Humberts - General - Property Specialist Calls For Government Re-Think

Date: 03 Dec 2004

It is time for the Government to re-think its flawed support for the banning of upward-only rent reviews.

That is the view of leading commercial property expert, Andrew Archibald of Humberts in Southampton, following damning revelations about the accuracy of an interim report into the effectiveness of the Code of Practice for Commercial Leases.

Figures contained in the interim Key Report, prepared by Reading University, tended to indicate that the lease code was not being followed - stating that, in 2002, 67% of leases still contained a five-year rent review whilst only 23% of leases contained no rent review at all - and potentially adding fuel to the government's argument for them to be outlawed.

Andrew's view is that the Investment Property Databank's admission that the data regarding the incidence and frequency of rent reviews had been incorrectly analysed, has reversed that position.

Using its more refined method of analysis, IPD has revealed that in reality some 49% of new leases contained no rent-review at all and only 37% contained a review at five years.

"When the voluntary Code of Practice came into being in 2002, the industry argued that the government's focus on upward-only rent reviews was misleading and unhelpful," commented Andrew.

"The commercial property industry is driven by market forces like any other arena of business and, I believe, is rightly resistant to the idea of legislation being introduced to attempt to control just one aspect of it.

"Humberts has seen a significant shortening of lease lengths over the last few years together with many more break clauses - a clear sign that the market is answering government concerns without the need for direct legislation.

"The IPD's revised figures are enormously significant. They demonstrate that the industry has responded to the need for increased flexibility and has delivered it. The issue of upward-only rent reviews has become irrelevant for occupiers, with over 50% of new leases not containing a rent review - the length of the lease means that they simply do not need to.

"These figures also need to be seen in the light of further research by the British Property Federation which was published last month demonstrating that lease lengths are also continuing to fall - from 7.8 years in 2002 to 6.8. A trend that will also have been contributed to by the introduction of new Stamp Duty legislation and the financial penalties this imposes on longer leases."

The voluntary Code of Practice was introduced in 2002 in response to the Government's manifesto for business and its commitment to improving flexibility and choice in the commercial property lettings market.

It also recently announced that it plans to consult on its options to make the commercial lease market fairer for tenants. These could include an outright ban on upward-only rent reviews, priced 'menus' of different lease terms, or forcing tenants to take leases of less than five years.

Andrew concluded: "The industry has been on probation for the last two years. The revised figures which underlie the Key Report are very much to be welcomed, but the industry's fate remains in the hands of the Government.

"The imposition of a statutory system is likely to be far more onerous than any voluntary code and the last thing that we want. It has the potential to put a stranglehold on an already sluggish lettings market and ultimately add to costs for tenants.

"It would appear that the industry is tackling the issue of upward only rent-reviews, but there are many other difficult issues of more importance to tenants such as alienation - the right to sublet their property - and the lengths of their leases. We can only hope that when the final report is delivered the Government will look at the overall picture and come to its senses."

Andrew Archibald - Humberts

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