Pub lease lengths are decreasing say property agents

The new research by the British Property Federation and Investment Property Databank found that lease lengths on commercial property have fallen to a new low of 4.8 years on average, as landlords work in step with tenant requirements.

It said that an increasingly polarised market has developed over the past year, with some long-term deals on prime property, but also a tendency for some occupiers to opt for a ‘stop gap’, rather than more medium-term leases.

The annual study found that 76% of new leases signed in 2011 were less than five years in length. Leases signed in 2011 averaged 4.8 years — a decline of well over a year compared to pre-recession levels in 2007.

It also said that lettings to small and medium-sized enterprises (SMEs) are at 4.1 years; 78.3% of newly granted leases for SMEs in 2011 were under five years in length, 19.2% for up to 10 years and only 2.1% up to 15 years.

Fleurets director and head of pubs, Simon Hall said: “Fewer people are taking on longer leases; it’s now about five to 10-year leases. There’s a lot of insecurity and uncertainty. The Landlord & Tenant Act gives you automatic rights for renewal, so if the business is running well, it is easy to extend a lease, and there’s a smaller stamp duty to pay for a shorter lease.”

He explained that there are also substantial reverse payments if people want out of leases. He said that one national client, who cannot be named, is considering a six-figure payment to get out of a long lease.

Paul Tallentyre, director of pubs at Davis Coffer Lyons, said that he has seen many experienced traders selling their pub leases, which will generally have around five years remaining.

He added: “People no longer want 20 to 30-year leases because they are looking to reduce risks with the economic climate we are in.

“There’s a lot of change coming in the next few years, with more pop-up ventures that have leases of six months to one year.”