The problem
You own a restaurant business and you are looking to expand. But the owners of the site you want have offered you very inflexible non-negotiable lease terms on the new site.
Expert advice
If this happens, the restaurant owner should look at how the new Code of Practice for Commercial Leases in England and Wales could work to his or her advantage when negotiating lease terms.
In its Business Manifesto for the 2001 General Election, the Labour Party committed itself to the promotion of greater flexibility in the commercial property market, which promised to be of great benefit to restaurant and hotel operators. Among other things, it aimed to promote alternatives to upward-only rent reviews, which it sees as clearly unfair to tenants. In response to this, in April 2002 the commercial property industry launched its revised Code of Practice for Commercial Leases in England and Wales (www.commercialleasecodeew.co.uk).
The key aim of the code is to encourage lease terms that satisfy the modern business requirements of the occupiers, rather than simply satisfying the requirements of those financial institutions that traditionally fund and own property. These institutions usually insist on long leases with upward-only rent reviews, which are unlikely to be suitable to most restaurant owners.
So, for example, Recommendation 4 of the code encourages landlords to offer tenants a choice of length of lease term, including break clauses where appropriate. It also urges that those funding property should make every effort to avoid imposing restrictions on the length of term that landlords might offer.
In total there are 23 recommendations. They include:
* Alternatives to upward-only rent reviews, including indexed or up/down rent reviews.
* A reduction in the number and type of conditions and restrictions imposed where a tenant wants to assign or sub-let a lease.
* That alternative lease terms, where offered, should be appropriately priced on a risk-adjusted basis.
* That there are up-front estimates of service charges and other costs.
Check list
If you're thinking of acquiring a lease or renewing an existing lease on commercial premises, there are several things you can do to make sure the code works to your advantage.
* Insist your advisors negotiate lease terms that suit your business, not just the landlord's requirements
* Ask your property consultant to advise on the appropriate pricing of any alternatives offered by landlords
* If the code of practice is clearly not working to your satisfaction, bring this to the attention of the property industry's professional institution, the Royal Institution of Chartered Surveyors (RICS). The RICS monitoring group (David Melhuish, 020 7695 1535) will be reporting to the Government next Spring on the action taken by the industry.
Beware!
The Government has given the property industry two years to demonstrate that the code works, before considering legislation.
There is much scepticism in the sector that, because of its totally voluntary status, the code will struggle to influence the market, where the balance of demand and supply is often the prime factor. Many are suspicious that there is no incentive for landlords to change existing leasing practices.
Accusations have also been made that tenants' apparent lack of interest is deliberately sabotaging its success, presumably in the hope that legislative intervention will result in the abolition of upward-only rent reviews, for example.
However, the blame must lie principally with the property industry itself. In an unusual step, last October the RICS wrote to 100 top property consultants in an effort to bring the code to the forefront of the industry's agenda. It said: "The choice is ours. Either we adapt voluntarily to the mood of today, or change will be forced upon us."
Contacts
Nigel Ball, Fuller Peiser
020 7647 9470
nball@fuller-peiser.co.uk
http://www.fuller-peiser.com
Code of Practice for Commercial Leases in England and Wales
www.commercialleasecodeew.co.uk