The current market and economic conditions are volatile and lease regears are a way to help both the tenants and the landlords. Lease re-gearing is a dialogue that helps to enhance the capital gains and also increase the revenue if done properly. It also helps by providing flexibility on over-rented properties or those with very long-lease terms.
Creating a Win-win Situation for Both Parties
Lease re-gearing can happen for many reasons. It could be anything from term extensions to house alterations. It is a potential win-win for both tenants and landlords. As this article explains, be it a new lease or an existing one if there are particular clauses that both are keen on having one should make sure to have it included in the document.
What is lease re-gearing?
A lease is an agreement with the landlord and the tenant on specific terms and conditions which each of them has to adhere to. A lease regear is a process of renegotiating these terms and conditions which are mutually favorable and both get financial benefits out of it. Since it is an agreement between the two parties there will be no tilt of favor to one side and both must have terms for ‘wins’ in the agreement. So it is essential to determine if you should be doing it in the first place and if yes then the terms have to mutually agreeable. Since it is a win-win for both parties. Listed below are some of the benefits lease regear can provide.
Advantages for the landlords
To increase the value of the property by removal of break options for a tenant or through the extension of lease term,
- The landlord can offer rental concessions and secure income or make capital gains
- Reduction in rent can attract more tenants in a troubled economy
- Increasing the investment value of the asset
- Having a trusted tenant rather than leaving it empty
- If there is a steady occupation there is a reduction in service charges
Advantages for a tenant
- Revisiting lease terms and agreements will help to meet the current market trends.
- Increased cash reserves with the inclusion of rent-free periods or return of rent deposits.
- Tenants can remain in the property for a longer period which adds to the comfort, especially if they are happy with space.
- Adding additional flexibility like getting approval for subletting or other advantageous terms.
How to get the lease re-geared?
- A new lease is created instead of the lease already documented. It may also have a deed of surrender mentioned if either of the two parties has specific issues they want to be addressed in the document.
- Since the tenant and the landlord have agreed to re-gear the lease agreement, the existing lease is altered with the specific terms that both tenant and landlord have agreed. If there is a lease term extension then a reversionary lease will be in place after the expiration of the existing lease.
Adding or removing clauses in the lease re-gear has benefits for both tenants and landlords, the tenants have to be aware of the Stamp Duty Land Tax which has to be paid if the rents exceed the maximum taxable limit. There is a need for an experienced person with knowledge of commercial property matters to execute this document so that both parties can benefit from it.