Disruption in real estate has given rise to a number of potential legal pitfalls.

Paul Jayson

To avoid them, we have to pay careful attention to the way business models are changing and why. Let’s look at several examples from across the industry.

It can no longer be assumed that retail stores are used solely for the sale of goods. Click & collect now accounts for a substantial proportion of sales, and in some locations, stores are used primarily as a local logistics warehouse. It can no longer be assumed that retail means A1 retail use. Landlords need to work with their lawyers to ensure the use is specific to what they intend to use the premises for. The shorthand of A1 retail or B1 offices may not be sufficient.

In addition, the rise of online food delivery disrupters that act as a conduit between restaurants and customers may impact turnover provisions of a lease. Particular attention is needed concerning both the extent of revenue derived from the premises, and the deductibles which can be set off against such revenues, so as to capture only those matters which were intended.

Blurring lease v license lines

Co-working companies - combining an online platform and shared space - are another example of disruption, but this time in the office sector. From a landlord and tenant perspective, this bundling of space and services has further blurred the lease vs licence divide. A lease can be created inadvertently and both landlords and operators need to ensure that security of tenure is only obtained where intended.

Kontor We Co-working Space

Co-working disruptors like Kontor are disrupting the industry

Unlike commercial property, residential investment is viewed as a cash-flow business. Normal rental cover tests don’t apply in the same way. Buy-to-rent often involves an element of soft services, such as wifi or laundry, which means involvement of a third-party provider.

Duty of care agreements may be required by lenders where these services are being provided by third parties. Parties need to consider their tax position relating to interest deductibility both of the funders’ financing and also any inter-company loans.

The government consultation on build-to-rent is now over and intervention is likely so as to promote the sector. Normal, affordable housing provision doesn’t work very well where a development scheme is intended to be retained by the owner/developer for rental, and we are likely to see versions of the mayor of London’s discounted rental requirements.

Paul Jayson is a partner at DLA Piper