WHAT PRICE DOWNSIZING

Are you considering moving to smaller offices?  If so what do you need to think of and why?

The tenant will need to find someone to take on his lease unless he is lucky enough to  be occupying under a short lease or a lease that is coming to an end. Finding an assignee may not be easy but if an eager young estate agent has found someone, what happens then?

The landlord needs to be approached as the landlord will have to give his consent. Landlords should beware though. If they refuse or unreasonably delay giving consent, the consequences can be enormous.  Tenants have a right to be allowed to assign their leases unless it is reasonable for the landlord to withold or delay his consent.  The burden of proof is upon the landlord to show that he has acted reasonably.  If the landlord cannot do this then he could be liable in damages to the tenant.  The loss to the tenant could be the whole amount of the rent for the remainder of the lease – i.e a very substantial claim.

What if the tenant cannot find an assignee?  Well, he could approach his landlord and ask for a rent reduction or alternative strategy for payment of rent. Landlords should not be unsympathetic to this. If the tenant cannot afford to pay his rent the ultimate remedy to the landlord will be to take back or “forfeit” the lease. However, this could be just what the tenant wants. Forfeiture brings the lease to an end. Therefore the obligation upon the tenant to pay rent stops. In addition the landlord will become liable to pay Business Rates. For larger premises, these can be enormous. For many landlords in troubled times, it would be worth their while allowing the tenant to remain in possession rent free so at least the Local Authority pursues the tenant for the Business Rates rather than the landlord.

The state of the ecomony will also influence the length and type of commercial leases. Long commercial leases imposing full repairing obligations and re-imbursement of insurance premiums (“FRI Leases”) may become less common and full serviced offices may prevail. Interesting times are ahead!

Neil Spurrier