Tenant Analysis

A Product for Landlords of Professional Firms


Our Tenant Analysis product is aimed primarily at landlords of solicitors and legal firms, although it is also applicable to accountants and other professional firms. We also intend to roll this out to the retail sector (please email for more details).


The Tenant Analysis Report is new and different from conventional credit rating reports in that it does two types of checks:

1 it reviews the credit worthiness of a tenant, in a similar fashion to traditional rating agencies, but on a more comprehensive basis

2 but it also compares the ability of a firm of solicitors to pay its rent against its local rivals.

The Tenant Analysis Report tells landlords how much a solicitor is paying in rent per desk against its local rivals and compares their rent to turnover and rent to operating profit ratios also. For the first time, landlords can see not only whether a legal firm tenant is credit worthy, but also how a rent increase will affect its profitability.

As one of the BehindtheBalanceSheet.com analytical team explains, “It must be easier to justify a rent increase to a firm of solicitors when you can demonstrate that they are already paying a lower rent per desk than their local competitors.”  

One of our clients had an office let to a medium sized firm of lawyers. It’s a well-known and respected firm, and our client was very comfortable with the tenant, but their lease was coming up for renewal so he asked for our input. Our client felt that he could continue to let the offices cheaply because of the security of the tenant. We surprised him in two ways:

1 the solicitor in question may have been well respected but the partners were drawing more than they were earning and the firm’s capital base was thin and it was quite indebted. Our client had previously not even considered credit risk, but realised that he should have done so.

2 even more eye-opening was the fact that the firm in question had relatively high margins, because it enjoyed a bottom-quintile rent per person ratio. The tenant could afford to pay a significantly higher rent.

The solicitor in question was rather surprised when entering lease renewal discussions to find the landlord was well-informed about their business and demanding a significant rent increase. Our client was pleased with the results and we have been asked to evaluate their other private tenants ahead of renewals.

Another recent example was a firm of solicitors in a mid-size town in Yorkshire – their rent per desk turned out to be 40% lower than the local average, confirming that their landlord had scope to push through a rent increase on renewal. Here are the actual figures:

                      Rent per Head £      Rent to turnover

Firm 1                          1015            2.9%
High                             2877            5.2%
Low                              1015            2.9%
Average                       1756            4.1%

The tenant is paying a 40% discount to the average firm in the town on a cost per desk basis. Relative to turnover, the discount is somewhat smaller at 30% but still significant. The Tenant Analysis Report additionally includes the ratio of rent to profit and various profit metrics as well as the usual credit worthiness checks.

The Tenant Analysis Report also includes some exclusive information on legal partnerships. Most conventional credit reports look simply at the debt on the balance sheet, a few look also at commitments. Our report also includes an assessment of amounts owed to partners – partners in a legal firm seeing cash flow pressure may often resort to delaying their drawings to alleviate pressure on the balance sheet. We highlight this in our reports.

Again taking the example of one of our Yorkshire law firms, the first table illustrates the debt calculations of the best conventional credit checks (not all include commitments):

All in £000s
Net cash on the balance sheet         47
Overdraft and bank debt                     0
Net cash                                                47
Commitments                                   -397

Our Tenant Analysis Report additionally includes for partnerships an assessment of the financial position adjusted for partners’ drawings:


Net cash                           47 as above
Owed to partners        -445
Net debt                        -398

In the Yorkshire example, one of the legal firms has net cash on the balance sheet but this disguises a delay in partners’ drawings, with the real net financial position actually being a net debt. This depth of analysis affords landlords a much better understanding of a tenant’s financial position and ability to pay the rent – this gives the landlord a much better negotiating position on rent renewal, something which they would not normally be able to achieve without extensive investigation.

We estimate that there are over 250 UK legal firms each with a turnover of over £5m, for which we have detailed information on rent, rent per head, rent to turnover, rent to profit and numerous other ratios. Many of these firms have multiple offices, so the number of tenants covered is estimated to be around 400. We estimate the rent paid by these firms at £0.9bn last year, which makes the sector an important element of the UK’s office market.

"Seeing the Tenant Analysis Report made me realise how superficial the analysis in our industry has been to date."

Trevor Silver, CEO Landid and former CEO Akeler Group.

TO ORDER

If you would like a trial of our service, please email us at info@behindthebalancesheet.com. The basic service costs £100, this includes a basic credit check as well as the review of partners' drawings; and the full service, which includes comparisons with the local competitors, costs £250. 

This service is of particular relevance to those landlords which charge a turnover related rent. We evaluate a tenant’s overall rent to turnover ratio, gross margin, sales per head, sales growth trend and debt and fixed charges cover; we also estimate turnover per retail unit. This dataset allows the landlord to profile his charges relative to the tenant’s average, and to determine the profitability of his units relative to his tenant’s average experience, giving the landlord a much better understanding ahead of lease renewal negotiations. Please email us for more information.