Lease pendulum swings tenants' way

Citation

(2001), "Lease pendulum swings tenants' way", Property Management, Vol. 19 No. 2. https://doi.org/10.1108/pm.2001.11319bab.023

Lease pendulum swings tenants' way

Lease pendulum swings tenants' way

Keywords: Tenant, Lease

Tenants of commercial property are beginning to have a much bigger say over the terms and conditions of their occupational leases. And – with government encouragement – the days of onerously long-lease agreements with upward-only rent review clauses look to be numbered.

Paul Rixon, landlord and tenant specialist, at BK – The Property Assets Consultancy, believes tenants facing lease renewals are now in a much stronger negotiating position, following structural changes in the property market over the past two decades.

"Tenants should be aware that lease renewal is an opportunity to negotiate terms that can differ radically from those that have applied to date and which reflect current market practice and sentiment", he explains. "In the 1960s and 1970s, institutional landlords insisted on 25-year lease terms in order to safeguard the income and therefore the capital value of their investments.

"But while many of these leases still haunt boardrooms up and down the country, 15 years is now the longest period landlords can now hope for – with the exception of new buildings in prime locations – and leases of five and ten years' duration are commonplace in today's market."

Break clauses abound in lease agreements nowadays, providing occupiers with the flexibility to react to changes – positive or otherwise – in their own businesses. Sometimes, landlords look for a premium rent in return for this reduced security, but Mr Rixon strongly advises tenants to avoid committing themselves to performance-related break options – only exercisable once a range of other lease obligations have been complied with. "Such options can be notoriously difficult to implement", he says.

An important legacy of the property recession of the early 1990s is the lease that allows for downward as well as upward rent reviews. The Government has recently indicated that it has not abandoned its negative stance towards upward-only reviews, but would prefer the property industry to provide a solution through self-regulation, rather than by legislative imposition.

In the meantime, tenants are reminded that, in nearly all circumstances, they are not obliged to quit their accommodation on the expiry of a lease and retain security of tenure until the terms of a new agreement have been established to the satisfaction of both parties. "The landlord", Mr Rixon insists, "cannot simply kick you out at the end of a lease.

"While a tenant is already in occupation of the property, a lease renewal is still a negotiation", he states. "The occupier should be considering the terms required well in advance of expiry, as landlords can commence proceedings up to 12 months ahead of that date.

"All the terms are open to negotiation at renewal", Mr Rixon adds, "not just the rent."