How things have changed
Fast forward to today's market place and we see a very different picture when negotiating leases on behalf of tenants. More often than not new instructions for our tenant clients are for five year lettings or even shorter, with no rent review. Leases of a ten year duration are becoming rarer (even with the ability to have options to terminate or break such leases). This significant shift in lease length has tied directly into a dilution of the repairing obligations placed upon tenants within such leases.
Many new leases now restrict the tenant's liability to keeping the interior of the let property in good condition or keeping the property only in the condition it was at the start of the lease (even if it that condition was not perfect) - leaving the landlord to bear the costs of maintaining the roof, external walls and other structural parts or to make good any deterioration caused by any defect that existed at the start of the lease. Such leases sometimes also leave the landlord bearing the insurance costs.
Benefits to the tenant
Shorter leases with limited repairing obligations and no rent reviews place much less potential financial liability upon a tenant. These new types of lease allow a prediction of liabilities and outgoings and an ability for the business tenant to budget in a relatively certain manner. Dilapidations liabilities during and at the end of the Lease are reduced in tandem with the limited repairing obligations and outgoings by way of Stamp Duty Land Tax are restricted in light of the shorter term.
In these uncertain times, shorter lease lengths, or leases with tenant breaks on short notice, give tenants more flexibility. Occupiers have the comfort that if things don't go as well for their business as they hope, at least they won't be left bearing the costs of property that has become surplus to their requirements.
Downsides to the tenant
As with most things, there are downside as well as upsides. Scots law does not give business tenants any automatic right to renew their leases at expiry. Shorter lease durations means that tenants cannot assume, in their long term business planning, that they will be able to continue to occupy the same property.
In the past, some tenants have secured business funding by using their lease right as part of the security available to a lender, however as no security can be taken over a short lease (one of 20 years or less) this avenue is closed for these new types of letting.
Finally, short term lettings are often done, to save time and costs, on the basis of "off the peg" leases or licenses. These are usually drafted by the landlord's solicitors, and more than likely cover everything that is important to the landlord. Their attraction is in their apparent simplicity and the reduction in time and costs involved in getting the deal concluded. Tenants should however be aware that what appears to be simple and straightforward might hide a gap in the express wording that is filled in by common law - to the tenant's detriment.
Where are we going?
For the time being, it seems that short duration leases are here to stay.
I certainly welcome clearly drafted documents (expressed in plain English) that say what is required, and no more than that - and that are, from the outset, relatively well balanced between the interests of both parties. It benefits neither party to have to start with an unnecessarily long one sided document, as this usually lead to lengthy (and often therefore costly) legal negotiations - going over the same old ground, making the same old changes. However, one word of caution. If your lawyer didn't draft the "simple" document that is being presented to you by a landlord, then do take care that it doesn’t contain traps that are not immediately obvious on a first reading. In most cases, prospective tenants should still take legal advice to ensure that what they are about to sign up to is what they expect, with no hidden liabilities.
Less is more? Not always perhaps!