Flexible Property Leasing and the Small Business Tenant

Small businesses and commercial property leasing are two important policy areas for the UK Government. Hence, it has been promoting flexibility and choice in commercial leases as part of a wider enterprise and productivity agenda, and attempting to improve the awareness of small business tenants on property leasing issues. This article addresses issues of flexible leasing specific to small business tenants. Through an analysis of lease data from Investment Property Databank and a questionnaire survey of tenants in England and Wales, it examines the negotiation process, outcomes, and trends stemming from that process. There are major differences between small business leases and those for medium and larger sized companies. Small businesses have shorter leases, fewer rent reviews and earlier breaks. There are also differences in the negotiation process, most noticeably as between the very small micro business and other small businesses. A significant number of very small tenants take no commercial advice when negotiating leases even though many of them have no prior experience of taking leases; the smaller the business the less likely they are to take advice. While flexibility and choice in leasing has improved in recent years, the awareness of small business tenants on leasing issues is less good. Part of the problem may lie in the difficulties of dissemination to a diverse group. However, if voluntary mechanisms cannot demonstrably improve information flows to micro businesses, the small business issue may yet be the catalyst for legislation on all business leases, legislation the UK property industry has fought desperately to avoid for the last 13 years.