Brown&Co look at the trend for shorter commercial leases

At Brown&Co, the last three leases we have agreed on a landlord client’s portfolio have been 10 years, but with tenant breaks at year five; 10 years with a break at year three; and a five-year lease, also with a break at year three. This contrasts with a time when 25-year leases were the norm.

As commerce has evolved, short-term leasing has become the ‘new norm’ particularly in the office market, and for multi-occupied properties, all-inclusive rents are increasingly being requested.

It comes in the context of the Law Commission of England and Wales review of the Landlord and Tenant Act 1954, which is a significant development for both commercial landlords and tenants.

Nigel Hodge, partner, commercial at Brown&Co Norwich (Image: Brown&Co)

The review aims to develop a modern legal framework that is widely used rather than opted out of, which helps businesses to grow. This will give landlords and tenants greater flexibility to adapt their leases to changing market conditions and should lead to more efficient use of commercial space.

This is because occupiers frequently expand their businesses and have larger space requirements, but wish to stay within the same building/industrial estate.

For commercial landlords, the review could result in a more streamlined process for leasing their properties, reducing the administrative burden and costs associated with renewing leases. This could also lead to a reduction in void periods between leases.

Currently, lease renewals have effectively taken the place of rent reviews but tend to have greater complexity and more onerous administration to them.

In the past, some landlords have been reluctant to consider shorter leases, largely because it can mean a high turnover of tenants and some loss of rental income. However, it is worth considering the benefits.

A long-term lease locks in a tenant at a certain price agreed, but a shorter lease means the landlord and tenants can adapt rents with the ever-changing market as well as update terms of the contract.

To discuss your commercial lease, whether you are a landlord or a tenant, you can contact Nigel Hodge, partner, commercial at Brown&Co Norwich, on 01603 629871.