Model Commercial Leases: A property success story?

Model Commercial Leases: A property success story?
Almost one year after the Model Commercial Lease (MCL) suite of documents was launched, Tim Cooper, real estate counsel at Land Securities, examines how the documents have been received by the industry and reflects on his, mostly positive, experience with the MCL.
How has the MCL suite of documents been received by the property sector?

Generally it has been well received with support from various quarters, in particular many of the leading real estate law firms. It has been well publicised in the property press and one year after its official launch is being cited as a balanced lease. The launch itself was understated and to have got the traction and exposure it has received to date is testament to the quality of the product itself.

Feedback from landlord and tenant solicitors has been positive and where it has been used on transactions there is a noticeable drop in the number of amendments as against ‘traditional’ leases which tend to offer negotiation fall back positions.

What has been the degree of uptake?

Uptake among the wider commercial/institutional landlord community has taken time. From the outset it was acknowledged that the MCL was not going to be adopted unaltered by every landlord, and while it represents a fair position, it allows and accepts there needs to be flexibility to adopt it in whole or in part enabling landlords to keep their cherished positions wherever they want. Land Securities has adopted the MCL but there are certain areas where additional management or investment controls have been added to respond to the particular requirements of our portfolio. It is used not just on wholly owned assets, but also in joint ventures (JVs) without issue.

We have experienced in a number of instances when using a precedent other than the MCL, proposed amendments are lifted directly from the MCL. As a result it is being used as a touchstone where negotiating parties seek to agree a position, that view appears to be shared by other landlords and their advisors.

Since its launch the MCL committee has been expanded. The firms that are represented or were consulted during the drafting stage represent a large proportion of the landlords that grant the bulk of the commercial leases each year. Many of those firms have adopted the MCL as the basis for their precedent lease, or offer it as an alternative, with the result that a wide client base are, or will be, using the MCL. The MCL has also been used in educational and training environments, reaching a new audience. Tomorrow’s lawyers are becoming familiar with it even before they start at firms.

Has the MCL been effective in addressing the issues it sought to address?

The issues it set out to address were that both parties in a leasing transactions have different interests to uphold—landlords want to protect their assets, tenants need to carry out their business from the premises without undue interference. The two are not mutually exclusive. Agreeing a lease on terms both are happy with and in a timely manner is in both parties interests.

There were concerns from some quarters in the landlord community that it might be overly ‘tenant friendly’. It never set out to be that, but rather to achieve a position that all parties would be comfortable with, and recognised as a market-accepted position. This has reduced the number of points that are routinely settled, and allows parties to focus on the issues that are of genuine interest or concern.

The past year has seen a huge volume of property acquisitions and disposals. When Land Securities sold assets where the MCL or similar had been adopted there have been no issues arising from the form of lease—it does genuinely represent a commercially acceptable lease for the investment community.

Have there been any common issues with the MCL?

Feedback has been provided via the website and via those using the suite of documents. There are regular meetings of the committee to discuss points that have been raised and to decide on any actions. One year on, a round of updates are expected to be incorporated into the documents. These are as much to cover legislative changes (for example a change in the CDM regulations) as anything else. The committee has looked to simplify some of the provisions around alterations to try and simplify the definitions following user feedback. To call these ‘issues’ is perhaps misleading as any precedent will need to evolve. There are very few changes anticipated aside from those updates and immaterial linguistic amendments.

What's next for the MCL?

The MCL will continue to be promoted and evolve. The committee has expanded and will continue to welcome feedback and give it due consideration. There are no immediate plans to expand the range of precedents available having already provided a broad suite of letting documents and additional clauses. An update for the underlying leases will be released imminently, but as mentioned this will be much more evolution than revolution.

There are other initiatives out there which are aimed at regularising interactions between landlords and tenants, for example the alienation protocol which Land Securities is looking at endorsing. Again, it should not be viewed as something ground-breaking, rather it sets out a clear and pragmatic approach to interacting with our customers.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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