With a continuous stream of second-hand stock returning to the market as a result of downsizing, corporate failures, and mergers and acquisitions, national commercial property consultancy, Lambert Smith Hampton (LSH) has warned businesses not to become complacent and underestimate the difficulties involved in disposing of unwanted accommodation.

Commercial property accounts for an estimated 20 percent of a business' operating costs.  It is therefore unsurprising that, in the current challenging economic conditions, businesses are increasingly looking to dispose of space that is surplus to requirements. 

However, the glut of second-hand space blighting towns and cities up and down the UK, combined with a lack of major occupier activity, has meant that businesses are finding themselves tied into premises they no longer need or want, often meaning they are liable to pay rent, service charge and empty rates for a longer-period of time than they had initially anticipated.

LSH believes that a strong knowledge of local occupier markets coupled with a lot of perseverance is the key to doing deals and offloading unwanted space in the current climate.

Tom Freer, Agent at LSH's Leicester office, said: "When property is not your core business, dealing with the problem of unwanted space can be daunting to say the least, not to mention lengthy and, more importantly, costly.

"There are a number of options available to occupiers, the most popular being surrender, assignment or subletting, each of which aren't without their challenges."

Surrendering the lease to the landlord is likely to mean paying a premium and is also dependent upon market conditions.  The landlord has no obligation to accept surrender of the lease and will therefore only do so if market conditions mean that it would be to their advantage or it is financially worth their while.

Assigning the lease to another party is an alternative option, but is likely to require the landlord's consent as well as the presence of another interested party prepared to pay the existing rent levels, neither of which is guaranteed.

Subletting inevitably means the current tenant taking a financial hit since the property will have to be sublet at a rate below that of the current passing rent and may entail offering a prospective sub-tenant further incentives if the Head Lease allows, such as limited repairing obligations or capped service charges.  It therefore leaves the current tenant with an ongoing financial and administrative burden.

LSH advises any occupier with unwanted space to consult a qualified Chartered Surveyor for advice before making any strategic business decisions.  Tom concluded: "Removing non-core space from an occupier's portfolio will reduce its exposure to risk and enable it to drive efficiencies within the business - something which is paramount at the present time.

"However, businesses need to be realistic in terms of rents and inducements and the timescales involved in finding a suitable occupier, particularly given the current state of the market.  There is no quick fix but those who are well-informed will find the process runs much more smoothly with a lot less hassle, thereby allowing them to concentrate on their core business."