I recently took a call from a nervous tenant who I had leased a factory in Airport Industria . This industrial tenant had signed a three year lease with a two year option period.
The tenant was just about to begin the lease renewal process for their industrial property, when he received notification from the landlord to say that that they, the landlord, needed to occupy the space and would not be renewing the tenant’s lease. The tenant called me immediately to find out what to do about this. He was understandably very worried about having to disrupt his business for an unplanned move!
My initial response was (as it almost always is!) to ask “What does the lease say about this?” . I had an electronic copy of their lease on file and I immediately opened it and read the option clause. What is important to note, is that it is clearly in the Landlord’s best interest to be vague about the renewal terms. Many landlords will insert a clause to say that the lease will be renewed on “terms to be agreed upon”. So what if they cannot be agreed upon ? The bottom line is that this is not actually a renewal option at all as the terms of the renewal are such that if the parties do not agree on the them, the renewal simply cannot take place. The reason that they cannot be agreed upon is often that the landlord insists on terms that are not in any way market related.
Fortunately this lease had a well worded option clause and it set out the following:
- The tenant had to notify the landlord in writing, within three months of expiry of the initial lease period, of it intention to renew the lease
- written notification was deemed to have been sent, if sent by prepaid registered post to the landlords domicile address in the lease.
- The rental was to be agreed by the parties within three months of the expiry of the initial lease period, failing which it would be referred to arbitration in terms of the arbitration clause in the lease
The arbitration clause was worded as follows:
In the event of a dispute arising, the dispute shall be referred by either party to an Arbitrator. who shall be an Advocate practicing at the Bar and appointed by the President of the Law Society, to settle the said dispute. Such Arbitrator may, at his discretion, appoint a specialist to arbitrate on his behalf. The decision of the Arbitrator shall be final and binding. The Arbitrator in deciding the matter shall make an award in regard to the payment of costs. In arbitrating and giving his decision, the Arbitrator shall not be bound by the provisions of the Arbitration Act, but may arbitrate and conduct the arbitration proceedings in an informal manner
My advice to the tenant was to immediately send the landlord (as set out in the lease), written notice by prepaid registered post that he intended to renew his lease ( I also advised the tenant to consult with his attorney on this). Once this had been sent,and his rights had been reserved, my advice to the tenant was, notwithstanding that he had a clear right in terms of his option to renew the lease, that he call the landlord and discuss the matter to see if it could be resolved amicably. I suggested to the tenant that, if the landlord really wanted to occupy the premises, then do not stand in his way but negotiate for the landlord to pay for his relocation costs and see if this could result in the tenant moving to more suitable premises and possibly even reducing his rental commitment. This would be a “win, win” result for both parties.
The tenant carefully calculated his moving costs, including his loss of production and presented this to the landlord. The landlord went to discuss this with his partners and came back to say that they were happy to renew the tenants lease at a market related escalation rate of 8%. This was a good outcome, although the tenant could have taken smaller premises and reduced his overall costs, if the landlord would have covered some of his moving costs.
Fortunately for both landlord and tenant, who were both reasonable parties, a good lease was in place which looked after the rights of both parties. I think the landlord realized the value of a good tenant and I expect a good outcome for him, would be to purchase another building that he could owner occupy, thereby increasing his property portfolio.
Whilst I am not an attorney, however I have a good working knowledge of leases as I work with them every day and over the thirty plus years I have been in business of industrial property leasing, I have experienced a lot of problems that could have easily been resolved by adherence to a good lease agreement.
I am a firm believer in being fair and reasonable and seeking a positive result for both parties through discussion and negotiation and avoiding litigation wherever possible. Sometimes one has to litigate when dealing with unscrupulous and unreasonable parties but this should always be the last resort. Litigation is a costly drawn out process and most often the real winners are the attorneys.
As a specialist in industrial property leasing specialist , I am committed to helping my clients wherever possible and where I have built up a relationship with them or they have given me repeat business or are committed to giving me future business, I do not charge for this service. If you are looking to lease industrial premises download my property leasing checklist here
