A lease regear is another word for the renegotiation of a lease’s terms during the course of the lease.
A lease agreement is made up of many terms, and runs over a period of time. During the lease period, circumstances of either the landlord or tenant may change. Where such changes are to the net and mutual benefit of both parties, there is opportunity for a lease regear.
As with all successfully negotiated outcomes, lease regears are characterising by mutual “give and take”.
Examples of “gives” by the tenant
Such “gives” may relate to the lease on one property, or to various properties leased by the tenant from the landlord.
- Increase of the rental payable
- Extension in the lease period (to improve the landlord’s WALE)
- Increase of escalations payable or removal of landlord-punitive rent reversions
- Removal of onerous clauses to landlord (e.g. break clauses)
- Addition of leased area in this property, or other properties owned by the landlord
- Greater absorption of landlord costs (e.g. the tenant choosing to take over the payment of cleaning services or roof maintenance costs), or services
Examples of “gives” by the landlord
Where a landlord acts opposite to the tenant “gives” above (e.g. reducing rent payable), and the following:
- Provision of once-off benefits such as beneficial occupation, or rent holidays
- Release of funds tied up in deposits or bank guarantees, or assets bound to liens
- Removal of onerous clauses such as redevelopment clauses
- Granting of new rights such as sub-leasing permissions, property naming rights or signage
- Provision of once-off enhancements to the leased space – covered by tenant allowances (e.g. improved lighting, flooring, signage, drywalling, aircon systems etc.)
- Capital expenditure on the entire property that may assist with greater tenant profitability and/or efficiencies. For example
- Provision of solar power to reduce costs
- Addition of generators and backup water
- Expenditure on asset improvements – e.g. installation of cranes, racking
- Reconfiguration or redevelopment of a retail asset to improve the volume of foot flow (relocation of anchor tenants, re-orientation of flow, development of space to accommodate foot-pulling tenants)
- Provision of infrastructure to improve security (e.g. guard houses, cameras and sensors)
- Expenditure to reduce risk and related insurance costs (e.g. sensors, improved fire suppression)
Examples of lease regear negotiations
- Landlord gives tenant a reduction in rental
- Tenant gives landlord a longer lease
Documentation of lease regears
In the general case, rather than redrafting a new lease, it is proposed that a lease amendment or deed of variation is undertaken.
Both parties need to be vigilant for changes to lease terms that may inadvertently trigger tax liabilities or compliance obligations.
