Standardising commercial real estate leases

Standardising commercial real estate leases

Is the new form of Model Commercial Lease (MCL) being welcomed by the commercial property sector? Edward Benzecry, partner at CMS Cameron McKenna and member of the British Property Federation (BPF) Commercial Committee, says while not obliged to do so, a number of law firms are looking to adopt the MCL.

How did you become involved with the MCL?

The MCL Initiative originated from the BPF. I was asked to chair the Committee as a result of a paper I presented to the BPF Commercial Committee some three years ago. The paper was headed ‘Lease negotiations are torture’.

Why do we need the MCL?

At the moment we have a situation where, on investment-grade property, almost every firm of lawyers has its own standard form of lease, as do many of the large landlord institutions and property companies. They all do exactly the same thing, it is just that they each use different wording and with clauses and schedules in a different order. This means that each lease needs to be negotiated from scratch, leading to unnecessary delay and extra cost. The current system does not benefit anyone:

  • landlords have to wait for their void units to become income producing

  • tenants have to wait to use premises for the benefit of their businesses

  • lawyers are often losing money as a result of low fixed fees

What were the key issues you felt needed to be tackled and standardised within the MCL?

Our main aim was to create a suite of documents which was widely adopted by the landlord community. We thought that it would be foolish to aim for documentation which would be acceptable to both landlord and tenants in first draft—that is a holy grail which is frankly out of reach in the foreseeable future. Our view was that, if we could have the landlord industry adopt standard lease documents, then both landlords and tenants would become familiar with the starting point. That in itself would drive out a huge amount of time and cost.

We also anticipate that this standardisation will quickly bring the realisation with it that a huge amount of any lease is actually boilerplate and uncontroversial. Standardisation of that boilerplate alone would be enormously helpful.

Having said that, we were aiming for a product that would be adopted by landlords. We were also keenly aware that we should not undertake this initiative in a vacuum—we should be aware of the regular concerns of, and amendments made by, the tenant community. We took the view that, where there are tenant amendments which are regularly accepted by landlords without question, we should draft the standards to include those amendments from the start. Thus we have allowed for things like:

  • landlord costs to be reimbursed by the tenant to be reasonable
  • detailed safeguards protecting the tenant where a landlord enters the premises
  • lease Code compliance in areas such as:
    • assignment (where the landlord can only require an authorised guarantee agreement (AGA) if reasonable)
    • alterations (where the landlord can only require reinstatement if reasonable), and
    • break clauses (where the only conditions are payment of the principal rent and the tenant giving back the premises free of all subleases)

Why do you think previous attempts to standardise the commercial lease have failed and why is MCL different?

Many of the previous attempts have been aimed more at smaller premises (eg BPF standard lease, Law Society standard lease). They have not failed as such, but these documents are rarely used for investment-grade lettings. The last time I think anyone attempted standardisation of investment-grade leases was the DJ Freeman Leasebook. That was a good product, but was probably ahead of its time in terms of the industry’s willingness to pursue standardisation. I suspect also that the fact it was being sponsored by an individual firm did not help.

The MCL is different because it is an industry-led initiative originating from the client-side, rather than from lawyers. No individual firm or organisation which has been involved in the initiative is looking to take any individual credit and that should help people overcome their prejudices.

We are also in an information age, where knowledge is shared freely and instantaneously. There is very little advantage left available with something like an individual form of lease.

The construction industry and the banking industry have both managed to embrace standardisation. Surely it is only a matter of time before the real estate industry does so as well with leases (a fundamental plank on which the real estate industry relies). We are optimistic that that time has come.

Have clients welcomed this approach?

We consulted widely through the industry, both with the client community and with other lawyers. In general, the approach was warmly welcomed by almost everyone. Interestingly, tenants have been just as interested and welcoming as landlords.

Have you been able to gauge uptake in the MCL since its release in July?

It is still early days. I know that the MCL has been used in a number of one-off pilot schemes and I believe has been well received. There has been even greater incidence of people using individual clauses or concepts from the MCL.

I am aware that a number of law firms are looking to adopt the MCL and are currently going through the process of taking the suite of documents into their own systems, consulting with clients, and amending as appropriate to cover any individual demands or particular policy approaches.

It is important to note here that we have stressed that people are not obliged to adopt the MCL verbatim. People are at liberty to make whatever changes they wish in order to suit their own needs. We felt certain the project would fail if we were prescriptive. In practice, we do not anticipate wholesale amendments as people come to appreciate the quality of the product.

Edward Benzecry is a partner at CMS Cameron McKenna and member of the British Property Federation (BPF) Commercial Committee.

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

First published on LexisPSL Property. Click here for a free trial.

Related Articles:
Latest Articles:
About the author: