By Rebecca Evans, Associate in the Real Estate Department at Fox Williams LLP
Our recent article on Pop-Up Shops illustrated an increasingly popular way for landlords to address the growing issue of empty retail premises on the UK high street. Vacant shops present a problem to landlords for a variety of reasons not least due to the significant business rates they face paying on empty units and ongoing costs of insurance, maintenance and security. As an alternative to Pop-Up Shops, Meanwhile Use Leases (MULs) are a Government-backed means of filling vacant shops on a temporary basis and were developed particularly in light of the recent economic downturn.
The Meanwhile Project
The ‘Meanwhile Project’ has been set up jointly by the Communities and Local Government Department and the Development Trusts Association as part of the Revitalising Town Centres policy launched in April 2009 and is backed by the British Property Federation. A set of template MULs have been published for use by landlords and tenants wishing to enter into this kind of arrangement and they are freely available from the Meanwhile Project’s website. The intention of MULs is to allow non-commercial tenants, such as charities, voluntary organisations, learning providers or local artists, to occupy premises on a short term basis for little or no rent, which they may not otherwise have been able to afford, whilst at the same time providing the benefit of occupied property to landlords. A boost to the local high street is also a major drive behind the project with a push to increase footfall in declining areas with popular community based projects.
Issues for landlords
Landlords may wish to consider offering MULs to new tenants for the following reasons:
- Low administrative and legal costs as precedent documents have already been created for public use.
- Reduction of overheads, with utility bills, security and insurance costs being paid by the tenant. The responsibility for business rates will also usually be passed on to the tenant during the term of the lease, although the rating may in fact be reduced to zero for charities.
- Commitment from tenants to return the property to the landlord in the same condition it was taken, with the added comfort of ongoing maintenance of the property and discouragement of squatting which may become an issue for properties left vacant for long periods.
- Tenants have to agree to waive any rights of security of tenure they may have under the Landlord and Tenant Act 1954. This avoids any issues that may arise from the grant of a licence to occupy the premises, rather than a lease, should the licence be construed as giving the tenant exclusive occupation. The landlord can be sure that the letting is short term only and could terminate the lease with little notice if the opportunity for a commercial tenant arose.
- Separate precedent MULs are available for use in circumstances where a landlord would prefer the reassurance of an intermediary, such as a local authority or charity, becoming its direct tenant with the occupier then taking a sublease of the property. Alternatively the landlord can request the intermediary acts as a guarantor for the tenants obligations.
- Occupation of the property also protects the long term prospects of its use as an attractive commercial space.
Issues for tenants
Potential occupiers may wish to consider taking a MUL for the following reasons:
- Access to high profile space on the high street which would otherwise have been too expensive to consider renting from commercial landlords, with the added benefit of a short-term commitment rather than a lengthy lease. If the tenant were, for example, to find itself in financial difficulties then it could quickly terminate the MUL and relinquish its obligations.
- The Meanwhile Projec provides plenty of help to tenants under MULs and advice is readily available. Signing up to the lease is usually straightforward and the documents have been drafted to be user-friendly, well balanced between the landlord and tenant and with as little reference to technical legal terminology as possible commitment, enabling them to test the demand for and popularity of their venture.
- Tenants would have a unique opportunity to showcase something new with low costs and low.
Meanwhile Use Lease terms
The basic structure of the precedent MULs is in a standard form with all details agreed in relation to a particular letting to be added into the Particulars section at the start of the lease.
A brief summary of the general terms and conditions to expect in a MUL is as follows:
- Term – this will be as short as possible, for example a period of 3 to 6 months. A longer term may be agreed, but the parties should ensure that regular break provisions are provided for and termination of the lease can be quick and simple with a mutual notice period of a matter of weeks. The lease will be excluded from the security of tenure provisions under the Landlord and Tenant Act 1954 and the parties should take care to ensure that this is done correctly.
- Use of the property – this will be non-commercial only with express restrictions on a use which leads to commercial gain or profit made by the tenant.
- Rent and other costs – the tenant will pay a ‘peppercorn’ rent but may have a liability for an agreed proportion of the service charge and buildings insurance, the remainder of which will be covered by the landlord. The tenant will usually be responsible for the cost of utilities supplied to the property, or at least those exceeding a certain agreed basic level of provision, and also for the business rates. As mentioned above, it may be that a charity can claim zero rating relief. It is possible that a tenant may agree with the landlord that a payment should be made to it to assist with the costs of setting up at the property, thereby sharing the benefit of the rates saving which the landlord has achieved. The tenant should remember to arrange insurance for its own property and any other liabilities as this will be its sole responsibility.
- Repair and condition – the tenant will have a basic responsibility to return the property to the landlord in the condition in which it took it at the start of the term and this will usually be evidenced by a photographic schedule of condition. ‘Fair wear and tear’ should be excepted from this obligation.
- Alienation – a MUL is intended to be strictly personal to the tenant and cannot be assigned or underlet. The exception to this will be in the event that the lease is made between the landlord and an intermediary, as discussed above.
Final points for consideration
Consents – the landlord should be sure that it has the right to grant the lease and if so should check whether the consent of any third party, such as a superior landlord or a mortgagee, is required before the lease is granted.
Planning – the intended use for the property should be considered carefully against the permitted use for the property and permission for change of use should be applied for if necessary.
Legal advice – a potential occupier should be well advised before signing up to a MUL and the landlord should at least perhaps recommend that they seek independent legal advice before the documents are completed.
Rebecca Evans in an Associate in the Real Estate department at Fox Williams LLP. She can be contacted by email at REvans@foxwilliams.com or by telephone on 020 7614 2677.
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