Speaking at a conference organised by national law firm, Mills & Reeve, on the proposed Code of Practice for Commercial Leases in England and Wales, Jeremy Newsum, former President of the British Property Federation and Group Chief Executive of Grosvenor, called for the removal ofthe 1954 Landlord and Tenant Act as an inhibitor to the Government's intentions for the new Code.
Mr. Newsum called the Act a "false idol" which, along with the upward-only rent review, signalled a warning of the effects of legislation on the operations of the UK property market. He saw regulators' attempts to manage demand as one of the key factors in the high and often inflexible occupancy costs which typify the UK market.
Historically, the UK suffered from a post-war shortage of space which made security of tenure necessary as the market was unbalanced. This was exacerbated by the emergence of institutional investors with a different agenda to occupiers, shortening of the business planning cycle and an element of inertia amongst property professionals leading to a lack of effective action.
The Code of Practice, which incorporates 23 recommendations with proposals varying from flexible lease-lengths to alternatives to the upward-only rent review, was billed as " the last chance saloon" for the property industry to decide on a more flexible approach to leasing in England and Wales. The Mills & Reeve Conference, attended by 100 leading figures in the market, was chaired by Robert Dean, the RICS representative on the DTLR Working Party on Commercial Lease Reform and addressed by Jeremy Newsum; Klaus Schreiner, President of the Association of Property Bankers and Head of the London branch of Westdeutsche ImmobilienBank; John Keogan, Property Director of Saville Gordon Estates PLC and Guy Hinchley, senior property partner at Mills & Reeve.
Commenting on the effects of the proposed Code on lending institutions, Klaus Schreiner summarised this as one of managing higher risk due to shorter leases, more break-clauses and changing rental levels. Analysing French and German ownership and lease structures from the lenders perspective, Mr Schreiner concluded that " there will be no exodus of foreign lenders from the UK market, in part because the market is too important in terms of their European portfolio and indeed, these lenders are more than used to managing the extra risk which already exists in their own domestic markets."
He believed that borrowing costs may rise as financiers price their products in line with higher costs and develop new forms of financial structures to counter the lost security of a secured long term income stream. However, this would be partly offset by increased competition between lenders. He also predicted the development of greater risk sharing, joint venture partnerships and limited liability partnerships and the increase of US-style of financial instruments and capital market transactions to off-load costs and risk. "We have written to all our members to encourage them to support the provision of the Code and are going to closely monitor whether they are so doing in the future", he commented.
John Keogan of Saville Gordon Estates welcomed the increased flexibility of the Code, citing the Company's 'flexilet' product as an example of where many of the proposals in the Code are already fully in commercial use in the secondary industrial market to general acclaim from Saville Gordon's tenants. He believes that flexibility is a market-winning tool and that, in a variety of forms, something similar could be adapted for use in many property transactions.
Following Guy Hinchley of Mills & Reeve's analysis of a number of recommendations of the Code from the legal perspective, the Conference was left in no doubt that whilst the Code is voluntary, the Minister, Sally Keeble has made it clear that the Government expect there to be significant changes in private lease contracts in the English letting market. An interim review will be conducted after one year with a formal review after two. Monitoring will be conducted by the DTLR and will include complaints from tenants and their representatives. The view is that if the property markets in not seen to comply, then legislation will be on the agenda.
The Conference agreed that the proposed Code was long overdue and UK property as an asset class would benefit greatly from the increased flexibility of ownership that would follow.
Mills & Reeve is a national law firm with 61 partners, 250 lawyers and total staff of 500 operating throughout the UK from offices in Cambridge, Norwich, London and Birmingham. The firm offers a full range of corporate, commercial, property, litigation and private client services.
The Mills & Reeve Property Group operates throughout the UK and consists of 50 lawyers covering all types of commercial property transactions including specialities in Construction, PFI and major projects, Environment and Planning.