For as long as I can remember, commercial landlords, their tenants and their lawyers have indulged in a ritualistic dance around the negotiation of property leases, treating every single aspect of the lease as an opportunity for squeezing out commercial advantage. I sense that dance is drawing to a close.
Within six to seven years, I predict widespread adoption of standardised, template-driven property leases. Within 10 years, for the majority of transactions at least, the idea of negotiating around anything but the two or three most critical points of a lease will be consigned to history.
Several factors are driving this change. One is the lack of profitability for lawyers in this sort of work. Another is the market requirement to make the process quicker and smoother.
Additionally, both landlord and tenant are starting to realise there is precious little practical benefit to be gained from this posturing.
And finally, new entrants to the commercial property market – the serviced office providers – are introducing new business models more akin to renting a hotel room than acquiring a property, where negotiation simply does not feature.
A more focused approach?
Let me be clear that this does not spell the end of lawyers’ involvement in letting commercial property. It is simply the extensive – and arguably excessive – negotiation process that I see disappearing.
Lawyers will still be required to oversee the transaction as a whole. However, their future focus will be solely on the handful of matters that are of genuine critical concern, such as the identification of risks, the inclusion of sensible safeguards and avoiding any nasty surprises.
There may well be resistance. Some lawyers will see this as a diminution of their role. Some landlords may be unwilling to give up on a process that they perceive provides them with commercial advantage.
I don’t see that resistance being too stout. There has been a trend in recent years for law firms to focus on profit rather than volume.
Profitability in this particular area of work has been squeezed, mainly due to an oversupply of lawyers.
Clients themselves – and especially retailer tenants, dealing with dozens of lettings and lease renewals each year – are already thinking in much the same way. They have identified the 10 or 12 (at most) key issues on which they want their lawyers to focus and they are not keen on paying highly paid professionals to concentrate on what they see mainly as boilerplate provisions.
This switch to a consistent approach also reflects the direction law firms are moving in more generally; employing a smaller number of specialists, focusing purely on the few complex jobs that a standardised approach cannot accommodate.
An evolving way of working
This isn’t all about the lawyers though. Modern life seems to race by at breakneck speed. Working through a property lease used to be a six-week job, with documents circulating slowly via snail mail.
Today’s demand is for real-time working. In theory, a draft lease can be turned around in a day or two – and there is a growing expectation from clients that it should be. Something, therefore, has to give.
In the office market, new entrants – offering short-term accommodation in the form of serviced offices – have also affected the dynamic.
They offer occupation on standard terms with no negotiation, taking more risk on themselves in return for a higher cost – but one that is known at the outset. Potentially this represents an Uber-style disruption of the market.
A snowball effect will likely be seen in the coming years. People have been talking about standardising leases for decades, but the emergence last year of the freely available Model Commercial Lease has made it a possibility. (I have an interest: I am a member of the working party that drew up this document.)
The future looks standard
Admittedly, there has been limited uptake to date, but at least three City or national firms have recently adopted it (or variants of it) as their standard lease. And the word on the street is that its terms are often accepted as a fair balance between landlords and tenants during negotiations, which is clearly a good start. But I see adoption of such a form of standardised approach accelerating over the next two years as knowledge and experience of it becomes more widespread.
Add in a couple more years for changing over processes and encouraging clients to adopt. Then add in a few more for dealing with the inevitable refuseniks. That takes us out to 2022; by which time I expect to see mass adoption of standardised property leases.
Such a lengthy timescale may of course find itself exposed to any number of unforeseen factors that could speed up or delay progress.
Nevertheless, whatever the eventual timescale, the days of individual negotiations of 100-page documents, aimed at obtaining the best possible terms at the expense of the other party are now drawing to a close.
Peter Williams is head of the real estate group’s professional support lawyer team at Shoosmiths
