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Despite the mode of remote working enforced by the pandemic, firms will gradually return to the previous model of working in an office, but of course in a different reality, and according to a different formula. Today, as never before, people are impatient to return to their offices as more and more people are lacking the social factor in their lives, which only a direct contact with colleagues can offer. Therefore, properties will continue to play a significant role in each business, and now is the ideal time to manage formal issues related to them and review the respective lease agreements, as well as consider their format and content in the future.
Lease (rental) agreements are an integral part of commercial properties, in particular in the Retail industry. The landlord or the tenant should ensure that the lease agreement includes all optimal clauses, while ensuring a symmetry of the rights and obligations of the parties. Such agreements in the Retail sector are often highly disproportionate in terms of the rights and obligations of the parties: the landlord imposes an unfair portion of the obligations on the tenant and potential financial penalties for a wide range of potential negligence on his part. It is particularly important to analyse lease agreements in Retail operations as the rent and the related costs often come up as the second or third line on the firm’s balance sheet.
Profile of the agreement:
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Parties to the agreement and their data:
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Details relating Dates of the agreement |
Dates of the agreement:
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Regular payments:
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Additional costs resulting from the agreement:
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Indexing of rent and changes in payment |
Active / available options:
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Details relating to the security deposit:
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Rights and obligations of the parties:
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Check whether as a tenant you have the right to sublease/assign the lease to any third party without restricting these rights to your group.
As a tenant you should check whether the agreement provides for a break option after giving prior written notice and without significant additional financial penalties for doing so.
So-called automatic renewal is also an important element of an agreement. Some agreements include clauses indicating that at the end of the agreement term it will be automatically renewed on the same terms if no prior written notice of termination is given (e.g. 3 months before the term of the agreement expires) to terminate the agreement at the end of its term.
This means that if the deadline for handing in notice is missed, the tenant will be obliged to officially remain a party to the agreement and continue the lease. In consequence it will be obliged to continue paying all the resulting costs. This unplanned situation can negatively impact the tenant’s balance sheet and constitute a significant cost burden that, unfortunately, may be difficult to negotiate with the landlord.
Therefore, it is the tenant’s responsibility to monitor all similar notices which may have such financial implications. Therefore, it is advisable to ensure that a proper “reminder” procedure is set up at the agreement review stage for the tenant’s lease management team.
Check whether there is an automatic renewal option in the agreement and ensure that it is properly monitored, and that the deadline for handing in the notice is not missed due to a mistake or oversight.
The tenant should pay particular attention to any clauses that provide for financial penalties. An in-depth analysis of the lease agreement in terms of potential financial penalties will enable the tenant to accurately reflect the so-called “worst-case scenario.”
As an example, it is worth mentioning one of the lease agreements in Warsaw, which we were recently asked to analyse. The gross monthly rent was approx. EUR 7,000, and the agreement contained several potential financial penalties which were not mutually exclusive, which the landlord had the right to impose on the tenant in various situations. The sum of all potential penalties was approx. PLN 1.8 million, which is almost 60 times (!) the basic monthly rent.
If the firm signs the lease agreement which provides for basic rent of EUR 7,000 it exposes itself to a potential cost of PLN 1.8 million, which is significant for business decisions and should be analysed before approving such an agreement.
Check the maximum sanctions and financial consequences resulting from financial penalties that you could incur in the event of the worst-case scenario.
Check the restrictions for your business strategy resulting from the lease agreement.
Summarizing the above aspects and recommendations, it should be emphasized that apart from analysing particular Retail lease agreements it is worth having an overall view of all lease agreements in the property portfolio before signing them. It is important not only to check them, but also to keep an up-to-date register of all data and information related to lease agreements in a consistent and precise manner.
For topics relating to managing lease agreements during the COVID pandemic, we invite you to check out our Webinar from 8 December 2020.