Contracted In or Contracted Out business lease. Which one?
Discussion
As per heading.
The lease on our workshop is up for renewal. Its always previously been for fourteen years and Contracted In and we have been here for 28 years. However now its up for renewal the new company that now manages the Industrial estate are pushing for a contracted out lease.
The latest lease can only be taken over a maximum of 10 years, and I am unsure which way to go. As an insentive to take out a Contracted Out lease the management company will freeze the rent for five years or more, yet will only freeze the rent for three years (they are investing in a new roof but putting the rent up by 11% either way) if we stay contracted in.
We are a woodworking company and obviously have invested a large amount of money in dust extraction, machinery and heating. The industrial estate is in a beautiful part of the Cotswolds and is an old WW2 army base............ I'm a little worried (though have no hard facts) that in the future they may want to redevelop it for housing so am a little unsure quite what the furture motives of the landlord are.
I'm 47 years old, I can see me still working for at least another 15-17 years. Everything from dust extraction to heating should last this amount of time so I do not want to be moving in the future if I can help it.
Thoughts please and any help appreciated. I'm unsure what is for the best as I really have no idea what the difference, positives or negatives are.
The lease on our workshop is up for renewal. Its always previously been for fourteen years and Contracted In and we have been here for 28 years. However now its up for renewal the new company that now manages the Industrial estate are pushing for a contracted out lease.
The latest lease can only be taken over a maximum of 10 years, and I am unsure which way to go. As an insentive to take out a Contracted Out lease the management company will freeze the rent for five years or more, yet will only freeze the rent for three years (they are investing in a new roof but putting the rent up by 11% either way) if we stay contracted in.
We are a woodworking company and obviously have invested a large amount of money in dust extraction, machinery and heating. The industrial estate is in a beautiful part of the Cotswolds and is an old WW2 army base............ I'm a little worried (though have no hard facts) that in the future they may want to redevelop it for housing so am a little unsure quite what the furture motives of the landlord are.
I'm 47 years old, I can see me still working for at least another 15-17 years. Everything from dust extraction to heating should last this amount of time so I do not want to be moving in the future if I can help it.
Thoughts please and any help appreciated. I'm unsure what is for the best as I really have no idea what the difference, positives or negatives are.
If you're currently contracted in, they can't compel you to take a contracted out renewal lease. They can only incentivise you. You should take specific advice about how much you may be giving up, but based on the length of your occupation you'd be entitled to double the rateable value as compensation if the landlord forced you out to redevelop; don't give that up lightly (and by taking a contracted out lease, you would be giving that up).
Jobbo said:
If you're currently contracted in, they can't compel you to take a contracted out renewal lease. They can only incentivise you. You should take specific advice about how much you may be giving up, but based on the length of your occupation you'd be entitled to double the rateable value as compensation if the landlord forced you out to redevelop; don't give that up lightly (and by taking a contracted out lease, you would be giving that up).
Thanks for that. This was my worry, it does seem I am more secure staying Contracted In. My biggest worry was if they tried to bump the rent up alot after three years. I've also just noticed they are trying to push through for a 6 year lease, not the 10 years I asked for.The rent should be open market rent for whatever lease they're offering; the term doesn't have to match your existing 14 years but there has to be a reason for changing it. If they intend to redevelop in 10 years they can justify giving you a 10yr lease, but they'll have to pay you the compensation if they then get you out at the end of it.
Any existing dilapidations are also relevant; this is the sort of thing landlords will use as a bargaining tool. You probably need the advice of a surveyor rather than a solicitor for the moment because it's really down to valuing the two options.
Any existing dilapidations are also relevant; this is the sort of thing landlords will use as a bargaining tool. You probably need the advice of a surveyor rather than a solicitor for the moment because it's really down to valuing the two options.
I would be extremely wary about giving up the protection of the Act. You may want to check with your fellow tenants as to when their leases expire as you may find they are all in 6 years in which case the landlord might be lining up a redevelopment!
Incidentally you also need to ensure you speak with your fellow tenants to ensure you all get the same rental deal, and don't manage to stitch each other up!
Most leases are to market rent, ie the rents others are paying, Landlords will try and pick of one or two tenants then roll that out to all tenants.
As someone has mentioned you need a surveyor to advise you. Don't forget the rent agreed now could ell impact on rates payable from 2017!
Also if you agree to come out from the protection of the Act you may benefit now, but at the end of the lease you will have no protection and may have a very unsympathetic landlord who effectively either forces you to move or pay a very high rent!
Incidentally you also need to ensure you speak with your fellow tenants to ensure you all get the same rental deal, and don't manage to stitch each other up!
Most leases are to market rent, ie the rents others are paying, Landlords will try and pick of one or two tenants then roll that out to all tenants.
As someone has mentioned you need a surveyor to advise you. Don't forget the rent agreed now could ell impact on rates payable from 2017!
Also if you agree to come out from the protection of the Act you may benefit now, but at the end of the lease you will have no protection and may have a very unsympathetic landlord who effectively either forces you to move or pay a very high rent!
I was in a similar position 10 years ago. Same age then, rented for donkeys years, similar type of business even down to the extraction requirements, small estate taken on by new management co. etc.
I found a freehold property, reduced monthly outgoings as mortgage less than rent and have just paid off the mortgage. Best thing I ever did.
I found a freehold property, reduced monthly outgoings as mortgage less than rent and have just paid off the mortgage. Best thing I ever did.
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