Commercial Lease FAQ

Why get advice?

It is essential to get good sound advice, and our lawyers will be pleased to help you from start to finish. We ensure our clients’ needs are met and that each lease is tailored to meet individual requirements. We believe it is important that both parties are aware of their rights and responsibilities. This enables both landlord and tenant to understand their legal obligations with clarity. These can include:

Rent – you will obviously need to consider what rent should be payable

Rent review – it is quite usual for rent to be reviewed at some point in the lease. The point at which the rent will be reviewed, if at all will need considering and must clearly set out in the lease.

Term/Duration of lease – The period of time for which a commercial lease is granted (called the “term”) will vary depending upon the nature of the letting and the requirements of the landlord and the tenant

Permitted use – a tenant will need to establish that the lease allows them to use the property for the intended purpose.

Renewal of lease – Subject to certain criteria, business tenants have a statutory right under the Landlord and Tenant Act 1954 to extend the contractual term of their lease.  At the end of the lease, the tenant can ask the landlord for a new lease. The landlord can on limited grounds can oppose the tenant’s request, for example, he may wish to redevelop the property, however, even then compensation may be payable to the tenant.

A point to note is that it is possible for the parties to agree (prior to the grant of the lease) that the tenant will not have the right to renew the lease.  In order to exclude the lease from the 1954 Act, a particular procedure must be followed.  The right to renew a business lease is valuable to a tenant and excluding this should be dealt with by caution.

Assignment of Lease- this is a transfer of an existing lease by the current tenant (Assignor) to a new tenant (Assignee) with the consent of the Landlord. It may be that the current tenant’s business is not doing so well or due to other factors such as retirement etc. This process requires the Landlords consent. Often, the Landlords solicitors will require bank/trade references confirming the assignee is solvent and able to pay the rent.

A landlord will also require a rent deposit when providing its consent to the assignment of a lease. A rent deposit is a sum of money provided by the Assignee to the landlord as security for payment of the rent and performance of the tenant’s covenants in the lease.

In addition, an Authorised Guarantee Agreement is a legal document where the outgoing tenant (Assignor) must guarantee that the assignee performs and complies with the covenants from which the tenant has been released. In the event that the Assignee is in breach of any of the Covenants, the outgoing tenant agrees to bear the burden.

Break Clauses – Is there a clause allowing either the landlord or tenant to terminate the lease during the term. Tenants will want to ensure that they can get out of the lease if their business is not performing as they hoped, whilst landlords will want to ensure that the tenant is committed to paying rent.

Repairing obligations – Repair is a major clause within a lease. The tenant’s obligation to keep a particular standard of repair of  the building, is important to negotiate. A landlord will want to ensure that the property does not fall into disrepair, but equally a tenant will not want to invest lots of money into a poor conditioned property. It is an idea to consider instructing a surveyor to assess the state of repair and condition of the building so that this can be taken into account. This can be expensive.

Service charges – In multi-occupied buildings with communal areas, such as halls, stairs etc the landlord will normally repair and maintain this part of the.  However, the landlord will expect to recover the full cost of such repair/maintenance from the tenant by way of a service charge.  If the landlord provides services to the tenant, for example a reception area these costs will also be recovered via a service charge.

Service charges can be a major outgoing for business tenants and it is important that the service charge provisions in the lease are carefully drafted and negotiated. It is essential that the charges are in proportion to the services the tenant receives.

Forfeiture of leaseThis is when a landlord ends the lease due to the tenant breaching the terms of that lease by being in arrears with rent or by other significant breaches.

Before taking action, landlords are advised to seek legal advice. If a tenant wants to avoid forfeiture or seek formal court relief from forfeiture, legal advice is also recommended. Subject to the terms of the lease agreement a commercial lease generally cannot be forfeited by any other breach of the lease except non-payment of the agreed rent.

Surrender of Lease – A lease is surrendered when the tenant’s interest is transferred back to the landlord and both parties accept that it will be terminated.  This can be done formally, by deed, but this is not always necessary.  If the landlord and tenant agree that the lease will be surrendered and their actions reflect this, for example the tenant vacated the property and the Landlord grants a new lease, then the lease will be surrendered ‘by operation of law’. Surrendering without a formal deed is quicker and cheaper but it can create uncertainty about the intentions of both parties. .

We recommend obtaining legal advice before considering any lease. This is to ensure that our clients are aware of obligations that may be imposed on them and that we can negotiate the best possible outcome. It is important to know that this process can take time and allowing for that before any completion date is set.

Although commercial leases can be a complex area of law, we at Blackstone Law pride ourselves on our knowledge and expertise to make the experience as smoothe and stress free as possible.

We also offer fixed fee packages for leases so call Blackstone Law today!