Expert View: The latest trends in commercial property leases

With a rapidly changing high street and an office sector shook by the effects of residential conversions, open plan and home working, Steven Haynes, Commercial Property Solicitor at HRJ Foreman Laws Solicitors, looks at current legal trends in the commercial property market.

Shorter stays – Open plan working has reduced fit-out costs so moving office isn’t as expensive as it once was, making tenants more mobile. Coupled with economic uncertainty, the result is that many tenants are only prepared to commit to shorter terms, with 5 years replacing 10 years as the norm.

Flexibility – If tenants do sign up beyond five years then break clauses have almost become automatic. This still appears attractive to landlords as they know that, barring economic problems, if tenants are happy then chances are they will stay beyond their break.

Rewarding loyalty – As landlords still prefer long-term tenants, we’ve seen an increase in delayed rent-free periods to encourage tenants to stay, with tenants benefitting from a further rent free period if they don’t exercise their break clause.

Rent reviews – The industry was built on the ‘upwards only open market’ rent review, with landlords (and their lenders) generally confident that rents would rise over the years, but that confidence has been shaken by the last 10 years with rents depressed in some sectors. As a result, an increasing number of leases are switching to upwards only RPI-linked rent reviews.

MEES finally rears its head – Minimum Energy Efficiency Standards (MEES) have been on the horizon for a while, but the legislation came into force on April 1 and is having a significant impact, particularly in the case of nationwide high street tenants who are very alert to the issues. First, in rent reviews of premises with an EPC rating of E or F tenants are arguing against rent increases on the basis that the premises are unlettable in their current condition. Secondly, on lease renewals tenants are using the opportunity to push for upgrade works in the knowledge that the premises cannot lawfully be rented in their current condition.

For further lease advice, contact Steven Haynes on 01462 471 501 or steven.haynes@hrjforemanlaws.co.uk.