I know you are thinking: “What is he barking on about this time?” However, the issue of the Landlord and Tenant Act is becoming more widespread than ever and now is the time to act. R L Stevenson was famously quoted as saying "Don’t judge each day by the harvest you reap but by the seeds that you sow." As many as 80% of all new leases in Central London are outside the Landlord and Tenant Act, which in layman’s terms means that at the end of the lease the landlord has absolute rights to ask the tenant to leave. The seeds currently being sown in the London restaurant property market will reap a very poor harvest, for the operators and ultimately landlords.
Outside the Act leases weren’t common 15, 10 or even 5 years ago but have become more and more prevalent as the demand for prime restaurants has grown and landlords have wanted more flexibility when it comes to redevelopment. Who can blame them, who wouldn’t want to have their cake and eat it? The issue is that whilst today it is not a problem as these outside the Act leases are 15 years in length but over the coming years when they start to become less than 10 years remaining, their values will start to diminish.
Moreover, the real danger is in a scenario where say McDonalds had a restaurant on Oxford Street and they have one year left, outside the Landlord and Tenant Act. The landlord can take back the lease and sell the goodwill and business to a competitor such as Five Guys for not only a new rent but also an astonishingly high premium and McDonalds would have no comeback. This sort of behavior would send shock waves through the private equity and investment banking markets and make them think twice about investing in anything where leases were outside the Act. An early example of this, and there will be others, is Ozer which closed its restaurant in Langham Place. Ozer were unable to renew their outside the Act lease and within two months a brand new Byron Burger was put in its place. This tragedy went largely unnoticed because Ozer were a relatively small family business and reluctantly accepted its fate, but when this becomes more widespread, as it surely will, the repercussions will seriously damage the market.
It is well known that what drives the rents and premiums in the current market is the value that private equity put on restaurant businesses and if their longevity of income is going to be compromised by outside the Act leases in the coming years then they will pull back as their financial models simply won’t stack up and valuations will come down.
We are therefore urging landlords and private equity owners to lobby more on this issue and landlords to get back to being conventional in terms of putting leases inside the Act which will keep the right investment in prime areas of London. The problem is that we fear by the time anybody realises it may be too late...
Please feel free to share your opinion and push for change! Contact us on 020 7100 5520.
David Abramson
CEO Cedar Dean Group
