Long Leasehold Liability Disposal

Oct 28, 2019Case Study


Food retailer


To mitigate cost and risk of a long leasehold property, which was over-rented and in poor condition.

Service requested:

To manage out the liability of a property with a failing tenant.

Solution provided:

The first stage in the process was to establish a clear position on the property. This identified the occupational tenant had no assets and a business that was close to failure. In addition, the tenant had illegally sublet one of the two flats above the retail unit to a third party. Overall the property was in a very poor condition, with significant repair works needed internally and externally. Initial discussions with the freeholder indicated that the only option they would consider was the sale of the property and were seeking a sub 3% yield on this tertiary property in a small West Midlands town.

The first stage was to regularise the occupancy aspect of the property. In light of the poor financial position of the sub-tenant it was decided to take a surrender of the lease, followed by regularising the residential occupation with an Assured Shorthold Tenancy.

The desired objective was to find a tenant of the whole and then deal with the headlease. However, the demand for A1 space in the location was minimal, but marketing identified a strong interest for A5 (Hot Food Takeaway) use. The headlease restricted the use to A1, and in view of the freeholders aggressive value assumptions, it was decided to purchase the property rather than seek a change of use which would probably require a premium to be paid.

The freehold purchase was negotiated to a yield much closer to the market value. Terms were also agreed with a potential purchaser of the unit who wanted an A5 use, for an onward sale of the property. This sale was dependent upon planning permission for a change of use to A5, which was then made at the point of completion of the purchase.

The solution provided the client with an exit from a restrictive lease with 50 years unexpired for a below provision cost.

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