Steve Jones contacted the network’s Property Team in April, 2011, to request their assistance in a review of the rent and rates of a client, Rosewood Pet Products Limited, based in Shropshire.
The company has grown rapidly in recent years to become a leading wholesaler of pet products to retailers and independent high street stores across the UK.
Based at a freehold site in the village of Broseley, the business had acquired an overspill warehouse and distribution facility approximately three miles away at Halesfield in Telford some years ago to cater for a short term expansion.
That short term expansion has now grown to ongoing requirement of approximately 43,000 sq ft and was a cornerstone of the current business growth. The brief was to agree a renewal of the lease on more competitive terms, if possible, from the leases‘ expiration at the end of October 2011.
Steve Jones obtained the lease documents and identified that the leases were on an ‘all inclusive’ rental including business rates, utilities and repairs. Net of business rates, the rent equated to £96,806 per annum, or £2.25 per sq. ft – not much to work with given the Property Team’s usual contingency fee basis.
Nonetheless, the Property Team agreed to undertake a consultant day review with the client which includes a number of generic stages including reviewing company documentation, inspecting sites, conducting a market assessment and creating a recommendation report.
The review established that the business undertaken at Halesfield had grown very rapidly through winning key large accounts with major retailers. This led to an expansion at the Halesfield site on a “bay by bay” basis on separate but flexible lease terms with no security of tenure. The lack of security of tenure meant that Rosewood had no automatic right to a new lease or any right of independent redress in the event that the landlord would not agree acceptable terms at renewal.
Whilst this lease flexibility suited the business in its early expansion phase, clearly having no security of tenure on a large warehousing operation presented a potential business risk in future. Furthermore, the scale of the operation was such that it may be problematic to relocate it before the lease expiry if the terms are not agreeable with the landlord.
Property consultant, Andrew Pegg, MRICS, said “This is a very good example of a dynamic and successful business doing its core business very well. However, because it didn’t have the benefit of on-going property advice, the rapid growth had meant that their ‘eye was not on the ball’ with regard to the implications of the present evolved lease structure. Fortunately, Steve Jones was able to spot the potential problems for the client as a result of his attendance at Property Team training sessions, and flagged it with ourselves and the client accordingly.
Fortunately, Mark Bollands, Financial Director at Rosewood had provided a thorough initial briefing as to what the business required in terms of alternative space. This included dock loading, location of the premises and also a desire to relocate both parts of the business to a single site in the future. This enabled the Property Team to undertake a thorough and informed review of the market for alternative space to benchmark both current costing and alternative likely lease terms.
The market review identified of a number of properties which could be suitable for the Rosewood both on a straight replacement and consolidation basis. As external advisers, the team were able to provide an independent and objective view of the local market options whereas all the local agents were conflicted in form by offering space on behalf of their landlord clients.
Pegg commented “It was quite interesting to see that when it came down to negotiations on specific properties, the professional landlord made sure that he was present on site, to both meet our client and to ensure that his interests were represented, knowing his agent had other clients’ properties he was also promoting.
Initial negotiations were carried out with potential suppliers and by the end of May 2011, the Property Team were able to report; two sites were identified which could accommodate Rosewood as a whole for less than the current cost.
Speaking of this wider opportunity, Mark Bollands, Financial Directors, Rosewood Pet Products Ltd, said “It was very interesting to see what was available in the market place at very competitive rates, the expert knowledge provided by Expense Reduction Analysts opened our eyes to both short term gains within our current location but also the future opportunities for the business”.
This review provided a basis for constructive negotiations to take place with the current landlords. Unsurprisingly, the landlords were expecting to agree a short term renewal at a higher rent being paid. However, with Expense Reduction Analysts leading the negotiations, it enabled discussions about securing the longer term requirements of the business with the flexibility to vacate to a single site in the medium term if required.
Ultimately, the business decision was to remain with the current premises but to have the flexibility to move out within the next three to five years. The outcome achieved by the end of July 2011 was renewal terms agreed on a 5 years basis with a Tenant-only option to break the lease at the end of the 3rd year. Furthermore, a revised rent was agreed of £1.90 per sq ft (£0.30 per sq ft saving or £15,068 per annum), making a useful saving of over £45,000 for the duration of the lease term up to the break option alone.
The Property Team also secured the ability for Rosewood to take further expansion space within the Halesfield unit at the new pre-agreed rate, thereby ensuring cost certainty as well as the ability to expand or contract as required. Moreover, it ensured business continuity during a critical phase and allowed the senior management team to focus on their day job throughout the negotiations, with the exception of 2 or 3 site visits and on-line reporting.
Pegg added, “In other circumstance, it is not uncommon for potential clients to consider that this level of spend not to be sufficient to get an expert in, or to undertake the negotiations themselves. Fortunately, in this instance the client trusted us to get on with it and as a result they were able to make a robust decision to stay on terms they were happy with as well as delivering useful cost savings.”
Commenting on the advice received, Mark Bollands, Rosewood, said “We managed to improve the offering we had with our landlord which was as a direct result of the advice we received, in short the advice saves us a considerable sum of money over the coming years.”
The business is now looking forward to its further expansion with the benefit of secure base for its core business together with new ideas on its options provided by the ERA property team.
The outcome achieved by the end of July 2011 was renewal terms agreed on a 5 years basis with a Tenant-only option to break the lease at the end of the 3rd year. Furthermore, a revised rent was agreed of £1.90 per sq ft (£0.30 per sq ft saving or £15,068 per annum), making a useful saving of over £45,000 for the duration of the lease term up to the break option alone.
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