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Commercial Property: Market being slowed down by landlords.

Byline: Steve Pain Commercial Property

The West Midlands commercial property market is being slowed down because of 'hard nosed' landlords, it was claimed today.

Ceri Mort, commercial property partner at Black Country law firm George Green, says landlords are making it increasingly difficult for their tenants to assign leases to other companies.

Ms Mort, who is based at George Green's Cradley Heath offices, claims landlords are becoming much tougher when companies want to move out of their premises in the middle of a lease period and sell on their lease to a third party.

'Property owners are quite naturally worried that the company which takes over the lease will not be as good a payer and not have such a strong credit rating as their existing tenant - so refusals to accept assignment of leases are becoming much more common,' she said.

'However, it appears from a recent survey of commercial tenants that landlords seem to want to hang on to existing tenants and take no risk over assigning a lease.

'This leaves some companies, in the middle of a, say 15 or 20year lease, with unsuitable or even useless property which they effectively cannot assign.

'This impacts not just on their business, but we believe it is also having a detrimental effect on the rented commercial property sector, which is slow anyway, as many business owners, through their companies or through their pension funds, seek to take advantage of the current low interest rates to acquire freeholds rather than pay rent.' She added: 'Although the terms of leases vary, it is likely that landlords have the right to refuse an assignment, but only when that is reasonable.

'However, we are seeing increasingly tough conditions placed on consents for assignment, which, it is arguable, have no bearing on the proposed new tenant's ability to pay the rent.

'These include the net profit test - which says, for example, that the proposed assignee must have made a net profit three times greater than the rent over each of the past three years - a conditionwhich may be difficult to meet for a young, growing company.

'They may also ask for personal guarantees from the directors of the new tenant.

'Some tenancy agreements include clauses which insist that an assignee should be in no less of a financial position than the current tenant, which if the tenant has a blue chip credit rating, makes the lease effectively unassignable.'

According to Tracy Tomlinson, assistant solicitor in the commercial property department of George Green, such tough conditions, combined with a landlord's apparent intransigence to negotiate, are enough to put off most potential assignees who find it easier and quicker to go and look for another property. Ms Tomlinson said: 'If tenants find a company which wants to take over the lease, it usually gets fed up with waiting for agreement from the landlord or is put off by tough conditions, so legal challenges are rare.

'However, we are finding tenants are more willing to challenge their landlords over assignment and potential assignees who are willing to stick by them.

'We are about to go to court to ask a judge to test a landlord's reasonableness in having withheld consent on an assignment for more than eight months and we still have a willing assignee, who wants to move in.'

But according to Ms Mort this action should not be necessary as the Landlord and Tenant (Covenants) Act of 1995 allows a landlord to ensure that companies which assign leases still remain liable for the payment of the lease should their assignee default.

'Should the rent not be paid, landlords may have the choice of who to pursue for payment - the assignee or the assignor,' she explained.

'On leases signed prior to January 1, 1996 - which for a 25 year term could actually remain in force until 2020 - when the 1995 Act came into force, landlords in most circumstances can sue any holder of the lease, past or present, no matter how many times it has been assigned,' she said.

'We have come across a large number of tenants who are unaware of this fact.'
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:May 30, 2002
Words:687
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