Editor: I read with interest your recent article ‘Industry urges lease shake-up’ and wholeheartedly agree that urgent action is needed to make renting commercial property easier and cheaper.
It has been a long time coming, and certainly the current process is filled with delays and restrictions that can stymie innovation. For one thing, more flexible lease renewals could help fill the significant amount of space still vacant post-pandemic.
But one more crucial factor should be top of the agenda when modernising the framework: the decarbonisation challenge. Leases need to be adapted to help commercial real estate owners and occupiers navigate the complex path to net zero and allows renewable energy projects to progress.
In recent years there has been a huge shift to ensuring a more sustainable future, not least in the commercial property sector, which is responsible for 25% of the UK’s carbon emissions. Renewable energy is one solution to the crisis; but to unlock this opportunity, landlords and occupiers must collaborate more effectively. We must give them a simple, accessible route to benefit from renewable options such as solar panels and electric vehicle charging points.
While many occupiers want to decarbonise their businesses, they are often reluctant – or unable – to allocate capital to non-core projects on assets they do not own, as the payback period may outstrip the unexpired lease term. The only way is for the landlord to fund renewable projects and find common ground with the occupier within a commercial agreement.
By adopting new operating models and addressing the rigid nature of full repairing and insuring (FRI) leases, we can create a lease variation structure that serves both parties, by providing an income stream to the landlord while bringing cost savings to the occupier. This opens up more avenues to deliver impactful projects that are also accepted by valuers and do not affect liquidity.
It is time to update our thinking around leases to encourage greater buy-in into green tech and enable it to become more mainstream in the market.
John Macdonald Brown, chief executive, Syzygy Consulting
Rishi Sunak’s shift in the government’s net zero commitments last week managed to simultaneously incur the wrath of environmental campaigners, the automotive industry, energy companies and most of the property sector.
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