for occupiers.

When are lease restructures held?

There isn’t an exact time when lease restructures are held. Whilst it is commonplace for lease restructures to be held as part of negotiations on rent reviews, it isn’t unusual for lease restructure proposals to be made by either party at any other given time. It is mostly dependent on demand and the individual circumstances, but in many cases it is a proposal initiated by an occupier of the commercial property.

For more information, visit The Leasehold Advisory Service.

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