Whether you're the owner or tenant of a commercial property, we can help you ensure that your lease is beneficial to you and your business. Our experienced Commercial Property team have many years' experience of providing simple, pragmatic advice to both landlords and tenants.
We can help with:
- New leases and security documents, including rent deposits and guarantees
- Lease renewals
- Tenants' alterations
- Licences to assign (transfer) or underlet and consents
Management of portfolios
If you are considering acquiring a property for investment purposes, we can deal with all aspects of the acquisition including acting for your lender and advising on the terms of the occupational leases. If you have an existing property investment portfolio, we are happy to take on all aspects of general letting strategies matters including in addition to above:
- Advice on rent review, service charge and break clause provisions
- Licences and consents
- Sales and leasebacks
Commercial Lease FAQs
The following are some of the most common questions we are asked about Commercial Leases.
"I have heard of leases that expect the tenant to cover all maintenance costs - can I negotiate with the landlord about these?"
It’s always open to any prospective tenant to negotiate terms such as this before taking out a new lease. If the property is not in a good state of repair then you should request that your repairing obligations are limited. If you are concerned about the condition of the property, you should always instruct a building surveyor to provide a survey or a schedule of condition.
"There are some repairs needed on the commercial premises I rent - but they were not there when I took on the lease – is the landlord not responsible for these?"
It depends upon what it says in the relevant clause of your lease. Your repairing obligations might be limited in some way, but if not, then you will generally be obliged to bring the property up to a good state of repair and condition even if it was in a poor state of repair when you took it over.
It is possible to limit your liability by reference to an agreed schedule of condition which records the condition of the property at the start of the lease.
Landlords also expect the property to be regularly re-decorated and they may require carpets to be renewed and plant and equipment to be replaced. It is important for you to understand the extent of your repairing and redecoration obligations at the outset. Depending upon the nature of the property and the length of the lease, it may be possible to negotiate more limited repair/decoration liabilities.
"What is a break clause and do I need one in my lease?"
A break clause allows either or both parties to bring the lease to an end earlier than the lease expiry date. Usually a period of notice must be given to exercise the break (typically 6 months) and it will need to be in writing. Sometimes a tenant exercising a break option will have to pay a penalty for doing so, but this is becoming more unusual now. When taking on a new lease you should consider negotiating a break option with the landlord to provide flexibility to get out of the lease obligations earlier if the new business does not work out as anticipated.
"What additional costs are there when taking a new lease?"
In addition to your legal fees you may also have to budget for:
- SDLT (Stamp Duty Land Tax) – this can be payable even though you are not buying the property. It is calculated by reference to the length of the lease and the level of rent (plus any VAT payable on the rent) and a formula applied. If the lease is for 7 years or more you will need to file an SDLT return with the Inland Revenue even if no actual SDLT is payable. Generally speaking, the longer the term and the higher the rent, the more likely that SDLT will be payable. We will be able to prepare a proper calculation for you where necessary.
- Land Registry fees – if the lease is for more than 7 years it has to be registered at the Land Registry. The application fee will be calculated by reference to the level of rent you are paying at the start of the lease and there may be land registry search fees too.
- Surveyors fees - you may appoint a surveyor to provide advice on the condition of the building. In most cases they can give you an estimate of costs so that you know where you stand.
"Can a commercial lease include provisions to change the rent payable?"
Yes. Leases over five years normally include provisions to review (change) the rent at specified intervals during the term. These lease provisions are called ‘rent review’ provisions. Rent reviews are commonly negotiated between the landlord and the tenant by referring to the rents achieved in the open market.
Commercial leases have traditionally provided for ‘upwards only’ reviews, where the new rent negotiated cannot fall below the rent the tenant was paying before the rent review, even if market rents have fallen.
Alternative forms of rent review mechanisms are being used and it is becoming more common for rents to be reviewed in line with specified indices such as the Retail Prices Index (RPI).
"Are there restrictions on how I can use the property?"
Yes. Landlords will usually restrict how the property can be used. The lease will specify a ‘permitted use’, often by reference to a planning class (e.g. B1 offices). Sometimes the use will be very specific to ensure that there is proper mix of businesses within the landlord’s development.
It is important to ensure that the permitted use specified in the lease is clear and wide enough for your purposes.
"Can I extend the length of my commercial lease?"
Yes. Subject to satisfying certain criteria, business tenants have a statutory right under the Landlord and Tenant Act 1954 (“1954 Act”) 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 has some limited grounds to object to the tenant’s request (the most common being that the landlord needs the property for its own occupation or wants to redevelop it). Even then, compensation may be payable to the tenant.
It is possible to agree with your Landlord (before entering into your lease) that you will not have these renewal rights. A specified procedure involving the Landlord serving a notice and you completing a declaration needs to be followed to ‘exclude’ the lease from the 1954 Act. The right to renew a business lease is a valuable tenant right and you should think carefully before agreeing to the lease being excluded in this way.
"What if I want to sell my interest in the lease or deal with the lease in another way?"
Commercial leases normally restrict your ability to deal with the lease. Usually a tenant will not be able to sell (assign), sub-let, share occupation or grant security over the lease unless the landlord’s consent is first obtained. Landlords also impose conditions which have to be met before such consent will be granted.
They will often require a formal deed to be signed by all relevant parties and will require that you pay their legal and surveyors fees are paid in return for providing their formal permission.
Careful drafting and negotiation is required to ensure that these lease provisions (known as alienation covenants) are not too restrictive and allow the tenant enough flexibility to deal with the lease should your business requirements change.
"What is a surrender of a lease?"
This is an agreement between the tenant and landlord to bring a lease to an end (even if there are still a number of years left to run on the lease).
If you have a lease you wish to surrender, you need to use a deed for your surrender to be valid. However, a surrender can also occur by operation of law, when the conduct of the landlord and tenant amounts to acknowledgement that the lease has come to an end.
If you wish to end the lease at a time when the break clause isn’t exercisable (or you don’t have a break clause), you may agree to surrender the lease with the landlord.
If the landlord resists, you won’t be able to surrender your lease earlier than the date stated in the lease.
If you have a question that isn't covered above, or need any other help with Real Estate or Commercial Property, call us on 01423 869977 and we'll be happy to help.