Plans to ban upwards-only lease opinions in commercial leases will “undermine property values”, say property professionals.
Deputy Prime Minister Angela Rayner included the measure within the authorities’s English Devolution and Community Empowerment Bill final week.
The laws proposes to abolish these clauses in new commercial leases that cowl excessive road companies, workplaces and manufacturing throughout England and Wales.
The Bill says: “Upwards-only lease assessment clauses result in various market inefficiencies, together with greater rents throughout financial downturns, resulting in decrease earnings for tenants and a danger of upper costs for customers.”
Some agricultural leases might be exempt.
The laws provides: “Following the ban, if a upwards-only lease assessment clause is in a brand new or renewal commercial lease, the requirement for lease to not lower might be unenforceable; the brand new lease might be decided by no matter methodology is specified within the lease, for instance in step with modifications to the retail value index.
“The new lease could also be greater, decrease or the identical because the earlier lease.”
However, Fladgate legislation agency accomplice Gavin Whitney says the transfer introduces a important change to the commercial property market with minimal session”.
Whitney provides: “Upwards-only lease opinions are a typical characteristic of nearly each commercial lease, offering property traders with predictable earnings streams that underpin mortgage borrowing and long-term funding methods and shield towards inflation.
“This proposed ban dangers inflicting extreme unintended harm on the broader economic system, which is already beneath pressure.
“By undermining property values, it may scale back returns for on a regular basis property house owners and pension funds alike, leaving many worse off, together with the federal government itself via decrease capital beneficial properties tax and stamp responsibility land tax receipts.”
Mattison Public Relations managing director Nick Mattison provides: “Property landlords, together with pension funds, will argue that banning upwards-only lease opinions will undermine the worth of that property and make it tougher to safe lending to finance new commercial property developments.”
Mattison argues the transfer modifications “a commercial property from being a safe fastened earnings model funding to 1 the place the cashflows are way more risky.
“The retail trade has been very clear that a few of the uncommon options of the UK’s property market – equivalent to upwards-only lease opinions and overly lengthy leases – add considerably to their prices.”
