Tenants’ top tips on reducing their property related outgoings


Author: Leanne Meredith


Leanne Meredith, Associate, Fladgate LLP (lmeredith@fladgate.com)


 

While attention-grabbing headlines announcing the “decline” of the high street may be an example of overly gloomy reporting, the reality is that these are tough trading times. It seems as though every week there is a new report of another retailer or restaurateur calling in insolvency specialists.

There are of course ways in which expense can be spared and outgoings reduced – even in relation to property outgoings. Tenants may benefit from considering the following:

Monthly rents

It is still standard practice for most commercial landlords to require rent to be paid quarterly in advance. That is helpful to a landlord’s cash flow and would reduce its exposure initially in the event that a tenant does experience financial difficulties. However, when asked the question, many landlords will consider accepting rent on a monthly basis.  Such agreement can be documented in a side letter to the lease, which is personal to the tenant. This helps to protect the landlord’s position on assignment or renewal of the lease, as it would still be able to demand that a new tenant pays rent on a quarterly basis.

Service charge

Service charge can be a considerable outgoing for some tenants. A tenant is likely to benefit from being familiar with the service charge provisions in its lease. Service charge accounts provided by a landlord can then be carefully scrutinised to check that the landlord is not seeking to recover costs to which it is not entitled. The tenant might find, for example, that it is being charged for usage of the lift, whereas the lease provides that it is not to be so charged because it only occupies the ground floor of a building. A frequently arising issue is landlords retaining commission secured for insurance premiums, even though they are not entitled to do so and already levy a management charge.

If a tenant does have the time (or inclination) to check the service charge demanded, then it may benefit from the assistance of a professional service charge consultancy company.

Sharing part of the premises

If a tenant is not using all of the premises for the purpose of its business, it may wish to check its lease to see if it would be possible to allow a third party to share its space.

A tenant could reduce its outgoings in respect of rent, business rates and utilities. Furthermore, sharing with a complementary business could mean that it also benefits  naturally from increased footfall. Recent examples of businesses sharing spaces seen on the high street include a tattoo parlour situated within an Ann Summers store; boutique gift shops with mini coffee bars; and sports shops clearing the floors in the evenings to make way for fitness classes and lectures.

If a tenant decides to enter into an arrangement to share its premises, it should be careful to ensure it complies with any requirements in the lease to notify the landlord or obtain its approval. Allowing a third party into possession of part of the premises in breach of the provisions in the lease could result in the tenant incurring substantial legal costs, which could quickly become disproportionate to any income received.

As a minimum, the lease is likely to provide that any arrangement with a third party must be contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954.

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