At lease-t there is progress


The high street is facing an onslaught of pressure. In the wake of some of the UK's largest and most well-known brands posting falling figures and admitting to the difficulties they face, there has been a call for reform of the factors which are seen to have contributed to this trail of events.

But what about commercial leases? Are these also now outdated? Historically landlords have held the upper hand and we are left with provisions which make little commercial sense, such as upwards-only rent reviews. However, there is much to be said for the flexibility of modern commercial leases: uninsured risks are now commonly provided for, break clauses are generally accepted to be more tenant-friendly than in the past and retail leases are becoming shorter to cater for uncertainty in the business cycle. 

Inevitably, flexible leases demand a higher price tag and in a period of growth many retailers would have entered into long-term, more rigid leases. But it is too simplistic to point the finger at one cause. Market-standard lease provisions can be reshaped. The rise in turnover-based leases is an example of the way the lease structure is adapting and the way landlords are increasingly willing to (and aware of the need to) share risk. The question is whether we will see similar evolution in other areas of pressure on physical retail such as e-tailers and business rates.

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A look at leasing trends suggests that the real cause of more businesses entering CVAs may be the institutional lease, the beloved centrepiece of British property investment. The CVA is the only legal lever that occupiers can pull to get out of long-term, inflexible leases that are a drag on profit.
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