Report says hosts fail in lease negotiations
by Ewan Turney
A general lack of property awareness and a failure to seek legal advice mean that the vast majority of small business tenants, such as licensees, are unable to strike the most advantageous bargain that might otherwise have been available to them.
That was one of the findings of a long-awaited report for John Prescott's Office of the Deputy Prime Minister (ODPM) by property academic Neil Crosby, which was aimed at monitoring the operation of the 2002 Code of Practice for Commercial Leases.
The code, launched in April 2002, contained 10 recommendations on how new business leases should work more flexibly. Tenant awareness of this code remains low despite a 50% improvement from 2000.
The report hit upon a couple of key issues that were raised during the Trade & Industry Select Committee pubco inquiry, such as the prevalence of upward-only rent reviews and the lack of legal advice taken by tenants.
The report notes that "small businesses are more likely to have no previous experience of leasing but are less likely to take professional advice in the negotiations of commercial terms of the lease."
It found that although aware the terms of the lease could be negotiated, they were still likely to take the premises on the first terms offered and that many tenants were unaware of the detail of their leases.
On the issue of rent review, Crosby found that, particularly in the retail sector, there was an acceptance by both parties to the lease that it would be a "standard upward-only review".
Crosby noted: "Among leases still containing rent-review provisions, the upward-only review is virtually universal and the incidence of alternative review types is still rare."
The report did, however, highlight the fact that landlords are now becoming more flexible by offering shorter leases and allowing tenants the right to break them in certain circumstances.
The report comes ahead of a decision on lease reform by the ODPM, which could include a ban on upward-only rent reviews.
