Exit strategies for business tenants

Many businesses in the UK occupy premises on fixed term leases, which usually run for several years. During this time property requirements can change. This research critically examines the three main mechanisms by which tenants can bring their leases to an end; breaks, assignment and subletting. We examine the legal rules governing these devices and undertake an analysis of lease data and surveys. Break clauses are providing a useful exit mechanism for many tenants, but they cannot give the more general flexibility of assignment and subletting. However, change is necessary to ensure that these latter provisions provide real flexibility for tenants.

Property funds: how much diversification is enough?

t is well known that when assets are randomly-selected and combined in equal proportions in a portfolio, the risk of the portfolio declines as the number of different assets increases without affecting returns. In other words, increasing portfolio size should improve the risk/return trade-off compared with a portfolio of asset size one. Therefore, diversifying among several property funds may be a better alternative for investors compared to holding only one property fund. Nonetheless, it also well known that with naïve diversification although risk always decreases with portfolio size, it does so at a decreasing rate so that at some point the reduction in portfolio risk, from adding another fund, becomes negligible. Based on this fact, a reasonable question to ask is how much diversification is enough, or in other words, how many property funds should be included in a portfolio to minimise return volatility.