Renewing Shop Lease Early

[tsport]

My father in law has been leasing a commercial property to his tenant (its being used as a cafe) for the last 8 or so years - the lease expires in 2022, which we had planned to renew around then.

The tenant wants to increase seating capcity by building an extension - however, he is afraid that my father in law will sell the business (which he has no plans to) and that he will have built the extension for nothing.

Hence he has asked if we could extend the lease early in 2017 instead of 2022. Not sure what the implications of this would be - is it as straightforward a request or a potential pitfall?

[kiethton]

Judging by the request the lease is outside of the act.

No harm in renewing early, actually a lot of potential benefit.

You'll be able to set the rent to current market levels, catching any rental growth, whilst a longer lease will improve the value of the property from an investment perspective (lower yield).

Speak to a good surveyor for indemnified advice re. The specifics but it's a common occurrence to renew leases before due

[Chrisgr31]

As mentioned it is common for businesses to want to extend leases before term, especially if they are going to spend money on them, this is especially true for restaurants.

It does increase the value of the landlords interest as the income is now guaranteed for longer, and on larger properties tenants sometimes get a capital sum for agreeing a longer lease!

As said get the appropriate advice, and get on with it!

[LaurasOtherHalf]

As above, very little downside in it for the landlord assuming they like the status quo.

[Rob_H]

As above comments plus you'd probably want the alterations covering in a license to alter as part of the lease etc.

Rob

[Chrisgr31]

kiethton said:

Judging by the request the lease is outside of the act.

There are of course ways a landlord can get possession at the end of the term even if the lease is inside the Act, so if doing lots of works extending the lease first makes sense.

[tsport]

Hey, thanks for all the replies - much appreciated - spoke to my father in law, and he's happy to extend - however, he mentioned that a rent review was due next year - would it be best to do this alongside with extending the lease, or wait till its due next year?

Again, thanks for the help!

[Jobbo]

From the tenant's point of view, it would be preferable not to have a rent review in a year's time - they'd need to submit their stamp duty land tax return on completion based on an estimate of the rent uplift at that time, then another one when it's been decided. Extra admin. If they want a new, extended lease now I'd suggest you agree an appropriate market rent now and start the rent review pattern again; unless, of course, there is some external reason why you wouldn't want to, such as tying in the rent review dates for all your leases in adjoining buildings.

[MrC986]

From your father in laws point of view if they are a good tenant it's a win-win. The tenant may however realise that they don't want a full new lease now as they may pay stamp duty tax on the complete new lease term when in fact they want a new reversionary lease to start when the current one expires (the extra cost might be immaterial without knowing the full details). As others have said, I'd use the situation to get an early agreement on the next rent review as well to bring the rent up to current levels & it could also be a useful opportunity to get them to do any possible repairs that they'd have otherwise left until later.