Covid - catalyst or cause to changes in commercial property relationships?

12 Mar 2021

Look, the pandemic and lockdown have, obviously, caused great uncertainty throughout the business world, as well, of course, as in all other areas of life.

They seem to have accelerated, pretty sharply, pre-existing tends that were beginning to affect, in a quite fundamental way, the traditional relationship between landlords and tenants.

For example, in the 1980’s, 20 or even 25-year commercial leases for shops and offices, with 5 yearly rent reviews, were common. They were regarded as assets by both parties. They could be assigned for premiums by the tenants. They could be leveraged for funding by landlords. Now, of course, they seem, more and more to be liabilities for both parties.

Tenants, in particular, have realised that they need to be nimble. Their new business models don't necessarily involve renting expensive space on a long-term basis with the ever-present threats of personal guarantees, trouble in assigning the lease during its term and punishing schedules of dilapidations at the end.

And landlords are having to accept the reality of the new world order. If they accept a tenant, they are, in many senses, acquiring a business partner. They are having to understand, in a way they maybe never appreciated previously, that incoming rental income is directly dependent on their tenant's commercial success or failure. 

That's why rents based on turnover; much shorter leases - say 3 to 5 years; rent holidays; longer rent-free periods and a greater willingness to allow tenants to share or assign, are likely to become increasingly popular.

To a greater extent than ever before in my working lifetime, tenants, or would-be tenants can call more shots than ever. And unless landlords are more flexible than ever before, they could be stuck with unlet shops and offices for some time.

Whether such trends continue in medium or longer terms after the pandemic ends, remains to be seen. As they say, a moveable feast!

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