Do Small Business Tenants Need Protecting in Commercial Lease Negotiations?

During 2003 and 2004, the authors were commissioned by the UK Government to provide evidence on the operation of a voluntary code of practice agreed between landlords and tenants of commercial property in the UK and introduced in April 2002. One of the Government's objectives for the Code of Practice was to increase the awareness of small business tenants. Previous research (DETR, 2000) had suggested that small business tenants did not always take professional advice when taking leases, particularly from agents prior to agreeing the basic heads of terms. Solicitors were more frequently consulted but often after the commercial terms were agreed. This paper aims to identify the current situation of small business tenants when negotiating leases in the UK. The objectives are to examine both the process by which leases are negotiated and the outcome. It compares the available lease data on small businesses with larger tenants and will identify whether any differences exist in the negotiation process and the outcome of that process. The research will isolate gaps in this data and suggest a research agenda to fill those gaps. The research for the paper includes a preliminary interview survey of 46 agents and solicitors carried out in 2003 which informed a set of questionnaire surveys of tenants, landlords, agents and solicitors carried out in 2004. The surveys provide evidence of the negotiation process and the incidence of representation of small business tenants. In addition, analysis of data from the Valuation Office Agency and from the Investment Property Databank gives detailed information of trends in actual lease terms such as lease length, break clauses and rent review patterns, and data on business survival rates is available from Government.