You are renting commercial premises; business is tough; you want to move to smaller (or just plain cheaper) premises to cut costs; you dust off that lease you signed a couple of years ago to find there are another 8 years to run. What can you do?
This is a question that I'm expecting to be asked a lot this year as businesses attempt to tighten their belts.
Many tenants sign up to 5, 6 or 10 year leases without giving a moment's thought to the enormity of the financial commitment they are making. One of the things I always point out to tenants entering into a new lease is the total financial commitment they are making. For example, a 5 year lease at £20,000 per annum is a total commitment of £100,000. It's amazing how few business people think of it in those terms.
In addition to the rental costs, there are the costs of keeping the premises in good repair which for an older building can be absolutely astronomical.
If you find yourself staring down the barrel of several more years' rent on premises you don't want with a nasty repair bill for the premises as the sting in the tail, there are a few strategies you can adopt to try and soften the blow.
have your lease reviewed by a lawyer. Leases tend not to be written in the most straightforward of language and it is essential that you ask a lawyer who specialises in commercial work to review the lease to establish whether there are any clauses that can be used to your advantage. These are a couple of examples of provisions your lawyer will be looking for:
Break clauses - your lease may contain a clause allowing you to end the lease early but these clauses need treating with extreme care as very often conditions need to be satisfied and notices served in a particular way to ensure that you don't lose your right to end the lease early. Messing up service of a break notice is one of the most expensive mistakes a tenant can make.
Alienation Provisions - see what I mean about the language used in leases? 'Alienation' means your right to deal with the lease by either selling it on to someone else or alternatively subletting. These provisions tend to vary from lease to lease and again it is essential you understand what you have the right to do before you embark on the search for someone to take the premises off your hands.
Approach your landlord and ask for a rent reduction. This might sound like a pretty stupid suggestion but when commercial tenants are thin on the ground the last thing a landlord wants is for the obligation to pay the rent to push his tenant into bankruptcy or administration. I currently have a client who has agreed to temporarily reduce his tenant's rent from £90,000 per annum to £45,000 per annum to enable the tenant to trade through a bad period. The alternative was that the tenant would have gone into administration and the landlord would have received nothing. In the current climate the premises would be difficult to relet and landlords now have another issue to consider - business rates on empty properties which came in on 1st April this year.
Consider winding up your company and transferring the business to a new company. This might be morally objectionable to you but if you are fortunate enough to have negotiated a lease in the name of a limited company with no directors' guarantees then by winding up the company you can effectively escape your obligations. Before you consider this approach you will, of course, need specialist legal and accountancy advice.
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