£2m-a-year setback for Canary Wharf

DOCKLANDS developer Canary Wharf, embroiled in a takeover auction, is set to lose more than £2m a year in rent as the first of its tenants takes up a controversial right to hand back rented space.

Giant American law firm Skadden Arps Slate Meagher & Flom is believed to be planning to hand back two of its six floors, nearly 60,000 square feet of space, at its new 40 Bank Street tower premises, one of Canary Wharf's newest developments.

The news comes at an inopportune time for Canary Wharf, which is currently trying to get the highest price from two bidders who could pay up to £1.8bn.

Indicative offers are in from a Morgan Stanley and Goldman Sachs real estate fund consortium and Canadian conglomerate Brascan Corporation.

Predators began to circle Canary Wharf in March when it revealed that many of its largest tenants had been granted long leases containing 'put options' totalling 625,000 square feet. These allow tenants to hand back signed-for space, before the expiry of the lease, for periods of 5-10 years rather than having to sub-let surplus space.

Sources said Skadden could soon exercise its option to hand back up to 58,000 of its 133,000 square feet of space, according to Estates Gazette magazine. The firm pays rent of about £42 per square foot, meaning Canary would lose more than £2m in rent. Skadden's London managing partner Bruce Buck said the law firm had 'no plans to occupy any more space'.

Lehman Brothers is expected to exercise options for up to 179,000 square feet of its space.