Rental yield = ratio of rent to capital value of the property
NEGOTIATION OF HEADS OF TERMS (HoT)
Should include…
Parties – (include contact details for solicitors / surveyors)
o consider covenant strength – any guarantors?
Extent of Property – whole or part, any exclusions?
Term – any break clauses? Mutual? Landlord or tenant? / any conditions attached? /
contracted out of security of tenure?
Rent – amount/frequency / payment dates / method of payment / VAT payable?
Alienation – can the tenant assign / underlet / charge / group share – any conditions
attached?
Repair – age / type of property. FRI or use of Schedule of Condition?
Service Charge – Standard for building or tenant cap / specific exclusions?
Rent review – frequency? Alternatives – RPI? Stepped rent? OMV?
Covenant Strength – guarantors (see above) / rent deposit (amount? 6/12 months?)
FACTORS THAT MAY INFLUENCE NEGOTIATION
Covenant strength of T
o Consider the different bargaining powers of large retailers i.e. “anchor tenants” in
shopping centres + town centres and smaller, less well known businesses start-ups.
The economic climate generally
o In a falling market there will be less competition for new leases and lower rents = T
may be able to strike a better deal
o In a booming market LL is able to charge higher rents and negotiate better deals.
The quality of the property being let
o unpopular area = LL may need to compromise more to attract Ts.
o fashionable area = reverse
o A lot of vacant units in a centre or estate would suggest that T would have more
bargaining power than LL
The tenant-mix in a shopping centre
o may affect particular types of businesses
o if there are numerous sports shops in a shopping centre then another sports retailer
trying to negotiate a new lease would have less bargaining power than a bookshop.
Who are you negotiating for? What are the client’s aims? Priorities? Concessions? What is
the bottom line?
,DRAFTING THE LEASE
LL’s solicitor (LLS) drafts lease with aim of it being…
o Unambiguous
o Easy to read
o An accurate reflection of client’s instructions and the HoT
T’s solicitor (TS) amends lease and returned to LLS with comments
Often sent back and forth a number of times
Amendments should be marked clearly by hand or tracked changes if done by email
Deletions should be clearly shown
PROFESSIONAL CONDUCT
Do not attempt to mislead the other side by concealing amendments made to a draft doc or
attempt to take advantage of a mistake by the other side
o = breach of SRA CoC
Need to comply with Principle 5 = acting with integrity
o Taking advantage of mistake could =
Claiming rectification of doc to incorporate omitted provisions
Alleged that agreement = nullity enabling them to resist specific performance
Could prejudice client’s position
Any fraudulent or deceitful conduct by one solicitor to another = liable to disciplinary action
CODE FOR LEASING PREMISES
Parties should consider whether to take into account of the code when negotiating lease
terms although compliance is only voluntary
Appendix B = guidance note for LL & T
o Includes practical info as to what key lease clauses mean
LL reluctant to accept the code
If parties’ surveyors are RICS accredited they are bound to follow the Practice Statement
and comply with mandatory sections or refuse to act
AMENDING DOCUMENTS
, BASIC PRINCIPLES
If acting for T, review the lease to…
Check the lease and any amendments you make reflect the HoT
Consider the strength of your clients bargaining position and act accordingly
o Do not waste time and costs arguing points you will not win.
Check amendments take account of what type of property your client is taking a lease of
and for how long
o A short lease of a shop will be different from a long lease of an industrial warehouse.
Ensure any client specific amendments are included reflecting client’s particular concerns.
Ensure clients instructions are taken on any amendments that arise during the course of
negotiation of docs which you do not have instructions on.
o If instructions come from LL’s surveyor, make sure the surveyor has authority from
your client to give these instructions.
COMMON AMENDMENTS
Any reference to discretion - should be amended to “reasonable discretion”.
Any reference to costs – limit to “reasonable and proper” or capped to an exact figure.
Delete “on an indemnity basis” in relation to any reference to costs.
The word “immediately” - should be amended to “as soon as practicably possible”.
Provisions for entry on to premises by another party – limit to reasonable times and on
reasonable notice.
Any reference to undertaking specific obligations - temper with “reasonable endeavours”.
“shall not be unreasonably withheld or delayed” should be added where reference to any
consent or approval of the other party being required.
Any reference to timing should be amended to “within X days of receipt of written demand”.
Any reference to a party acting - tempered by the party “acting reasonably”.
Any requirements of the T by the LL should be in the interests of good estate management.
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