PP 2002/198

Is time running out for the institutional lease? Your client plans to open a shop in the high street. The business plan is sound, but he is well aware that success cannot be guaranteed. The last thing he wants is a 14-year, unbreakable, inalienable, full-repairing lease, with upwards-only rent reviews. Sadly, there is not much else on offer. By all accounts, the problem is widespread and in no way confined to the small businessman: see the pictures painted by past RICS president Richard Lay in Be flexible to avoid stiff legislation Estates Gazette 14 September 2002, p148, and by Alan White, chairman of the RICS corporate occupiers group in Complaints prompt a binding covenant Estates Gazette 21 September 2002, p196. These articles suggest that elsewhere in Europe a typical commercial lease would be a maximum of 10 years with break option record (also see PP 2002/110). The government does not like to see this anti-entrepreneurial state of affairs – hence the publication, on 22 April 2002, of the of the voluntary code of practice for commercial leases briefly mentioned in PP 2002/115. Fully endorsed by the RICS (only too aware of the threat of legislation if voluntary measures fail to work), the code aims to present the business occupier with a range of packages. The sacrifices made by the landlord in terms of shorter leases, two-way rent reviews, lighter repairing obligations, and fewer restrictions on use and alienation will hopefully be reflected in the rent that the tenant will be willing to pay. One says “hopefully” because it will be a major task to get tenants to understand that, in certain respects, they will be paying extra for what has been cut out of the lease. The message from British Property Federation chief executive, Liz Peace, is that the property industry has less than two years in which to create a community of educated and questioning customers: see But will we like it? Estates Gazette 5 October 2002, p159. A similar note of urgency is struck by Christopher Hunt, of Wragge & Co, in Threat of legislation hangs heavily Estates Gazette 8 February 2003, p140. The job for valuers and other professionals is to become even more familiar with the techniques of option pricing, which is looked at from various angles by Graham Chase, chairman of the RICS Commercial Property Faculty, in When alternatives become the norm Estates Gazette 28 September 2002, p144. If the whole thing is politically highly charged, it is presumably because the real battle is between entrepreneurs, who seem to be getting younger every day, and those who look to the institutions for their retirement pensions. The generation game goes on. Related articles: Change now, or have change thrust upon you Estates Gazette 27 April 2002, p146 Get into practice Estates Gazette 22 June 2002, p148 Voluntary-aided leases Estates Gazette 27 April 2002, p150 Code that favours the brave Estates Gazette 11 May 2002, p137 Flexibility carries a heavy price Estates Gazette 24 August 2002, p80 Lazy landlords must learn to bend Estates Gazette 2 November 2002, p62 LandSec lets tenants have it their own way Estates Gazette 9 November 2002, p146