Businesses are losing millions of pounds at the end of their property leases – and the problem could be avoided by more organised, detailed and advanced preparation, according to research by Donaldsons.

As part of the research, a survey was undertaken among leading property lawyers that revealed that between 75 and 80 per cent of leases are terminated by landlords in order to initiate lease renewal proceedings, English law providing as little as six months' notice.

This means that in some cases, occupiers are given insufficient time to consider their options properly and many are therefore forced to renew their leases on expensive or inappropriate properties through lack of time to make more suitable alternative arrangements.

Despite this, occupiers do have a choice and should consider their options much earlier – two to three years would be advisable.

There is a major difference between running a lease renewal well or badly. If planning to stay put, the best result is a tenant negotiating the most economical commercial deal, limiting dilapidations and retaining future flexibility.

If a tenant intends to move, there are savings to be had in relocation costs, duplication of occupancy costs as well as dilapidations.

Donaldsons' research suggests that the costs of failing to achieve these objectives are surprisingly high.

Using a range of typical cost assumptions, Donaldsons has analysed the financial impact on total occupancy costs using a discounted cash flow model.

The findings were that such potential costs if a reactive approach is taken at lease end can be ten per cent higher, assuming that a lease is renewed on aggressive landlord’s terms.

Alternatively, in an unplanned relocation situation, the impact of limited time and choice may increase costs by up to 37 per cent.

It is not surprising that some tenants prefer to take a passive and reactive stance to their lease renewals when faced with a bewildering web of issues.

Recent procedural changes to the prescriptive Landlord and Tenant Act 1954, which provides the 50-year-old legal framework, have removed some traps, but others remain.

Combine these with changing market conditions and putting a lease renewal off until another day can appear attractive. Such complex scenarios can, however, present an opportunity rather than a threat.

Donaldsons has recently reduced a national retailer's rent in Dudley town centre to almost half the passing level, renewing the lease at #54,500, compared to the previous rent at #94,500 which was set at least 15 years ago.

Taking advantage of new provisions introduced in June 2004 to the Landlord and Tenant Act 1954 for tenants to apply for an interim rent during the renewal proceedings, we ensured that the rent liability could be reduced to the current market levels and be backdated to the old lease expiry date.

If the issue had not been addressed, this may have resulted in the old rent liability continuing for some considerable time after.

Dudley is just one example where changes in market conditions that took place years, if not decades ago, are still having an impact today.

While the opening of the Merry Hill shopping centre over 15 years ago decimated rents in Dudley town centre, due to almost universal upward only rent reviews contained within the longer lease terms taken until recently, it is generally only at lease renewal that opportunities arise for the tenants to reduce such costs.

One overriding message is for occupiers to think beyond rent and treat lease renewal as an opportunity to complete a new transaction on space and improve business effectiveness.

It is a good idea to talk to the landlord and understand their position as well.

For retailers, relocation to a stronger trading pitch may or may not lead to increased profitability, so the decision may be to stay.

There are many other significant benefits open to tenants who consider their options at renewal in advance, align them to overall business objectives, control the timing of events and keep an open mind about which will deliver the best solution.

Tenants may be able to minimise the impact of adverse rental evidence, demonstrate realistic alternative options, extol the virtues of covenant strength, demonstrate the risk and costs to the landlord associated with losing a tenant, renegotiate the lease demise and extent of accommodation, affect an early surrender and control the impact of redevelopment complexities, amongst other opportunities. Getting the best result at lease renewal, whether that means a new lease on the best available terms, or relocating to premises that suit the business better, is all about having the tactics to put the tenant in control.