The Government's policy of eradicating inflation means that 'certain traditional assumptions about the (property) market need to be re-evaluated', Mr Leigh- Pemberton said. In particular, upwards-only rent reviews 'seem designed for a world which had the certainty of an upwards-only pattern of property values.'
In a wide-ranging speech to the British Property Federation, delivered by Pen Kent, the Bank's associate director, because Mr Leigh-Pemberton is ill, the Governor said that if the battle to eradicate inflation was successful, the role of commercial and residential property would change. 'It will no longer have the allure of being the fastest route to personal and corporate wealth.'
He cautioned: 'We must not allow inflation to be the route by which values are restored' and warned that recovery would be slow. Weak tenant demand and oversupply, particularly in central London, would continue to overshadow the market.
Among other changes to the lease structure suggested by Mr Leigh-Pemberton were the abolition of clauses that made the original leaseholder or tenant responsible for the rent, regardless of whether the lease was assigned to another occupier.
The slump in the property market has already sparked changes in property leases. Landlords are being forced to offer incentives, accept shorter terms, and allow their tenants to leave during the lease period. So far, however, few property owners have conceded clauses that allow rents to fall. Property experts believe that any change would be strongly resisted.
David Rough, head of investments at Legal & General - who believes property is currently an attractive investment - said upward-only clauses gave property the combined attraction of income security but with the possibility of an uplift in value. Any change to the lease structure would make it less attractive.
Chris Bartram, managing partner of Jones Lang Wootton, the surveyors, said the logic of the Governor's comments was right, but investors were cynical about the Government's ability to stamp out inflation.
The Chartered Institute of Building is setting up Bank Watch, a database of its members' comments about lenders' attitudes. It aims to persuade banks not to pull the plug on construction companies as the economy recovers.Reuse content