Guest Blog by Adam Youatt of Gateleys Leases... part one


Are we are currently seeing a dramatic shift in the leasing process and, in particular, are standard forms of leases now going to be widely embraced by the market?

It is very common at the moment to hear people in the property industry talking about how we are in “challenging times” and that "transactions are taking longer" and they are "harder to get across the line".

Getting actual signatures on documents is key and no more so than with tenants. The last thing anybody wants is for tenants to be given more time to think about the transaction. The obvious risk is always that they will change their minds.

This means that landlords and developers, now probably more than ever, want to keep the "legals" side of the leasing process as simple and quick as possible, to speed up the process, but also to reduce costs.

The disadvantage of the current approach to leasing is the fact that pretty much every law firm has its own standard lease which has to be negotiated with a tenant's lawyer. They are also generally drafted from a landlord's perspective in the hope that a tenant's lawyer will not require the “normal tenant’s amendments”. It is an adversarial approach to lease completion.

Arguably though this traditional method is not helpful because the market has changed and there are now a raft of tenant's amendments that are not only pretty much always requested by a tenant's lawyer but are also generally accepted by an institutional landlord.

I can remember doing talks on the introduction of the voluntary Lease Code back in 2007 and the audience of property industry people at that time were being very sceptical that it would make much difference. But there is no doubt that since its introduction there has been a change in the approach taken to lease terms to the extent that many of the Code's tenant friendly provisions are now regularly being included. There are key areas of a lease where the market seems to be ready to move on and accept they are standard provisions rather than negotiated points. Consider, for example, provisions on group sharing by tenants; the liability for uninsured risks and associated rent suspension; and also break right pre-conditions. It is very rare that a break right is now subject to the sort of onerous conditions that would have been seen 5 or 10 years ago.

So are we seeing a dramatic shift in the leasing process or a temporary shift because of market conditions?

It is hard to know. It has to be remembered that these changes are taking place against a background where the average lease term has fallen dramatically, currently standing at just under 6 years, including breaks. Arguably with shorter lease terms it is easier to be more flexible and accommodating. Will the same flexibility be offered to longer, more valuable leases?

It also has to be remembered that the Lease Code has not been completely adopted by the market. For example, the Code has always maintained its recommendation that authorised guarantee agreements should only be required from an outgoing tenant on assignment if the incoming tenant is of a lesser financial standing. Whereas current market practice has only moved as far as possibly introducing a reasonableness test to the requirement for an authorised guarantee agreement, which is not the same thing, and many landlords still cling on to their absolute right to demand one on an assignment.

 

To be continued...
 

01 July 2013


Keywords: leases, Lease Code, tenant, landlord, property, gateleys


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