Tenant Petition: "Market Rent" Under Lease Petition

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Background

The majority of UK leases require that any under lease is granted at “market rent”.

In a declining market, often it is in a tenant’s best interest to seek to under cut the market in terms of headline rental in order to achieve a shorter void period.

A financial analysis will invariable prove this, with an earlier letting, albeit at a lower rent, bringing significant cash flow savings in terms of business rates and property running cost savings.

However, landlords very often seek to use this clause to prevent an under letting if it is at a rent that is at a below the level they would like to see.

It is often difficult to prove what a market rent is in a sharply falling market.

Whilst a tenant can seek redress and damages through the court if the landlord is behaving unreasonably, this can often prove costly and difficult to prove and often the prospective tenant is lost as a result of the delay and uncertainty created.

In any event, we consider it reasonable for a tenant to seek to under let at a very low rent; even substantial below the so called “market rent” if they consider it in their best interest to utilise this strategy to secure an earlier letting and better cash flow position. After all, the superior landlord will be securing the same rent under their existing lease from their tenant and it is only the under tenant that is facing a direct financial impact by letting at “low” rents.

Even worse is where the lease prevents a letting below passing rent when rentals have fallen below the prevailing rent and the landlord can also in this instance prevent any sub-letting below the passing rent. Very often the landlord will waive this clause in return for a cash payment.

We consider these conditions that give the landlord the ability to frustrate a letting as a restraint of trade, and should be legislated against to enable tenants to adopt what strategies they see fit to minimise empty property costs. 

We are starting a group to lobby government to legislate against these iniquitous clauses and would be grateful for any support by signing our petition below. If you are able to site any specific examples where your organisation has encountered difficulties due to these clauses we would be grateful to hear from you.

Thank you for your support.

Giles Andrews BSc FRICS Andrews Denford & Boyd – gilesandrews@ADBLondon.com
DD +44 (0) 207 851 9603

Petition

To: Secretary of State for Business, Enterprise and Regulatory Reform:
The Rt Hon Lord Mandelson

Dear Sir

We the undersigned wish to petition HM Government to legislate to prevent the operation of  clauses in UK commercial property leases, that seek to control the level of rent at which a tenant may seek to under let, whether requiring that any under letting be at “market rent” or no less than “passing rent” .

We consider that these clauses are a restraint of trade and are causing commercial hardship for many occupiers seeking to reduce their property holdings where held by leasehold interest and where such clauses exist (in the vast majority of leases).

The abolition of these clauses will create greater transparency and liquidity in the commercial property market place and remove the ability of landlords to seek to frustrate under lettings taking place at reduced rentals. We do not consider this will impact adversely on property investment values, and will merely serve to “free up” the market place for accommodation being under let from existing leasehold interests and provide business’s the opportunity to reduce empty property costs by reacting to changing market conditions with these constraints removed.