Small businesses are increasingly signing shorter leases, with 81% on leases of five years or fewer and therefore unlikely to face a rent review, according to an independent analysis of 91,000 tenancies. By comparison just over 3% of small businesses have a lease of over 10 years.
The thirteenth edition of the BPF/IPD Annual Lease Review also shows that 2009/10 was a significant year for rent free periods and break clauses as landlords and occupiers faced poor economic conditions. The move towards shorter leases, however, has been constant over a period of more than 10 years now also illustrating significant long-term change in the commercial property market and the economy.
The largest study of its kind ever completed, the data shows that a quiet revolution has been taking place in leasing practice since the early 1990s, when the vast majority of leases were what was called ‘institutional’, typically for 20 or 25 years, and often containing upward only rent reviews.
This data shows that the average lease length fell from 5.9 years in 2008/09 to 5.0 years in 2009/10.
Lease lengths for retail (5.4), office (4.7), and industrial property (4.0) have come down substantially over the past year from figures of 6.5, 5.4, and 4.6 respectively.
The average lease length for an SME was 4.1 years. The average lease length for a large company was 6.6 years.
Taking account of all sizes of business, 72% of new leases in 2009/10 were for five years or less, and 90% for 10 years or less.
The proportion of leases with a break clause increased to 29.4% in 2009/10, compared to 28.2% in 2008/09.
In new leases there was plenty of scope to negotiate a long period of ‘free’ occupation. The average rent free period in 2009/2010 was 10 months, with the average in the office market, 14.5 months.
Liz Peace, chief executive of the British Property Federation, said: “Leases have changed significantly over the past two decades with profound implications for landlords and tenants. For small businesses
