Length of Lease

How long can a lease last for and is the length of lease important?

How long can a lease last for and is the length of lease important?

The fundamental attribute of a lease is that it is an interest in land that is time-limited i.e. it comes to an end after a period of time (this is referred to as the “term” of the lease).  There is no maximum length of term that a lease can be granted for but in general terms, leases can be divided into leases of more than 25 years (which are called “long leases”) and leases of less than 25 years (which are “short leases”). This is particularly important for residential tenancies where tenants have different rights depending on how long the lease is but not so relevant for business leases where rights really depend on the basis of the occupation and what the parties have actually agreed will happen.

What is a typical lease term?

Most leases are granted to provide an ongoing income to the landlord.  Traditionally, landlords of commercial leases want to do nothing more than generate a regular income and have little interest in managing the premises or taking the premises back again.  As a result the standard lease used to be for 25 years at a full market rent which increased in line with underlying property values every five years.  If a properly structured lease was granted of a stand-alone building, this meant that the landlord could sit back for 25 years and have to do very little other than simply collect the rent.

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How does the lease term link to rent and rent review?

Changes in the law and the economy in the 1990s meant that the 25 year lease became less and less popular and market rent leases (see Rent and Rent Review) are usually now for a period of no more than 15 years and frequently as short as 3 or 5 years.  While this means that a lease has to be renegotiated every few years, a lease of 10 or 15 years will almost always have its rent reviewed every 5 years.  Since rent is usually the most important consideration of both parties at any time, in practice there is little difference between a rent review negotiation and a new lease negotiation.  On the other hand this means that any ongoing liabilities under the lease can be dealt with every five years rather than being an unpleasant surprise many years later.

Length of Lease and Security of Tenure

The one caveat to the comment above, however, is that most landlords will not want short leases to have security of tenure (i.e. the right to remain after the lease has ended) and the shorter the lease, the more likely this is to be the case.  Without security of tenure, the tenant cannot assume that the landlord will grant a new lease when the existing lease ends on similar terms.

Tenants should seek to take a lease that is no longer than the period for which they are most likely to need the property and should plan for how they will proceed if they either need to dispose of it earlier or still have a need for property when the lease comes to an end.

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