In the current economic climate closing a commercial property deal is taking longer than ever.
Reasons for this are varied, however one common factor which is apparent is a greater degree of caution from the perspective of all parties involved.
From a tenant’s angle, offerings are being meticulously scrutinised and compared to others in the market, leading to lengthy negotiations as tenants seek to obtain the best deal they can. Conversely landlords are having to be extra flexible offering tenant break clauses and increased rent free periods, often exposing them to greater commercial risk than they are comfortable with because of popular perceptions about a buyer driven market.
Because negotiations are taking longer to conclude, it is important to streamline the process as much as possible. Below we have listed some top tips to achieve this:-
1. The production of comprehensive and unambiguous Heads of Terms
Heads of Terms are probably the most integral part of any transaction and form the basis upon which solicitors will produce and negotiate the operative legal documentation.
With this in mind it is important that the Heads are as detailed and unambiguous as possible, so as to avoid delays down the line as parties argue over what has and has not been agreed.
We would always recommend that the instructing solicitors are involved at the stage of production of Heads in order to give input where appropriate to ensure that as many issues as possible are thought about and dealt with up front.
2. Standardised documentation/agreed parameters
It is often the case that a commercial property deal forms part of a “bigger picture”, for example the lease of a floor in a multi let building, or a unit on an estate.
A Landlord in such instance should consider producing a standardised due diligence pack with all title information and replies to standard form CPSE enquiries which can be provided at the outset of each transaction relating to that building/estate. Where this is the case it also makes sense when acting for the Landlord to produce standard form documentation which can then be tweaked on a deal by deal basis and rolled out quickly.
In such instances tenants should be informed of this at Heads of Terms stage to alert the tenant’s lawyer that documentation is standard, enabling them to advise their client accordingly and hopefully keep negotiation to a minimum.
The requirement for lengthy negotiation can be overcome by producing industry standard documents, for example lease documentation which complies with the Commercial Lease Code.
3. Face to face contact
Once Heads have been finalised we would generally recommend that where possible an all parties meeting at an early stage in the process takes place, in order to flush out any issues, iron out any disputed points and to give the lawyers the opportunity to negotiate the documents face to face and obtain instructions from their respective clients first hand.
A lack of transparency between the parties can often cause delay in bringing matters to conclusion. Often lawyers are not made aware as to the structure of a transaction at the outset and are not kept informed when the nature of a particular deal changes.
It is important that where possible everyone is “in the loop” as to the exact nature of the transaction and any developments as and when they occur in order to ensure that the documentation reflects precisely what has been agreed.
Whilst it sounds an obvious point, it is also essential that lawyers are informed as to their client’s funding requirements at an early stage in the process.
Please note that we will be covering this topic in more detail at our breakfast briefing taking place on Tuesday 2 July at out Manchester office. If you would like to come along click on the link below to rsvp http://www.gateleyuk.com/news-and-events/events/item/real-estate-briefing/