| The government chose to publish the Reading report on 28 February 2005 without
adding its response, leaving the question of whether it will ban upwards
only rent reviews (UORR) still open. To view the report (479 pages) click
here.
The government may reveal its intentions in any manifesto it publishes ahead
of the anticipated election or leave its response to the summer, if it is
re-elected.
Aims and objectives of Reading’s research.
The overall aim of the research was to monitor the operation of the Code
of Practice for Commercial Leases and to assess its impact on the commercial
leasing market. In particular, it was to assess the degree of choice in the
commercial property leasing market focussing on alternatives to UORR. This
in turn will inform future policy decisions about whether to introduce statutory
controls over lease terms. Whilst the report covers other lease terms, this
note deals particularly with UORR.
Incidence of reviews in leases
Over the past 5 years the report reveals that there has been an increase
in leases without reviews from around 45% to just over 50% in 2003.
Term and type of review
The data shows that, where there is a rent review, review term and type
have not altered. The recent information that has been collected puts the
proportion of upward only market reviews at 99%.
The supporting evidence from the interview survey of property professionals
and the questionnaire survey of landlords, agents and solicitors confirms
the domination of UORR and that the use of alternative review types such
as fixed reviews, stepped rents and retail price indices is infrequent and
not increasing.
Commercial negotiations of terms
The tenants who did negotiate letting terms confirmed that lease length
is the most frequently discussed lease term. This was followed by break clauses,
repairing liabilities, rent review interval and rent. The type of rent review
was the least often negotiated term, apart from contracting out of the 1954
Act.
The negotiation of the rent review clause
As previously indicated, it is clear that the UORR is dominant and there
is no sign of any change save in the number of leases that have no review
in them.
The responses of landlords and tenants show clearly that tenants virtually
never ask for up/down reviews and that landlords virtually never offer them.
Landlords are not actively offering alternatives, and, because they are
rarely asked for, their own perception of their likely response is not being
put to the test. Some case study landlords admit that they would reject any
request for an up/down review whilst equal numbers suggest that they would
offer one at a price.
Conclusion – rent review
There is very clear evidence of an increasing number of leases that do not
contain any rent reviews and, by 2003, these amounted to just over half of
all leases.
Where rent reviews exist, the evidence is very clear that there has been
no change in the type of review clause. The UORR clause is virtually universal
and the incidence of alternative review types still rare.
Overall conclusion
The Reading report concludes that overall, taking into account all lease
provisions, there are broad indications of improving flexibility.
Reducing lease lengths, more leases without rent review and the increased
use of schedules of condition combine to give tenants more flexible arrangements.
This move towards greater flexibility is not occurring in assignment, subletting
and types of rent review.
The report concludes that obtaining flexibility or choice in exit strategy
is a more important issue between landlord and tenant than rent review type.
Evidence reveals that tenants are far more interested in controlling initial
costs than paying for a future benefit.
Yvette Cooper, Parliamentary Under Secretary of State at the ODPM, announcing
the publication of the report on 24 February 2005, said: “We will announce
our conclusions in due course….”
This edition of “the law made plain” is written to provide you
with general information. It is recommended that you seek specific professional
advice before taking any action.
© Copyright plainlaw 2005
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