At this year’s Hogan Lovells real estate seminar, the central theme was the 1970s. Since that era, with its ubiquitous standard forms of lease, real estate as an asset class has become more sophisticated. This in turn has driven the development of the underlying investment and occupational instrument, the lease.
At the seminar, Oliver Chamberlain drew on a wide variety of data to produce his own, informed categorisation of four types of modern lease. By dividing leases into “Bond”, “FRI+”, “Balanced” and “Flexible”, Oliver was able to take a fresh look at the interesting characteristics that we are seeing for these types of leases across different asset classes and locations.
For example, whilst a Bond type of lease seeks to protect income stream from high value transactions through assignee covenant strength tests, a Flexible lease, used for example in retail portfolios purchased out of administration, is characterised by short terms with flexible rent payment, repairing obligations and break rights. An FRI+ lease might be used for situations where tenant demand is strong or where extra landlord control is required whilst a Balanced lease is used across the spectrum of asset classes and locations with the over-arching characteristic being the balance between landlord and tenant interests. In pursuit of this equilibrium, the British Property Federation is supporting the production of a new suite of standardised lease documents.
The flair shown by the modern lease in adapting to the commercial environment should not be underestimated. However, this ever-increasing diversification has paradoxically led to fears of over-complexity, delay and therefore cost overrun but, whilst rationalisation may tailor the length and breadth of the modern lease, it would be a shame to straighten the legal flair.
Oliver Chamberlain can be contacted at oliver.chamberlain@hoganlovells.com