Break Linked Rent Reviews and Lease Restructuring
Most commercial property leases will contain a rent review at five yearly intervals. Depending on the tenant’s medium to long term strategy at the time of signing the lease, a break option may also be included in the lease, often timed to coincide with the same date as the rent review.
Break options linked to a rent review can provide a tenant with a tactical negotiating advantage where the tenant has decided that it does not wish to relocate. The threat of exercising the break option and relocating can often be used as a bargaining counter to negotiate a lower rent review settlement, as well as a rent free period, where the landlord is seeking to implement a rent review.
It is usual, and prudent, to start break option linked rent review negotiations 15-18 months before the rent review date for two reasons:
- to add credibility to the threat of relocating – on the basis that there is plenty of time available to do so and
- to allow sufficient time to negotiate, agree and contractually document the rent review settlement before the deadline for serving the break option notice (usually 6-12 months before the break date) after which the tenant’s bargaining position in the rent review negotiations will be considerably weakened
Depending upon the prevailing market conditions a break option/break-linked rent review also provides a tenant with the opportunity to restructure it’s tenancy by securing valuable concessions including, for example:
- a rent free period, in addition to any existing rent free due should the break option not be exercised
- a service charge cap
- a limit on the tenant’s future ‘exit’ costs /dilapidations liabilities
- the return of any rent deposit monies being held by the landlord
- a requirement for the landlord to address any operational issues with the building, for example, a poorly functioning air conditioning system and / or passenger lift
The Carter Jonas Tenant Advisory Team does not provide property consultancy services to landlords to prevent any conflicts of interest developing. The Team has an established track record of representing tenants in break option linked rent review and lease restructuring negotiations in the City, City Fringe, Docklands, South Bank, Midtown, West End and West London office markets.
Michael is Head of Carter Jonas’ London Tenant Advisory Team and specialises in providing office search, lease negotiation, relocation management, rent review and lease restructuring consultancy ser...
Greg is a Partner in the Tenant Advisory Team and, provides office search and lease negotiation advice to office tenants in and around central London. This includes helping tenants to develop their fu...