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Indies told time is right to push for better leases

Independent retailers are being urged to push for better tenant leases as the amount of empty retail space in shopping centres and high streets is set to increase with the economic downturn.

Law firm Morgan Cole, which acts for tenants and landlords, said that in 2009 retailers were likely to be offered attractive financial packages to help fill the space.

The guidance came as landlords last month agreed to allow businesses with three or fewer shops, paying an annual rent of £50,000 or less, to pay monthly in advance instead of on a quarterly basis, as long as they pay by direct debit.

Nigel Griffiths, partner in Morgan Cole’s commercial property team, said he had seen a marked change over recent months on the concessions that landlords will now offer to retail tenants.

He said: “This is the best opportunity in recent years for expanding retailers to drive a hard bargain. For example, moving to monthly rental payments, increased rent-free periods, capital contributions to pay for fit-outs, inclusion of tenant break options and easier lease negotiation.”

Morgan Cole is also recommending that leases should not contain extra costs which tenants have not budgeted for, or have a practical impact on the way the tenant runs the business, or contain anything that would affect the value of the lease if the tenant wanted to reassign it.

However, the company also warned against making extensive amendments to landlords’ building rules, or service charge provisions, which will mainly be standard elements of a lease.

Lease tips from Morgan Cole:
Do:

  • Check the agreement reflects what is agreed in the Heads of Terms, which sets out the key points of the deal.

  • Check the agreement does not include hidden extras.

  • Check the assignment provisions and user provisions give the tenant flexibility.

  • Water down or delete any unusual tests on change of use.

  • Check the lease agreement deals adequately with damage by terrorism or uninsured risks.

Don’t:

  • Make extensive amendments to the service charge provisions. These will have been drafted in a standard form and apply to all leases.

  • Make amendments to provisions in the lease which are highly unlikely to have any practical effect on the way the business is run.

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