Why Speaking to the Professionals from Day One Pays in Commercial Property MattersReading Time: 5 minutes
For any business, moving location is a disruption and distraction from its normal commercial activities. Spending time talking to your lawyer and surveyor at an early stage in the negotiations can help smooth the way to a less stressful and expensive move. This may seem an odd claim, however this article will help explain how this can be money wisely spent rather than wasted.
More often than not, ‘property’ is not a core activity for most businesses, it’s an overhead and item that really only makes its presence felt in the accounts and on the bottom line. This isn’t a claim that business owners are ignorant of the options and possibilities in relation to property issues; however, for landlords or property investors and developers, property is their core business.
An added factor to take into account is that property owning landlords and developers looking to sell or lease their business space will market their property from a perspective that is in their best interest, effectively tilting the negotiations in their favour from the outset.
Normally the landlord or developer will have been in contact with their lawyer and surveyor in the run up to marketing the property, discussing not only value in terms of rent or price but also specific legal terms for the sale or letting of the property.
Given this background it makes sense to balance the parties’ positions by taking professional advice at the outset as this can save time and money later on. Indeed the all too common criticism of tenants and buyers lawyers is that they regularly seek to renegotiate the terms once the Head of Terms are issued. Generally, this is because some of the commercial terms within the Heads of Terms are onerous and once fully understood the prospective tenant or buyer will want to see a more balanced deal agreed. Quite often this initial renegotiation is nothing more than time consuming, but it can have an impact on the parties’ relationship and the collaborative goodwill of the landlord/developer may be eroded by this process.
With all of this in mind it is obvious that talking to a qualified surveyor can help with advice, especially in terms of value. Their expertise and experience will provide guidance on what is and what is not a good deal in terms of not only the property in question but also the market conditions at the time of the negotiations. A surveyor’s advice will go beyond value and importantly look at the condition of the building in question.
So why also talk to a lawyer? If the property is to be rented, there’s a whole host of issues arising on the technical terms of a FRI lease. Firstly, what does ‘FRI’ actually mean? Having an obligation as a tenant to keep a building in good repair and condition goes beyond looking after the paintwork, ‘full repairing and insuring’ means exactly that and unless the property is already in good and substantial repair and condition a new tenant can find themselves taking on a responsibility for putting the building into good repair and condition. Whilst this aspect is an area a surveyor will be advising on, the lawyer can make sure that any limitations which are agreed in respect of a tenants repairing obligation are properly incorporated in the legal documentation so that these terms endure for the whole of the lease term as well as making sure any liability for dilapidations upon vacating the building are similarly qualified.
Break clauses are often an area of contention when it comes to legal drafting. Landlords will want to make break clauses conditional upon not only the payment of rent up to the date the lease is broken but also the tenant performing all of their obligations. On the face of it, this seems fair, however, there has been plenty of litigation with landlords arguing that items of disrepair to a building mean that a tenant has not fulfilled all of its obligations and break notice is not effective. Getting agreement on the technical terms of a break provision at the outset will save time later as well as the possibility of a deal falling apart if a compromise cannot be agreed when the lawyers are negotiating the detail of the lease terms.
Another area of concern is how you as tenant can either move on and assign the lease or sublet either the whole of the building or sometimes, depending on the configuration of the property part of it. Understandably a landlord will want to have control over this aspect, the question is how much control is right and tenants can find themselves with a lack of options if these terms are not fully explored and negotiated at the outset.
Whilst all of the above makes sense in terms of leasing a property, a lawyer can also help with negotiating the terms to buy a building. If a property is located within an industrial estate or business park, even though it is being brought freehold, there be a technical legal structure in place to deal with the service roads and common parts. In the same way that a leasehold structure will have a service charge a similar arrangement can exist with freeholds and getting a clear understanding at the negotiating stage will save time and money at later date.
Sometimes the seller of a building will want to retain a right to participate in any subsequent increase in value of a building at a later date. An example of this would be an increase attributable to say a planning consent obtained at a later date. This often called an ‘overage’ or ‘clawback’ and one or two lines within the Heads of Terms on this subject can frequently result in a disproportionate number of pages of legal drafting. Finding out mid-way through a transaction that the seller and buyer have both got a very different interpretation of what is intended can result in a lengthy additional negotiation, sometimes with the parties going their separate ways and the deal falling through.
Perhaps the most obvious and often least explored area is making sure all of the professional teams are fully appraised of any timetable that has been agreed in the negotiations. Whether it is a speedy or delayed transaction timetable, making sure everyone is geared to up to work to the same schedule makes common sense.
Finally, given that dealing with buying and selling or renting property will be your lawyers day to day business, their experience gained from repeatedly dealing with property transactions will add value to negotiating the Heads of Terms.
If you are a business owner and are considering moving, buying or selling property or dealing with a commercial lease speak to one of our Commercial Property team today and let us assist you from day one.
Article written by Jeremy Wootton, Solicitor in the Commercial Property team. Jeremy has a wealth of experience and specialises in dealing with residential and commercial development projects, business expansion and relocation and commercial landlord and tenant matters.
The information contained in this article is for general guidance only and is not intended to be legal advice. Professional advice should always be taken on the application of the law in any particular situation.