The exec tenant is back

With London's growing dominance of the financial world, business people are renting again, says Chris Partridge
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The Independent Online

Executive tenants became something of a rarity when the 1990s boom crashed into the buffers; many foreign executives on secondment to London for a couple of years bought, rather than rented, to take advantage of spiralling property values.

Executive tenants became something of a rarity when the 1990s boom crashed into the buffers; many foreign executives on secondment to London for a couple of years bought, rather than rented, to take advantage of spiralling property values.

Now they are returning and rents in the upper reaches of the lettings market in London are rising for the first time in years. Lettings agent Kirsten Mavric, of Winkworth's Kensington office, says: "We have seen an upturn since July. Rents are holding their own and there is much more activity."

The uncertainty over the property sales market is also fuelling rentals, she says. "A lot of potential purchasers have decided to wait and see, renting rather than buying for the moment. There are also people who have sold their flats and can't find anything to buy." This type of tenant will be looking to pay a minimum of £300 a week for a one-bedroom flat in South Kensington - usually £450 and upwards, she says.

Virginia Skillbeck, of Douglas & Gordon in Kensington and Chelsea, has seen a big increase in the number of tenants brought to London for work: "Last month, 85 per cent of the lets we did were to corporate tenants." The current wave is cosmopolitan, reflecting London's increasingly dominant position in the financial markets of the world. She says: "We are also seeing real variety: not so many Americans but all nationalities, and not just bankers but lawyers and hedge-fund managers and so on, as well."

As companies regain the confidence to send senior talent to London for several years, they are also rediscovering an obscure tax dodge called the premium lease. This is not so much a rental as a short lease, with the bulk of the money paid upfront, plus a nominal rent, usually £10 a month.

"We are seeing more premium leases, where the company takes a lease for a two- or three-year term," she explains. "All the rent is paid in advance as a premium, and there is no early-break clause or option for renewal, so they can't get out of it early."

Only "permitted occupiers" are allowed to use the place, usually employees of the tenant company, so it cannot be sublet if the original occupier leaves early. Premium leases are heaven for landlords. All they have to do is take the money and relax for the period of the lease, knowing that a company with a reputation to maintain will return the place in apple-pie order.

One form of tenure that used to be associated with executive tenants was the company let, where the employer became the tenant rather than the executive. These were popular in the 1980s when human resources departments liked to cosset their senior people. Company lets were also popular with landlords in the days when tenants' rights made "real people" difficult to evict if things went wrong.

"Company lets are fewer - now rental agreements are in the names of the employees," Skillbeck says. "Company lets were popular under the old Rent Acts, because landlords used to have a problem renting to individuals who might be able to build up rights."

Company lets survive in more traditional industries such as oil, says Claire Gibb, of Bective Leslie Marsh: "We do get a lot of company lets. Financial institutions, such as banks, now tend to give executives accommodation expenses but Shell and BP like to do it themselves."

What is common across all sectors is long working hours. Executive tenants demand luxury accommodation - top-class kitchens, giant plasma televisions and computerised systems for drawing the curtains - and then use the place entirely for sleep. Gibb says: "They work such long hours they are never in. This is ideal for landlords, as wear and tear is low."

The return of the executive tenant is good news for the buy-to-let investors in the upper strata of the London market, now facing an end to the price bubble that has been so profitable for the past decade. "There is definitely a better outlook for investor landlords," Gibb says.

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