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Low level of awareness of 2007 Leasing Code finds University of Reading report – University of Reading

A new report published by the Department of Communities and Local Government has shown that awareness of the 2007 Code for Leasing Business Premises among small business tenants is very low.

The report, Monitoring the 2007 Code for Leasing Business Premises, was undertaken by the School of Real Estate and Planning at the Henley Business School, University of Reading.

It found that despite a strong focus on dissemination of the Code, particularly to small business tenants, awareness of the 2007 Code is no better than that found for the 2002 Code. The 2007 Code for Leasing Business Premises is the third in a series of voluntary codes prepared by various stakeholders in the commercial landlord and tenant relationship. In autumn 2008, the Department of Communities and Local Government commissioned the University of Reading to undertake a project with the overall aim of establishing how well the 2007 code is being disseminated.

Report co-author, Cathy Hughes, said: "The evidence suggests that awareness of the 2007 Code is no better than that found for the 2002 Code. In fact, small business tenants and small landlords appear to have a lower level of awareness of the current Code than the previous one. Although some professional advisors may be well informed about the 2007 Code, there is evidence that many are not, despite the efforts of their professional institutions to inform and disseminate."

The Parliamentary Under-Secretary of State for Communities and Local Government, Ian Austin MP, commenting on the report to parliament, said: "The property industry introduced the present version of this voluntary code in response to continuing Government concern about the degree of flexibility in the commercial property leasing market and the lack of information and advice available to small businesses about the implications of property leasing. The new code is an excellent document which, if implemented, would make a big difference.

"This report paints a very disappointing picture. It suggests that small business tenants are not receiving any substantive information on the code from any source. The property industry has asked us not to legislate in this area, and we have held back to give the 2007 Code a chance to work. But if the more substantive research shows that the market has not responded, legislation is bound to come back on to the agenda."

Key findings of the report:-

• Small business tenants and small landlords appear to have a lower level of awareness of the current code.

• Although some professional advisors may be well informed about the 2007 code, there is evidence that many are not, despite the efforts of their professional institutions to inform and disseminate.

• The 2007 code is rarely specifically referred to in negotiations. Larger tenants and their solicitors are the most likely to use it. Overall, any references to the code in negotiations are usually quite general with occasional references to the Landlord code.

• The amount of advice being given to tenants on the code is limited. The interviews suggest that some large tenants (particularly retailers) are conversant with the code through their in-house property expertise and the questionnaires suggest that landlords, letting agents and solicitors can alert tenants to its existence. However, the evidence leads to the conclusion that small business tenants are unlikely to receive any substantive information on the code from any source, particularly where the landlord is also a small business.

• The code is not a primary tool used in the negotiation of new leases. The exception to this was found to be in the hands of certain solicitors acting for major tenants. Other than this, it is occasionally used by tenants to reinforce a specific term or issue being negotiated at the legal stage.

• Letting agents in particular expressed the view that tenants could negotiate good terms with landlords who are being flexible to induce tenants to take leases in a difficult market. This was allied to the general opinion that the code was unnecessary as the market could achieve its own balance and that leases were now flexible and fair.

ENDS

Further information from Alex Brannen, Media Relations Manager, University of Reading, on 0118 378 7388

Notes to editors:

The research was undertaken by Cathy Hughes and Neil Crosby, School of Real Estate and Planning, Henley Business School, University of Reading. It can be downloaded free of charge at

www.communities.gov.uk/publications/citiesandregions/businesspremisescode2007

The research has been undertaken across England and Wales, primarily by a questionnaire survey complemented by a small set of interviews. Questionnaires have been sent to a sample of major and regional landlords and to tenants who have recently taken new leases. The interviews are with professional advisors to landlords and tenants, including property agents and solicitors with additional interviews of organisations representing landlords and advisors. A brief review has also been made of the material available on the websites of a number of organisations, including those that give advice to small businesses, for reference to the code; this review includes all of the sponsors of the 2007 code.