Re-gearing a lease (replacing an old lease with a new one) means you can attempt to renegotiate key terms of your lease.
As there is no statutory provisions for a re-gear, either party; tenant or landlord, can suggest a re-gear at any time during the lease, although common triggers are things like rent reviews or lease break points. It is a useful tool for both tenant and landlord, but as there is no statutory right then neither party has to agree to this.
The market is forever changing and the economy is fragile so whilst a party cannot be forced to consider a regear under statute, commercial factors may be a consideration that triggers all parties giving re-gearing serious consideration.
A chance to secure improved lease terms that reflect your current and developing business needs – lots of possibilities to improve terms on assignment, subletting or alterations, the removal of rent review clause, the repositioning of break options or the return of rent deposits.
Re-gearing can appear as a straight forward process, especially to a bright business mind that is used to negotiating on a daily basis – but excellent legal advice is important to ensure the correct above option is chosen. E.g. if the term is extended, in law, this is a surrender and re-grant. This may mean the tenant is liable for Stamp Duty Land Tax and for the landlord this may mean they have to release a guarantor. Don’t be caught out and discover to your detriment that the changes aren’t valid, or pay a HMRC penalty.
• Opportunity to extend your lease – giving you the security of remaining in your existing premises for longer
• Potential increase of capital value of the premises – if break rights are removed
• Rental income for a longer length of time
• Consistent occupier levels help mitigate empty business rates liability and costly service charge voids
• A Deed of Variation – effective to remove a break clause or alter alienation provisions
How to re-gear?
• Surrender of the existing lease and a grant of a new lease – to increase the term or if the changes are so large a Deed of Variation will not suffice
• Reversionary lease – any lease where possession is delayed to a future date.
• Side letter – sometimes, if the change is very minor, this will suffice.
Is legal advice necessary?