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7 June 2013
Just how serious environment minister Nick Raynsford was when he threatened the prospect of legislation if the property industry failed to offer tenants more flexible terms may not become clear until after the next election. Of course, the wider debate has been rumbling on for a few years now, but Raynsford set the alarm bells ringing in January, principally over worries that tenants are not getting enough choice over the terms of their leases - upward-only rent reviews being the most striking bone of contention.
The property industry is wasting no time in trying to stave off the threat. Various taskforces have come up with ideas to make the bargain between landlords and tenants more convivial. It makes sense that property lawyers should be involved in that debate - this is their market too, and surely it is better to arrive at a satisfactory solution in tandem with the negotiations than to patch something on afterwards. Life for property lawyers would also be a lot easier if greater standardisation cut the laborious process of amending leases.
To some extent lawyers are involved: the taskforce set up by the Property Industry Forum, for example, is chaired by Law Society rep Philip Freedman of Mishcon de Reya; and law firms are well represented on the rolls of bodies such as the British Property Federation and the British Council for Offices.
But what about lawyers on a day-to day-basis? There is not a great deal they can do about upward-only reviews. While they do structure reviews in different ways, the decision on whether to use an upward-only review is very much a commercial one. But there are many more moot points: there is the actual length (normally 70-80 pages) and complexity of legal documentation and the ritual dance by landlord and tenant before they reach the same old lease terms.
Isn't it a cop-out for lawyers to see themselves as helpless to change these things unless their client demands it? Granted, they are often faced with landlords loath to compromise from the outset for fear that the prospective tenant will try to improve on that position. But clients can argue that they are not lawyers and would not know how to achieve such benefits.
Linklaters & Alliance has been particularly far-sighted in addressing such problems. Real estate partner Christopher Coombe and associate Anne Byrne spent much of last year working with property company MEPC to streamline its shopping centre work and develop what they term "efficient leasing". They came up with leases that are balanced between the position of the landlord and tenant, written in plain English and shorter in length. It was three months before they went live, but when they did the innovations were well received by tenants. By sending out drafts with amendments that were likely to be accepted, three or four weeks of negotiations were cut out.
As bad luck would have it, the work had to end prematurely with the arrival on the UK scene of Australian shopping centre giant Westfield, which last September was strengthened in Europe via a joint venture deal with MEPC, making it one of the largest commercial landlords in the UK. Westfield is to buy two more centres from MEPC, which is leaving the retail sector. Linklaters was conflicted out of working with Westfield due to a relationship with rival Australian developer Lend Lease. But Westfield's arrival is likely to have a positive effect - it is keen to spread the approach it uses back home and in the US, where retailers occupy centres on five to seven-year leases. Byrne has been asked by Iain Watters, an MEPC director and chair of the lease reform taskforce set up by the British Council of Shopping Centres, to get involved when the group draws up detailed proposals and looks at legal relationships.
Clearly it pays for both lawyers and their clients to demonstrate assertiveness and innovat
ion. Linklaters' work with MEPC grew out of a good lunch and ongoing discussions about how things could be better. MEPC's surveyor Jones Lang LaSalle was also closely involved in the initiative. All parties, then, need to get away from the mindset of not doing something unless they have to. After all, there are rewards for everyone concerned. And lawyers would be among the first to point to the dangers of allowing legislation to interfere in the commercial bargain they draft between landlord and tenant.