Background
Last year the government introduced a scheme allowing vacant retail units to be occupied by individuals and groups for the purposes of running them as shops or exhibitions on a strictly non-commercial basis. The aim is to utilise such space, which would otherwise be vacant, to enable a retail unit to be let for any period up to 6 months without having to pay any rental or premium costs. Although the Government intended the leases for non-commercial purposes such as art exhibitions, there is nothing preventing landlords from adopting the principle of the scheme and using similar arrangements to entice commercial tenants. Obviously, certain lease provisions would require more detailed drafting to take into account the commercial makeup of the tenant but on the whole there is no reason why this cannot be adopted for commercial tenants.
The form of the lease
A meanwhile lease contains many of the provisions to be found in a short-term commercial lease although it is based on the premise that it is to be granted to a tenant for non-commercial use.
Although no rent and/or premium will be payable, it will allow the Landlord to claim insurance and service charge payments whilst the usual electricity, water, gas and rates will be paid by the tenant. Furthermore, it is advised that the lease allow for a damage deposit to be collected from the tenant to protect the Landlord from any damage sustained to the property during the period of the lease. In terms of placing a value on the deposit amount, the Landlord is advised to consider the term of the lease and in particular the nature of the tenant’s proposed use. In addition, it should also consider the existing condition of the property.
As would be expected it will allow for the Landlord to continue marketing the property together with a right to terminate the lease at short notice in the event that a commercial tenant is found.
If the term of the lease is more than 6 months, the Landlord should exclude such a lease from sections 24-28 Landlord & Tenant Act 1954 which grant tenants statutory rights to remain at the property once the term has come to an end. Indeed, there would be no incentive for a Landlord to grant such a lease if the tenant’s statutory rights were to remain.
What’s in it for the tenant?
As the government initiative is aimed at non-commercial uses, this type of lease is primarily for those tenants requiring space for arts and community based projects. However, as mentioned above such a lease can be used to accommodate commercial tenants. In the main, the scheme allows tenants an opportunity to show case community and art based projects in potentially prominent high streets sites. Furthermore, as no rent and/or premium will be payable, the main tenant expenditure will be limited to rates and service charge payments.
What’s in it for the landlord?
The obvious incentive for Landlords is this scheme will help reduce the risk of properties being left empty and consequently attracting empty property rates and reduce the detrimental effect on shopping centres/high streets of empty retail units. Furthermore, as found with residential properties, such buildings if left empty for a considerable time are unfortunately often the target of vandalism and squatters. This scheme should, if nothing else, limit the opportunity for either to take place providing a landlord with short term occupant until a long term tenant is found.
With a general election approaching this seems a last attempt by the Government to revitalise recession hit high streets. It is however interesting that the Government has directed such a scheme for non-commercial tenants bearing in mind the policy behind this aims to kick-start the economy within local communities. It would have been a far better idea for the Government to direct its efforts at keeping commercial retailers in business rather than merely assisting landlords to avoid empty property rates. Statistics on the popularity of these leases is somewhat limited and it will be interesting to monitor their use over the coming months. The benefits for non-commercial and less profitable tenants cannot be overlooked. Although such leases can be terminated upon short notice, the opportunity to occupy high street units at minimal cost provides ideal opportunities for such tenants, a situation that would have been unthinkable in the height of the property boom.