A standard lease is the Holy Grail for commercial property owners and tenants, and although there is no one size to fit all situations, several options are available
Commercial properties, their owners and their prospective tenants differ considerably, so it is hardly surprising that the quest for a standard lease is like that for the Holy Grail: prolonged and, so far, unsuccessful.
Creating one document that meets the needs of all situations, can satisfy the commercial objectives of all parties, yet is short, intelligible and easy to operate in practice, has proved impossible.
However, clients and their lawyers generally share the twin objectives of using standard documentation: reducing the time and minimising the cost of getting from agreement of the commercial terms to moving in. Shorter void periods maximise landlords’ income; tenants can start trading earlier, and more efficient pricing structures are available because a standard transaction can be run with more junior staff without increased risk.
Moreover, consistent lease provisions make managing a portfolio easier and cheaper, because there is less need to identify any lease-specific foibles.
Getting it right
The secret to making standard leases work is to choose the right one. Rather than having one “catch-all” precedent, pick the one that will best suit a situation. There are now several on offer (see box below) and here, their main features, using a retail property as guinea pig, are compared. Although all the standard templates can be adapted, most aim to discourage changes.
Only the Model Commercial Lease (the “MCL”) expressly indicates that it is a starting point for users to customise. Even here, pinpointing the changes should be possible because a user protocol (yet to be released) will require the initial draft to be submitted along with a mark-up comparing it with the standard template.
Those minded to use a standard template should ask these four questions:
- Is the agreed term longer than five years? If so, look first at the MCL and Law Society templates.
- What type of tenant payment has been agreed? If it is an “all in” rent, use the RICS lease. If there is no rent, but only payment of outgoings, look at the Meanwhile lease.
- Have the parties agreed to have a rent review regime? If so, the RICS and Meanwhile templates are inappropriate.
- Is the tenant to be able to break early? The Law Society template has no such option. The Meanwhile lease has greatest flexibility.
Then consult the table below to see if the relevant template meets your needs.
It will be interesting to see if, in a few years’ time, the new MCL has beaten its rivals into submission. The difficulty will be laying hands on the data to indicate which template was used, why and whether it did the trick.
Comparison of standard leases suitable for retail units
(click on image for expanded view)
- The Model Commercial Lease has several variants
- RICS Small Business Retail Lease?
- Law Society Business Lease of Part
- Meanwhile Lease
Sue Highmore is an editor with Practical Law Property