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Is It Time To Bid Farewell To Commercial Leases?

Property developer and landlord Phil Stewardson comments

For months now we have questioned the viability of having commercial property leases for anything other than blue chip tenants. Having had a recent run of three 'problem' commercial tenants, the leases have turned out to be more of a hindrance than a help. On other sites we own, sites that are land-banked for future development, we have been keen to earn short to medium-term income without committing to a long-term agreement, so we opted for 'licences' instead of a lease.

Not one of these has been a problem. The tenants have moved in quickly - typically within seven days - whereas with a lease each party is committed to at least £1,000 in legal costs, agreeing to the terms can take months and then once agreed the lease has to be approved by the landlord's lender, which can take anything from 72 hours to a fortnight.

The licence we used was well worth the couple of hundred pounds that our lawyers charged. We have used it many times and it gives both parties more flexibility. We have learnt the hard way that it's great tying a tenant into a full repairing, 21-year lease with upward only 3-year rent reviews. The revaluation report looks great but if the tenant's business fails and they are a sole trader or small business then you aren't going to get paid. Therefore, the lovely thick lease you have sitting in your file isn't worth the paper it's written on.

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