Empty premises: A soft solution for hard times

19 December, 2011
by: Cripps Pemberton Greenish

The number of empty commercial units blighting high streets and shopping centres across the country continues to rise, with consequent cost to landlords.  Empty properties lead to lost rental income, wasted outgoings on buildings’ insurance, maintenance and security costs and prohibitively high business rates.  So what can landlords do to help themselves other than simply sit it out and wait for the economy to rally?

What is meanwhile use?

Meanwhile use provides for vacant units to be temporarily occupied by individuals or groups on a non-commercial basis, relieving landlords of their financial liabilities during the period of occupation and re-energising the unit in question. Meanwhile use was originally designed to enable not for profit organisations to exploit high profile and otherwise unaffordable spaces.

However, there is in fact no reason why a landlord cannot let a property for a meanwhile use to a commercial tenant otherwise unable to commit to a lease at a market rent. Although such users represent only a small proportion of meanwhile use, the recent rise in pop-up shops bears testament to the far reaching and diverse nature of meanwhile uses.

What are the usual terms of a meanwhile lease?

Typically, meanwhile leases are for a short term, with no rent, and a flat rate for service charge and buildings’ insurance. They tend to impose a basic repair covenant on the tenant and a prohibition against assigning or underletting.  Critically, from the landlord’s perspective, leases will contain a right to break following a short notice period which allows the landlord to continue marketing the property throughout the term. The short term of a meanwhile lease also means it does not attract a statutory right for the occupant to renew, although landlords should be careful not to grant consecutive short term leases of longer than 6 months.

So who really benefits?

Both parties do.

For landlords there is a clear advantage in reducing vacant property costs. Whilst rent is not usually charged, business rates and utilities, and often a contribution towards insurance and repair costs, are covered by the occupier. Add to that a reduced risk of vandalism or squatting, otherwise posed by an empty unit, and the chance to raise the profile of the property in question, it is difficult to see any negatives for landlords. Landlords should also remember that properties only need to be let or occupied for six weeks to trigger a fresh three (or six) month rate free period.

For tenants, a meanwhile lease gives an opportunity to showcase its objective in a high profile space at a low cost. The absence of rent means a tenant’s expenditure is limited to the cost of utilities and rates (and possibly some insurance and repair costs) as well as any start up costs to adapt the property for the meanwhile use. The low cost but high profile nature of the space means that awareness and income generation can be dramatically increased.

There are some key considerations for both landlords and tenants: landlords will be keen to ensure that vacant possession can be fully recovered when needed and tenants will obviously want to keep costs to a minimum to get the most out of the meanwhile use.  Legal advice on both these areas is a prerequisite.  Both parties will also need to ensure that the property has authorised planning for the meanwhile use.

It is not just landlords and tenants who benefit from the meanwhile use of premises – there are wider public benefits. Occupied properties help to maintain vibrancy and levels of activity on streets, increasing pedestrian numbers, thereby directly benefitting neighbouring shops and businesses. Meanwhile uses strengthen the third sector and encourage the development of relationships amongst all sectors. Maintaining an active use of premises can also help to deter crime and vandalism in areas hit by the recession.

While gloomy predictions on the economy continue apace, with planning and tailored legal advice, meanwhile use may well provide the interim solution landlords and tenants seek.