Case Study – Commercial Property Purchase of an Arcade of Shops with Retail Tenants

Introduction:

In this case study we look at our client company purchasing a Shopping Arcade with Retail Units. The Arcade is in a bustling town in the North of England, with shops that are thriving, housing several retail tenants with existing leases.

Our client company, a special purpose vehicle (SPV) for purchasing commercial property, saw the opportunity to expand its portfolio. This case study explores the legal intricacies and challenges faced in the acquisition process.

Background:

The arcade of shops, consisted of 17 retail units, each occupied by different tenants with varying lease terms and conditions. The leases ranged from short-term agreements of one year, to long-term agreements extending over a decade. A handful of tenants did not have a Leases and instead had a Licence to Occupy and one tenant did not have anything at writing, a Tenancy at Will.

Our client saw the potential in redeveloping the Arcade to meet modern retail demands and working with their tenants to formalise and unify their Leases ensuring compliance under current legislation and that market rents were being paid.

Due Diligence:

Prior to initiating the purchase, our client engaged with us undertaking extensive due diligence. This included a thorough review of each tenant’s lease agreements, financial stability, and compliance with local planning regulations. We also scrutinised any outstanding legal disputes or issues related to the property.

Legal Challenges and Negotiations:

• Lease Review and Analysis:
  • We meticulously reviewed each tenant’s lease agreement to understand their rights, obligations, and any restrictions on property use.
  • Variations in lease terms, renewal options, and rent review clauses posed challenges in determining the overall financial viability of the acquisition.
• Tenant Rights and Protections:
  • Most tenants had statutory protections which we had to navigate and advise upon, considering any proposed changes to rent.
  • Negotiations with tenants for voluntary lease modifications were initiated to align with our client’s redevelopment plans.
• Title, Searches and Planning Issues:
  • We conducted a detailed review of the several legal titles, raising appropriate enquiries of the seller’s solicitor and obtaining additional Conveyances, Transfers, and other Deeds to enable a thorough Report on Title to our client.
  • We carried out a Hazard Summary Report ensuring the right property searches were conducted with a Report on Searches to our client.
  • Planning regulations were scrutinised to ensure compliance with the intended redevelopment plans.

Structuring the Deal:

We worked closely with our client to structure a deal that accounted for the diverse lease terms and tenant considerations. We negotiated a comprehensive agreement that addressed:

• The Purchase of the Property:

• Re-drafting and Amending the Sale Contract
• Drafting the Transfer Deed

• Assignment of Leases:
  • Drafting clauses for the assignment of existing leases to our client.
  • Negotiating with tenants to obtain their consent for the assignment, where required.
  • Preparing Rent Authority Letters.
• Redevelopment Clauses:
  • Incorporating clauses that allowed for modifications and redevelopment of the property while respecting the tenants’ rights.

Closing and Post-Acquisition:

Upon successful negotiations and agreement, our client completed the acquisition. Lee Gaddes, an experienced commercial property Solicitor ensured a smooth transition, handling the purchase, the lease assignments, notifying tenants of changes, and addressing any concerns during the transaction.

Conclusion:

Acquiring an arcade of shops with multiple retail tenants and leases involves navigating a complex legal landscape. Our client successfully managed the challenges through engaging with us early to carry out comprehensive due diligence, have strategic negotiations, and a well-structured deal, ultimately paving the way for the redevelopment of the Arcade and adding significant value to our client company’s real estate portfolio.