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February 26, 2014 3:45 pm
1. Commercial leases in France
I’ve read about a change in the law regulating commercial leases in France. What’s happening? A new set of rules, known as the “loi Pinel”, is being considered by the French government. The property aspects of the new rules are mainly intended to protect small businesses from unexpected rent rises and service charges but are likely to affect property let to a much wider range of commercial tenants. (You may also want to read Ruth Bloomfield’s article, “How foreign buyers are propping up France’s prime property market”)
Will it affect the length of leases? In many cases, yes. Tenants of commercial property have a right to end their lease after three years but, until now, have been able to agree to waive that right, often in return for an extended rent free period. This allows landlords the security of knowing they have a tenant on the hook for nine years (typically), as well as giving the tenant some bargaining power. Those rules won’t change for leases of offices or where the property may be used only for one specified use, such as a hotel. They will also stay in place for leases longer than nine years. For other commercial leases, the new rules will stop the parties “contracting out” of the tenant’s right to end the lease every three years. For retail, mixed use and warehouse property, it is effectively the end of the typical nine year fixed term lease.
Will there be a cap on rents? Yes, for some leases. Where a tenant wants to renew its lease or when the rent is reviewed, the new rent cannot exceed 10 per cent above the rent paid in the last year. Many leases currently have their rent linked to the French index of construction costs, which is quite volatile. The new rules will replace that index with two alternatives, which should be more stable.
What about service charges? This is potentially a big problem for landlords. They have been used to being able to recover all current and future repair costs through service charge, including the cost of improvements, taxes and any uninsured damage to the property. Landlords could be sure of their income stream from the property throughout the agreed fixed term of the lease. The new rules will list the types of cost that may and may not be charged to the tenant and the landlord will have to supply detailed budgets and a breakdown of costs on a regular basis.
So good for tenants, bad for landlords? It may not be that simple. If landlords can no longer rely on fixed term leases and/or leases under which they can recover all their current and future costs, they may need to put rents up, to make sure they still have a viable income stream.
2. Village greens
Town and village greens keep appearing in the news. What’s all the fuss about? The UK has seen some high profile cases and campaigns in the last year, involving land as diverse as Newhaven Beach and parts of London’s South Bank Centre. Town and village greens can be protected under the Commons Act 2006 where local residents have indulged in sports and pastimes as of right (for example: without needing to ask for permission) for over 20 years. Anyone can make an application to register land as a town or village green. Where a successful application is made the land is placed on a public register which is available for all to search and it becomes a criminal offence to build on this land. With development sites at a premium, this can be a very big deal.
Didn’t a couple of village greens lose their protected status recently? Yes. If a town or village green is wrongly registered, anyone may apply to change the register and there is no statutory deadline for making an application. The Supreme Court has just found in favour of two land owners who wanted to remove their properties from the register so that they could carry out development.
But surely there must be some time limit on challenges to a town and village green registration? According to the Supreme Court, if the land should never have been registered as a town or village green in the first place, there is no time limit for challenging it.
I’ve heard that it is becoming harder to register land as a town and village green. Is that true? Yes. The Growth and Infrastructure Act 2013 imposed restrictions on when you can apply for registration of a town or village green. You can no longer apply once a planning application has been made for development of the land or once the local authority has promoted a policy in its development plan that identifies the land for potential development. Draft regulations setting out further restrictions which, for example, will prevent a town or village green being registered where a neighbourhood development order has been made for the land, are expected to come into force later this year.
Ann Ly Ky, real estate partner in Paris, and Juliet Munn, solicitor in the London Planning and Environment team, at King & Wood Mallesons SJ Berwin
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