Both in our sales & valuation businesses, we see commercial property owners losing significant value at re-sale or re-finance due to the nature of the lease agreements that they entered into years earlier. We typically find that where investors have entered into leasing arrangements without taking full professional advice, the terms come back to bite years later. Whether its re-finance or re-sale, the market (or valuer) will typically discount against ambiguous or non-conformist lease terms. Similarly, informal arrangements that might suit both landlord & tenant at the beginning are not something that an incoming purchaser wants to inherit. As a result, we can see discounts of between 5% - 15% in asset value, all of which could have been avoided at the outset by a small investment into professional representation. Some of the common issues we come across are:
- Informal leases that are allowed to continue without formality
- Unsuitable lease documents (typically copy and paste documents)
- Ambiguous repair and insuring terms
- Contradictory wording
- Non-existent or poorly thought-through rent review clauses
- Lack of protection from security of tenure (no Deed of Renunciation)
- Low rent
- Insufficient detail on service charge / VAT/ business rate responsibilities
- Lack of documentation on rent reviews & rent abatements
If you wish to discuss your commercial lease arrangements, then please do not hesitate to contact Richard O’Neill, Richard@artis.ie