Retail Lease - renewal term Q’s

[Ham_and_Jam]

I have a retail bakery shop which we have leased from the local council for the last 20 years. No real issues during the various 5 year contracts. They were pretty basic contracts.

This renewal has seen an inclusion that when we return the property we must remove any alterations or upgrades, remove any chattels and make good. We should also return the property to the conditon required by this tenancy and the previous tenancy.

The issue is we have not made any significant changes to the property, but it is in a much better condition than when we inherited it. The majority of the chattels were already there when we bought it from the previous tenant. There is also no inventory or condition report from when we moved in.

So what is the condition it should be returned to if there is no records?

Can the landlord now impose a new clause like this?

How do I phrase the reply?

The likelihood is we will sell the business, so it may not be an issue. However I don’t want to sign something that may leave us liable for something that we don’t need to.

[surveyor]

Is the lease protected by Part II of the 54 Act or Contracted Out? The former means you are entitled to a new lease on the same terms (other than the rent), and if the terms are different, the rent should be adjusted. Contracted out it's all fair game.

Also what is the repairing clause? Precise words matter.

To document the condition of the property, you would have needed a Schedule of Condition. Sounds like that horse has bolted.

At renewal, it's all up for discussion. But answers to the above will help.

[soxboy]

This is quite standard wording in a commercial lease. They are wanting you to return it to no worse than it may have been at the start of the lease and to remove the chattels, i.e. any business equipment/ shop fit that may not have been in place when the lease was agreed.

Although you may likely have acquired it as a going concern with the equipment in place, a commercial landlord isn’t going to be interested in that and will be wanting it returned to a shell finish or at least to a standard which would make re letting as simple as possible.

[Countdown]

Ham_and_Jam said:

I have a retail bakery shop which we have leased from the local council for the last 20 years. No real issues during the various 5 year contracts. They were pretty basic contracts.

This renewal has seen an inclusion that when we return the property we must remove any alterations or upgrades, remove any chattels and make good. We should also return the property to the conditon required by this tenancy and the previous tenancy.

The issue is we have not made any significant changes to the property, but it is in a much better condition than when we inherited it. The majority of the chattels were already there when we bought it from the previous tenant. There is also no inventory or condition report from when we moved in.

So what is the condition it should be returned to if there is no records?

Can the landlord now impose a new clause like this?

How do I phrase the reply?

The likelihood is we will sell the business, so it may not be an issue. However I don’t want to sign something that may leave us liable for something that we don’t need to.

I am not a Surveyor but that sounds like a fairly standard Dilapidations clause. (I'm surprised it wasn't in there already tbh)

Given that there are no historical records I would have thought the condition only applies with effect from the date of the new lease. So you should take your pictures NOW and that would be the condition you're required to reinstate the property to IYSWIM

[surveyor]

soxboy said:

This is quite standard wording in a commercial lease. They are wanting you to return it to no worse than it may have been at the start of the lease and to remove the chattels, i.e. any business equipment/ shop fit that may not have been in place when the lease was agreed.

Although you may likely have acquired it as a going concern with the equipment in place, a commercial landlord isn’t going to be interested in that and will be wanting it returned to a shell finish or at least to a standard which would make re letting as simple as possible.

It is, but as it's a renewal, it may be arguable... If the OP returns.

[Ham_and_Jam]

surveyor said:

Is the lease protected by Part II of the 54 Act or Contracted Out? The former means you are entitled to a new lease on the same terms (other than the rent), and if the terms are different, the rent should be adjusted. Contracted out it's all fair game.

Also what is the repairing clause? Precise words matter.

To document the condition of the property, you would have needed a Schedule of Condition. Sounds like that horse has bolted.

At renewal, it's all up for discussion. But answers to the above will help.

This is still ongoing.

I have replied requesting the clause is taken out, as there is no mention of condition or dilapidations in the original leases. One week on, I haven’t had a reply as yet.

In the original letter the landlord (the council) has said that they may issue a section 25 if it isnt resolved quickly. They have issued this before a previous renewal so unsure how this affects our rights.

[Ham_and_Jam]

So after prompting the council on a number of points and trying to remove the clause mentioned above and negotiate the rent increase, they have replied as follows.

No movement on the lease clauses, regardless of previous agreements. They issue standard terms, no discussions.

No negotiations on rent increase, approximately 20% up from previous. They are based on ITZA rates and surrounding businesses.

They have said they will issue a Section 25 if we don’t agree to their proposals in the next 14 days.

One other thing to note is we are currently 14 months into a holdover from the end of our last 5 year lease. Does this affect any legal standing for good or worse?

We have been very good tenants for the last 20 years, kept and improved the premises immaculate and never missed a payment. Doesn’t seem to count to much when discussing renewals.

[surveyor]

They are being idiots. Just instruct a local commercial surveyor.

If they do issue a section 25 take legal advice immediately.

You have the right to renew at market rent with a lease of similar terms.

[Chrisgr31]

surveyor said:

They are being idiots. Just instruct a local commercial surveyor.

If they do issue a section 25 take legal advice immediately.

You have the right to renew at market rent with a lease of similar terms.

Wonder where this is that has seen a 20% growth in retail rents.

Councils will argue they have to get a market rent, however it could also be argued that they have the right to support communities etc, so you could argue they dont have to get the highest rent.

Sounds as if they are being bullies. The OP should go and speak to nearby businesses to find out what their rental details are. Problem is many wont say as they are on a "special" deal. The number of "special" deals I have seen that are only special for the landlord is remarkable

[soxboy]

From my experience of dealing with councils the 20% uplift is to bring the rent in line with market rents since the units have been managed badly over the years and rents have not been looked at.

As a Section 25 has been served I would recommend getting a local surveyor on board as soon as possible.

[surveyor]

Chrisgr31 said:

surveyor said:

They are being idiots. Just instruct a local commercial surveyor.

If they do issue a section 25 take legal advice immediately.

You have the right to renew at market rent with a lease of similar terms.

Wonder where this is that has seen a 20% growth in retail rents.

Councils will argue they have to get a market rent, however it could also be argued that they have the right to support communities etc, so you could argue they dont have to get the highest rent.

Sounds as if they are being bullies. The OP should go and speak to nearby businesses to find out what their rental details are. Problem is many wont say as they are on a "special" deal. The number of "special" deals I have seen that are only special for the landlord is remarkable

I’ve had a few run-ins with local authorities over the years and bullies is the right word. They can be hard to negotiate with as they tend to own all the evidence, and as you say local shops go mum.

The best one I saw was a local authority trying to rentalse at renewal a tenant built extension. Ok mistakes happen, but even when the tenant pointed it out it they continued!

[Ham_and_Jam]

soxboy said:

From my experience of dealing with councils the 20% uplift is to bring the rent in line with market rents since the units have been managed badly over the years and rents have not been looked at.

As a Section 25 has been served I would recommend getting a local surveyor on board as soon as possible.

They haven’t served a section 25 yet, they have threatened to serve it if we don’t agree to the new terms within 14 days.

They served one 10 years ago when we we’re negotiating a previous agreement. Ultimately we agreed a stepped payment plan and no threats of termination we’re ever made.

I’m just wondering if this is their MO or standard procedure if a tenant doesn’t just roll over and accept their first offer.

I have read that a tenant can prevent the landlord from issuing a section 25 by issuing a Section 26 with their own proposal. Is this worth pursuing? Not sure of the ramifications. Any advice gratefully received.

[Chrisgr31]

The first thing to do is to speak to your neighbours.

Tenants need to work together to ensure rental levels are kept as low as possible. Otherwise one tenant will get picked off and everyone will end up paying the same as them!

[soxboy]

Chrisgr31 said:

The first thing to do is to speak to your neighbours.

Tenants need to work together to ensure rental levels are kept as low as possible. Otherwise one tenant will get picked off and everyone will end up paying the same as them!

This

Also as a sense check have a look to see how your current rent and proposed rent compare with the Rateable Value for the property.

[Tom8]

If you don't want to retain it you can agree a settlement with the owner and walk away. Or take on a dilapidation agent to survey it. If you want to keep it you may be allowed to as suggested above. It is a very grey area though even in large commercial properties.

[Venisonpie]

soxboy said:

Chrisgr31 said:

The first thing to do is to speak to your neighbours.

Tenants need to work together to ensure rental levels are kept as low as possible. Otherwise one tenant will get picked off and everyone will end up paying the same as them!

This

Also as a sense check have a look to see how your current rent and proposed rent compare with the Rateable Value for the property.

We've just been through this and did exactly as above albeit with a private landlord. If you've a protected lease and can demonstrate the surrounding rents are not in line with the requested uplift you just need to play hardball.

[Chrisgr31]

soxboy said:

This

Also as a sense check have a look to see how your current rent and proposed rent compare with the Rateable Value for the property.

How closely the RV relates to the rent will depend on the location. I have seen plenty of evidence that in some locations the RVs on retail premises rose between the 2017 and 2023 lists when rents fell. Mainly because the VO had a rent or two from those who had agreed increases, whilst not having the evidence from rents that had fallen.

However the OP probably needs to instruct a surveyor to act for them. Should be able to get some form of incentive fee basis, even if its as a bonus, so the agent is incentivised to agree the lowest possible rent.