From estimate to actuality: Is the new leisure dream being realised?

Abstract

This paper develops a theme introduced by Sayce1 which tracked the development of the so-called ‘new-style’ leisure leases that have emerged over recent years consequent to a rapid increase in the number of commercial leisure developments in the UK. Prior to the development of these parks, leisure property ownership had been characterised by fragmented ownership and a diversity of lease patterns.2 The research identified that the new leisure leases had been moulded to meet investor requirements but that many had distinguishing, and to the tenant onerous, clauses, notably in respect of rent reviews.Last year the effect of these new-style rent review clauses and their impact on long-term viability from both an investor and an operator standpoint was raised, but there was insufficient empirical evidence to draw any meaningful conclusions. In this paper the authors explore the issues that are being raised in relation to leisure rent reviews in the light of market conditions. They also analyse rental trend evidence in relation to relevant economic data to develop an understanding of performance in real terms. In both cases the analysis concentrates on multiplex cinemas, which, they argue, are illustrative of the challenges facing the profession in relation to the management of commercial leisure assets.The implications of the findings relate to both the security of the income flow and the justification of current market yields. The paper argues that this brings into question the long-term validity of the current arrangements and presents an agenda of potential conflicts that are likely to arise over the ensuing period in relation to rent reviews. It concludes first that the issues arising in the cinema market are transferable across most leisure properties and other categories such as nursing homes, and secondly that the nature of the lease terms are not conducive to the development of good landlord and tenant relationships.