Historically, landlords want to let their premises for as long as possible. That gives them continuity of rental income. Leases of 15 years or more have been common.
Sometimes landlords seek to let their premises on quite short terms, such as five years. It’s worth your knowing why that might be. You should consider what length of term is really most suitable for your business plans, because you also may have wished to have either a long or a short lease.
These are some reasons why landlords might want to grant a relatively short lease, like five years.
They may be planning to redevelop the building. They may be anticipating that it will take them time to get the plans together, to obtain planning permission, and to arrange finance. So, in the meantime, they get some income from the property by letting it.
Another reason may be that they want to avoid having to have a rent review. With leases of longer terms, there is usually a rent review at least every five years (sometimes, but more unusually, every three years). Rent reviews favour landlords because they are usually “upward only”. That means that if the open market rent for the premises in five years’ time is higher than now, the rent will go up to that level. But if the rent at which the premises could be let is lower in five years time than it is now, you still continue to pay the same rent.
This might seem to be so good from the landlord’s point of view. Why would he wish to change it? The reason is that the tenant can fight a rent review, and there can often be a long drawn-out battle of surveyors before a compromise rent is finally agreed. If the landlord could, instead, bring the lease to an end in five years time, the landlord’s negotiating position with you is actually far better. Admittedly, you could walk away, which you could not do in a rent review situation. But the landlords may gamble that you will probably pay the rent the landlords are demanding in order to stay on, rather than walk out and have to find entirely new premises – and that way they avoid protracted negotiations.
In either of these cases, the landlords would insist on the lease being “outside the act”. That way, there can be no battle over the right to stay at the premises even after the lease ends.