Managing Your Property Expenses in an Economic Downturn

Exercise any break clause.

Many leases have break clauses that allow a lease to be ended early. In a downturn business rents can be more economic, and by exercising a break clause you may be able to take advantage of current market conditions and renegotiate terms with your Landlord.

Re-negotiate lease terms.

Landlords are keen to retain tenants. As your lease comes to an end you may consider renegotiating your lease, maybe surrendering the unexpired term and taking on a new lease on better terms for the future.

Look carefully at your service charge.

Whilst the Landlord has an obligation to
ensure service charges are reasonable they
do not always make them as low as possible. Pressure from Tenants within a building can help keep the running costs as low as possible.

Make the most of your space.

During difficult times many businesses need less space. Think carefully about your space requirements and try to release unused space that back to the Landlord. You may be able to sub-let the space to another
occupier; or share it with an associated business. Surrender or sub-let unused car parking or storage space.

Duplicating expenditure.

Check to see what the service charge for your building covers and make sure you are not paying for the same things yourself. Look carefully at the Landlord’s building insurance to see if it covers you for things that you are separately insuring or if you are paying for other items such as the cleaning of the common parts, or electricity bills that the Landlord may also paying for.

Ask for the building insurance to be re-quoted.

The cost of building insurance often rises every year on the basis of an inflation provision. Whilst not a bad thing, sometimes this can mean that the cost of the insurance premium rises beyond the replacement value of the building itself.

Don’t forget dilapidations.

At the end of most business leases the Landlord expects the Tenant to pay the cost of repairing, reinstating and redecorating the property. This can lead to expensive claims, including compensation for loss of rent, service charge and rates. It is important to make provision for it. You should also consider carrying out works during the course of the lease so that repairs do not accumulate. You may seek to reach an agreement with your Landlord as your lease comes towards end so that you do not receive any unexpected demands.

Look for Potential Expansion Opportunities.

When times are hard, business space can
be relatively economic and Landlords will offer better incentives to new Tenants. It can be a good time to negotiate lower rents and get more generous incentives, such as rent free periods and capped service charges. If you think you may have a requirement for business space in the near future, it can be a good time to secure space at a lower cost and on better terms than you may be able to get later.