SBM were tasked to assist a UK-based automotive components manufacturer and distributor facing a 45% uplift in rent.
Our client’s property scenario
Our client occupied three units on an East Midlands industrial estate which housed a fabrication and distribution facility for a pan European automotive components manufacturer.
They had reached the midpoint of a ten-year lease, and having negotiated fortuitous terms in 2018, our client was faced with a possible 45% uplift in rent at the fifth year. This coincided with a break clause – also at the end of the fifth year.
SBM was appointed to advise on the implementation of their break option and the rent review in advance of the fifth year.
Property challenges
In preliminary dialogue with our client, the landlord emphasised the significant rental growth in the industrial sector, advising them to prepare for a significant uplift.
Despite an EPC rating of C, the units did not incorporate the most modern, energy efficient technologies and the total occupancy costs were rising.
Property solution
By using time as leverage, SBM supplied the client with a range of alternative properties in preparation for a relocation in order to avoid the uplift. Having reviewed the tenancy documents and researched the local market for relocation options, we met with the landlord.
We took the time to refresh the landlord’s team on our client’s robust trading performance and future plans. We walked them through the push factors for relocation, particularly in relation to the energy performance of the units and our client’s net zero goals.
Having evaluated its options – to persist with the rent uplift or risk the tenant exercising the break option – the landlord offered more reasonable terms, more in line with the market and the rent uplift was limited to 18%.
A phased uplift in the annual rent paid was also negotiated giving our client nine months to prepare for the uplift. This provided the client with financial certainty over the remaining term of their lease.
Since then, the landlord has undertaken an energy efficiency audit of the building and has committed to working in partnership with our client in addressing the findings of the audit and aligning Environmental, Social and Governance (ESG) goals.
Results
Through positive and constructive dialogue, we have initiated a process that will bring tangible operational cost savings and positive results:
- £192,000 rental saving for the remainder of the lease
- Nine months’ period before rent uplift
- Landlord and tenant aligned on ESG goals
- Landlord committed to working with client in addressing the findings of the energy efficiency audit of the building
If you need advice and guidance on lease review and negotiation, email our team at info@sbmcre.com
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