It's important to get your commercial lease in order.
It is imperative that with any lease the details are comprehensive and correct and commercial leases are no exception whether you are the landlord or the tenant.
The starting process is to agree the terms of the lease and this is usually done via a commercial agent but the parties should seek the advice of a solicitor if unsure.
The key areas are usually the length of the lease, rent (and whether or not VAT is paid on the rent – this in turn may impact on any stamp duty land tax payable by the tenant on the lease (if any)), rent review dates and the basis of rent review, service charges, repairs, permitted use, whether the lease allows for alterations or assignments (transferring the tenant’s interest) and if, when and how the lease can be brought to an end.
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Landlords will often also want security for the lease, especially if the lease is being granted to a limited company. This is usually in the form of a rent deposit (a sum of money usually equivalent to 3 or 6 months which is retained by the landlord for the duration of the lease but which can be drawn upon in the event of the tenant’s default).
The parties may also require a break provision which enables one or both to terminate the lease early in certain circumstances. A landlord may require this for development purposes, for example, and a tenant may require this if they are starting a new venture and require the flexibility of an exit without either having to find a buyer for the lease or continuing liability under the lease.
The parties should also consider security of tenure rights. The Landlord and Tenant Act 1954 provides business tenants occupying premises for the purpose of their business with security of tenure rights. In essence, this means that such business tenants can simply remain in the premises at the end of the lease term and hold over on the same terms as the lease or alternatively, the tenant is entitled to seek a new lease of the premises on substantially the same terms as the current lease.
The landlord does have grounds to end the lease at the expiry of the lease term or to refuse the grant of a new lease but these grounds are limited and are set out in statute.
The parties also need to consider the position at expiry of the lease. Most commercial leases are fully repairing which means that the tenant must put and keep the property in good repair and return it to the landlord in a good state of repair and condition. This can be a substantial obligation on the tenant and potentially expensive and as such, tenants often seek to limit their liability in this regard.
Whilst leases may be varied at a later date this can only be with the consent of both parties and it must be by formal deed. It is therefore essential that the lease be correctly drafted in the first place having considered all pertinent issues.
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Corporate and Commercial Team
Joanne Wood is a Member and our Head of Property
Denise is a Member at Mullis & Peake and specialises in commercial and company work