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Lease Is More: Can The Commercial Property Lease Be The Flexible Business' Flexible Friend?

Anyone who has ever had to contend with the matter of commercial leases has probably discovered they are, in short, not very short at all.

While their length and complexity often depends on the size, nature and purpose of the property involved, they are commonly many dozens of pages long.

For a business taking a lease of a key site, where the commitment will be extensive (both in terms of period and cost), a document which governs all the complexities of the relationship between owner and occupier will be both necessary and desirable.

In this kind of scenario, current practices are unlikely to change significantly.

However, what about situations involving start-up businesses which only want space for a short amount of time.

For these types of occupiers - wanting speedy access to premises without the cost and delay of a lengthy lease negotiation - an observation by the poet Robert Browning that "less is more" could represent something of a heartfelt plea.

Over the course of the 60-plus years since the Landlord and Tenant established the notion of security of tenure for those wanting to occupy commercial premises, the basic structure of the lease has changed very little.

Given the tremendous changes in business during that time, it's not a surprise, therefore, to find that the traditional composition of the commercial lease is increasingly generating friction in some quarters.

Nowadays, companies are more likely to be small start-ups, employing a handful of staff, than much bigger enterprises.

A parliamentary report published in December last year noted that 96 per cent of all firms in the UK were 'micro' businesses but added that they were still able to make a considerable economic contribution - 22 per cent of the country's entire private sector turnover, no less.

As the shape of business has changed, so too have its demands on property. One recent piece of research not only suggested that the amount of flexible office space available had more than doubled since 2014 but was likely to increase by another 30 per cent within the next five years.

That is partially driven by the size of companies and advances in technology which allow firms to achieve a great deal while still being small and nimble. Add to that the flexible use of staff, either in terms of home-working or hot-desking and it's plain to see why many individuals question whether the old-style lease is fit for purpose in this new corporate age.

It's a pattern which we at Land Law have seen more of in recent years.

Small businesses regard lengthy leases taking weeks to agree as something of an impediment when all they want to do is take up new premises and start work.

If they succeed and grow, the prospect of multiple such experiences can increase that sense of frustration, along with the legal costs associated with checking a 60-page document.

Some commentators have recommended the introduction of new legislation to provide a standard document, which would aim to strike a fair balance between owner and occupier and offer a solution which is as effective as a traditional lease - but much more simple and user-friendly.  This approach has been adopted successfully in other countries where the resulting leases function just as well.

That would, of course, take some time to bring about, especially at a time when MPs have other pressing matters on their agenda. Some commercial landlords might resist legislative change, believing it might restrict their ability generate healthy returns.

Efforts have been made to standardise leases on a voluntary basis instead, the British Property Federation’s Model Commercial Lease (MCL) being one such initiative.

Even so, these documents are still relative lengthy documents, meaning that businesses still need to take advice on their terms.

Larger commercial landlords and funds have also started using shorter, more flexible lease arrangements, viewing property occupation more as a service arrangement than the grant of a property right.

Realising that occupiers will pay a premium for flexibility, savvy property owners are adapting to meet this need and commercial requirements are, therefore, pushing change more quickly and effectively than anything else.

Landlords who want to capitalise on the faster pace of business occupancy will recognise that they must adopt the changes or risk losing out.

We advise clients to think carefully about who their business premises will appeal to and to consider tailoring their lease arrangements accordingly.

by Nicola Jackson
Partner

Pierre Vannerem