Author: Alison Mould
At the annual review of the Leisure Property Forum held at our offices in early February, the view was taken that the market had now reached such a strength in certain areas of Central London that landlords were choosing tenants for unoccupied units, on the basis of what they did and what product they were delivering, as opposed to the more traditional approach of the covenant strength of the tenant itself.
It seems that hip and happening areas can afford to let properties to smaller start-up companies with funky, innovative products, confident in the knowledge that if those businesses failed, then the unit could very easily be relet.
This would seem to be a first for the UK property market, where landlords have always leaned towards the strength of the covenant that pays the rent as opposed to, within limitation, what actually goes on in the unit.
Leases of properties in the most desirable shopping areas of London often contain a provision that requires the tenant to be of a sufficient standing before a lease will be assigned to it. Many brands will therefore have the upmarket end of their ranges in the area in question, and landlords will often fight to ensure that the quality of tenant is appropriate for the image it is trying to portray. Obviously, this affects the income level to which the landlord is entitled. It is, however, a much bigger step to let a property to a prospective tenant with an entirely unknown covenant strength, simply to create a dynamic and innovative tenant mix.
This may mean that high street names will now have to fight for space in certain areas into which they would normally have strolled; at the same time, up and coming designers who are generating a buzz might find that addresses that they would once have imagined were beyond their means may now be more welcoming.
Alison Mould, Partner, Fladgate LLP (firstname.lastname@example.org)