Owner Manager

Landlords already negotiating adaptable leases - Chartered Surveyors

02.12.2009
Despite the recent decision by the Minister for Justice Dermot Ahern TD to ban upward-only rent reviews in business leases, the Society of Chartered Surveyors says a recent survey shows that the nature of commercial leases being negotiated between landlords and tenants has already changed.

The survey was conducted amongst members of the Society of Chartered Surveyors a number of weeks ago.

“In this up-to-date survey, 96pc of our members, who represent both landlords and tenants, have confirmed that the nature of leases being granted has changed with almost half of the new leases granted in the retail sector incorporating turnover-based reviews,” said Director General of the Society of Chartered Surveyors, Ciara Murphy

“An overwhelming 91pc of respondents indicated that shorter-term leases are being secured which are unlikely to contain any rent review clause,” she added.

The survey also confirmed that variations are being granted in current leases despite an upward-only rent review clause. Some 95pc of respondents confirmed this to be the case, with a further 80pc indicating that other variations have also been granted.

“It was always the view of chartered surveyors that market forces would determine the nature of leases going forward in changed economic circumstances and our survey has proven this to be the case,” Murphy said.

Pre-funding of developments wil be affected
According to Senior Vice President, Peter Stapleton, this change in legislation will have a negative effect for pre-funding of developments as there will be no certainty of rental flow into the future.

Private investors will be required to put increased equity into acquisitions over and above the increased equity that the banks are going to require anyway as lending criteria and regulation gets tighter, he said.

“Inward investment, which is so desperately needed, will be affected as will investor’s confidence. The market will be less liquid and, of course, stamp-duty prospects for Revenue on commercial transactions will not look good.

“Substantial concessions have been an important part of lease deals offered to tenants by way of rent-free periods or fit-out allowances, but under the new regime this substantial trade-off will not be possible, as no contracting-out provision is provided for,” Stapleton warned.