Whether you are a landlord looking grant a lease to a commercial tenant or you are prospective tenant looking to take a commercial lease, Lawson Lewis Blakers can help you.
Commercial tenancies are a particularly complex area of law and there are a number of potential pitfalls for the unwary, whether or not you are the landlord or tenant. It is essential to get good advice and our solicitors will be pleased to help you from start to finish.
Usually a property to let will be advertised via a commercial lettings agent and the negotiations on the main heads of terms will be carried out through them. You should consider getting advice before this stage as there will be a number of things you need to be aware of before agreeing the deal. Don’t be tempted to rush into the transaction – you may end up regretting it later.
Please contact one of our specialist solicitors who will be pleased to help.
What should I look for in a lease?
A lease wrongly biased in favour of a tenant may affect the value of the landlord’s freehold interest. A lease wrongly biased in favour of a landlord may make that lease an onerous liability which the tenant cannot transfer to someone else or release himself from.
A lease which fully reflects your needs should enable the landlord and the tenant to understand their legal position between one another, with clarity and certainty for years to come.
Even if leases are for a relatively short term, they are often renewed. On renewal the same terms are generally used as I the old lease. In other words, do not be lulled into thinking that “this is just a short lease” and that its terms are less important.
Below a you will find a summary of the main issues and steps encountered in the grant or taking of a commercial lease. A number of steps are required even before the lease itself if considered. You need to allow sufficient time for these steps to be taken before you agree a completion date.
- Title - the landlord must have the authority to grant a lease in the first place. If a landlord does not own the freehold then any superior landlord will need to be involved. If the landlord has a mortgage, then his lender will also need to give its consent to the lease being granted.
- Sums payable under the lease: You will obviously need to consider what rent should be payable under the lease and this will no doubt be a key point in negotiations. The tenant may also be required to pay contributions towards the buildings insdurance, insurance rent and service charges, and so you will want to consider this in negotiations too.
- 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 needs consideration and will need to be clearly set out in the lease.
- Value Added Tax – VAT has to be charged on new commercial properties (less than 3 years old). If it is an older building the landlord may elect to charge VAT. If VAT is charged then a tenant will need to consider the impact of this upon the rent and other outgoings under the lease and build this into cashflow forecasts.
- Repairing obligations – you will want to think about whether the lease require the building to be repaired to the best standard possible, or will the lease require repair against a schedule of condition. If part of a building or industrial estate is to be leased, the tenant may be required to repair or contribute to the repair, of the rest of the building or the estate.
- Planning – a tenant will want to establish that there is a planning permission for the property to be used for the purpose intended by the tenant and that the lease permits this use.
- The parties to the lease – although this may sound obvious, a landlord may require a guarantee from at least one director where the proposed tenant is a small private company. Alternatively, the landlord may ask for a rent deposit of between 3 to 12 months’ rent as security, especially if the tenant has not been in business for very long.
- Does the tenant have the automatic right to renew the lease at the end of the term? This is default position but the parties often agree to exclude it for a variety of reasons. You will need to discuss this subject with us before you commit yourself.
In order to try and gain the best result for you, it is important that we have a clear understanding of what you are seeking to achieve and that there is effective teamwork between yourself and your professional advisors. We will assist you in this, helping you liaise where necessary with your other advisors such as your surveyor and accountant. Equally, it is important that you understand the advice which we are giving to you – please do not be afraid to ask questions!
A tenant will always want to consider obtaining searches and a survey of the property. Although you may be taking a lease for only a short period, problems may still arise during the lease term that could be discovered by searches and a survey. A tenant may also want to check to make sure the fixtures and fittings are in good working order and that the property is connected to fully functioning services.
Lawson Lewis Blakers are able to provide specialist advice to landlords and tenants in relation to commercial property transactions.