The ability to renegotiate the terms of a commercial lease isn’t necessarily pinned to the expiry of the lease and can be achieved through open communication and negotiation with either your landlord or tenant.

All lease events, regardless of whether they are expiries, breaks or rent reviews, present opportunities for both sides to avail of lease arrangements more suited to their needs. Obviously, this comes down to negotiation and compromise on both sides. In my experience I have found that opening dialogue at such lease events can achieve positive results.

When purchasing a commercial property investment, buyers will target a specific property for a myriad of reasons including location, asset type, lease length or portfolio diversification. More often than not, however, the decision to purchase will be motivated by the return in comparison to those returns achieved from alternative investments. Understanding a landlord’s purchase and financial requirements can be the difference between a successful outcome on any lease renegotiation discussions.

There are many different categories of property owners in today’s commercial property sector, so a tenant may find themselves negotiating with a landlord who has a portfolio of different investments/properties.

These portfolio landlords may, as a result, be required to maintain certain aspects of the portfolio at a certain level to balance the risk on securities held. This can include weighted terms, IRR levels, debt equity or share dividends, to name a few.

In turn, this may impact a landlord’s ability to concede on certain requests from a tenant in order to keep their portfolio balanced and securities weighted accordingly. Understanding a landlord’s profile and exposure to various markets, can allow a tenant to package requirements in a way that may be beneficial to both parties and potentially limit or reduce any risk to a landlord’s portfolio while obtaining requirements in order to successfully proceed in their own business.

Property owners, regardless of category, may have debt restrictions which impact on their ability to reduce the rent to a certain level or might enhance their need for term certain longevity. Clarifying how the property is funded can aid in any discussions and while full details if debt is in place may not be available, experienced agents and property advisers can advise on different motivations by particular clients or indeed knowledge available to them.

Similarly, understanding a tenant’s motivation to occupy the subject space can give a landlord comfort as to their future occupation of the property and therefore assess the impacting risk of lease events.

Do they have a business requirement to be in a specific location? Do they anticipate future expansion and will the occupied property facilitate that? Does their business require proximity to specific amenities such as public transport, road networks, airport/port, other nearby occupiers, etc?

While most landlords, in purchasing the property initially, will have addressed the potential future of tenants, businesses are constantly changing and evolving.

Many different factors will spur a tenant into approaching a lease renegotiation with a landlord, the most obvious of which is rent; however, it is not always the overriding factor.

Rent is a significant cost, but other factors of interest to a tenant can include: lease length; fitout/expansion requirements, onerous guarantee conditions; or occupying under a number of different leases.

Costs to a business are obviously the overall driver both tangible and intangible, and while rent is a tangible cost, the time to manage certain occupational aspects of a business is an intangible cost which may be reduced to a tenant through successful negotiations.

As property advisers, TWM’s role is to try to accommodate as many of our clients’ requirements as possible while supporting and maintaining a good landlord/tenant relationship going forward. This includes considering the various offers and coming to a conclusion between the parties, however more importantly assessing the execution risk in the event that some of the requested terms are pushed back against.

With more certainty, comes less risk and information is key to diminishing risk. Appointing a property adviser to assist limits the unknowns in transactions and as a result could mean the difference between protracted and timely negotiations, matched and mismatched expectations and in turn a satisfactory and unsatisfactory outcome.

Sarah Winters is a chartered surveyor/arbitrator and associate director at TWM