Business Rents

Part of Petition – in the House of Commons at 10:53 pm on 10th November 1992.

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Photo of Tony Baldry Tony Baldry Parliamentary Under-Secretary (Department of Environment) 10:53 pm, 10th November 1992

If my hon. Friend will forgive me, I do not intend to give way just yet, because a number of points have been raised and it would be unfair of me not to try to cover them in this short debate.

Over the years, the United Kingdom economy has benefited from substantial inward investment in business property, which, to a degree, has been attracted by the sophisticated property market in this country. Business is the lifeblood of our economy, and we need to have tenants whose businesses are thriving. We also need a healthy commercial property sector nurtured by landlords who invest for the future.

Successive Governments' policy of non-intervention in business tenancies gives tenants and landlords freedom to negotiate the terms of the lease including the length of lease, rent levels, rent reviews and dispute terms, in the light of current market circumstances, thus avoiding the distortions that invariably result from statutory controls. In exercising his or her business judgment, the tenant will obviously take fluctuations in the marketplace into account. Clearly, an important part of that business judgment is taking appropriate professional advice about the terms of the agreement and market rental levels on commencement.

Many of the present problems relate to the terms of a private contract. It is entirely a matter for negotiation what terms are included. Upward-only rent reviews, for example, have understandably been mentioned this evening, but they are not covered by a specific statutory provision, being neither prescribed not proscribed by law. It is for contractual negotiation between an individual landlord and tenant at the outset whether such terms are included in a lease.

Under an upward-only rent review, rents increase to the market levels pertaining at the time of review. If market rent levels are less than the current rent, there is no increase, but no entitlement to a reduction under the lease. My hon. Friend the Member for South Hams (Mr. Steen) made an important point here: as these are contractual terms entered freely by the parties, which can be freely varied by the parties, it may well be in the best interests of the landlord to agree to other rental levels in the light of current difficult market conditions in order to avert the risk of a vacancy arising if business pressures on the tenant become unsustainable. That is an important point, of which all involved should be well aware.

Similarly, it is entirely a matter for the parties negotiating the lease to decide what, if any, arbitration clauses are included in the terms of the agreement. On the basis of those terms, rent reviews take place, although in some instances a landlord and tenant may agree to go to arbitration even when that is not specified in the lease. The Government take the straightforward view that landlords and tenants should be free to negotiate agreements in the open market on whatever terms they decide. It is in both their interests that they should have flexibility to agree terms in the light of particular circumstances and not be constrained by statutory provisions.

The 25-year term, common in institutional leases, has been said by some to handcuff tenants to landlords, but it is a contract term which the parties have freely and voluntarily agreed. There is no statutory obligation to agree this length of lease. Also, it has to be recognised that statutory measures to proscribe such leases could have adverse implications for future investment and ultimately lead to a shortage of premises to let.

I turn briefly to the report's proposal for the compulsory registration of all the terms of United Kingdom commercial property leases with the Land Registry. What happens now is that leases over 21 years are registrable, but, contrary to what is implied in the report, the 1954 Act specifically states that copy leases and copy mortgages are not available as of right under the Act. Professor Burton's proposal would involve changing the law, would be resource-intensive, and would not be favoured by those concerned with commercial confidentiality. Moreover, it is not clear whether such a change involving charging would be warranted, and indeed, whether it would achieve the desired transparency.

As regards rent dispute procedures, the comments of my hon. Friend the Member for Tiverton, together with the associated recommendation for an enlarged Land Tribunal, have been noted with interest. However, such suggestions have been made before, of course, and raise far wider considerations. That is not a reason why they should not continue to be considered, but one must recognise that there are considerable implications and ramifications if one considers how the state might start to interfere in what has hitherto been freedom of contract between willing and voluntary partners.