Are shorter Commercial leases the 'new norm?'

"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."
Nigel Hodge, Partner, Commercial, Norwich.

With market uncertainty since 2020, Commercial tenants are looking for shorter leases with increased flexibility.

The last three leases on a landlord clients’ portfolio that our Norwich Commercial team has agreed have been 10 years but with tenant breaks at year five, 10 years with a break at year three and a five-year lease 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.

This should give landlords and tenants greater flexibility to adapt their leases to changing market conditions leading to more efficient use of Commercial space.

This is because frequently, occupiers 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 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 in the Norwich office on 01603 629871.