A lease agreement is an essential document for both the landlord and a tenant be it for commercial property or residential property. From the landlords’ perspective, it is an agreement where terms are laid and agreed for letting the premises out for rent and from the renters’ perspective it gives enough rights to do things they intend to without any limitations or hindrances. So the terms laid out in the agreement must be mutually agreeable as once it is finalized there will be no scope for changes. But in the real-world due to certain economic circumstances, these terms may need to be revisited and that is when lease regearing comes into the picture.
What is lease regearing?
Regearing means changing or replacing a lease either with a new one or editing the existing one with new terms and clauses. This regearing can be initiated by either the tenant or the landlord and at any time during the lease term but most people prefer to do it at the end of the term as it is more convenient. As per this article on renegotiating a lease, regearing is beneficial for both tenants and landlords as these are more agreeable terms that help in achieving longer-term commitments.
Advantages of lease regearing
There are many reasons why a regear of a lease may become necessary for a tenant and a landlord.
A lease regear may be initiated by a tenant for many reasons like:
The original lease terms may no longer be suitable as it may have many provisions which are no longer acceptable to the tenant.
The tenant may be thinking of moving out. If it is a commercial property it may be because the business has grown or it has failed and hence thinking of selling a business. If it is a residential property the tenant may be looking for a different place.
The lease may have provisions that do not allow underletting. The tenant may want to sublet space to generate some income.
Act as a way to stop an ever-increasing rent
The tenant may want to alter the premises for business or recreational purposes
May get rent-free period from a new lease which helps in capital gains
Advantages for the landlord
Many landlords are keen on lease regearing including the likes of big companies.
If the tenant is a good and reliable one and flexible with the requirements of the tenant, it will help the landlord maintain a steady and long stream of income
The landlords’ cash flow issues can be resolved as leaving a space empty will put a dent on the income.
It helps to increase the value of the asset as the value is dependent on how long the tenant has leased the property.
If the tenant stays longer, the rental deposit can be repurposed for other financial activities.
Lease regearing is an opportunity for both tenants and landlords. A landlord may be keen to renegotiate even to a lower value of rent rather than remain empty incurring losses. Whereas a tenant will be looking to make the most of the failing market and look for long term commitment rather than search for a new property that may have its own set of pitfalls.