COMMERCIAL LEASE
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For most scaling companies, there comes a point when you will start to think about moving into a dedicated business premises. If you don’t have an expert on your side, negotiating the different aspects of your first commercial property lease can seem overwhelming. For landlords and tenants alike, commercial property law can come with its own complex challenges. At Jamieson Law we’re here to help you get it right, helping both parties to understand their obligations and responsibilities.
How we can help:
Although there is a lot to think about when letting or renting a property, the good news is that everyone involved is working towards the same outcome, an occupied business premises.
Our Jamieson Law commercial solicitors are property experts. We work with all stakeholders throughout the process, from guiding the initial negotiations and help with reviewing Heads of Terms, through to completion and beyond.
Drafting and negotiating leases
Once Heads of Terms are agreed, we can support landlords with the drafting of leases. If you are a tenant, we can also undertake a detailed lease review for you, before you formally enter the legal agreement. We’ll help you negotiate the finer terms of the lease itself, offering complete peace of mind before you sign it. The contents of the lease will vary from business to business. Typically though, we cover things like how the building can be used, when rent reviews will take place, works to the property and break clauses.
Assigning your lease, sub-letting the property or sharing occupation
Sometimes business owners find the premises is no longer suitable for their needs before the end of their lease. If you have a break clause written into your contract, you have the right to end the term of your lease early and without penalty. If you don’t have a break clause, you might be able to assign your lease to another tenant or sub-let the premises to another party, but you must seek the landlord’s permission to do so first.
We can guide landlords and tenants through the options available to them in relation to lease assignment, sub-letting or sharing occupation of the premises.
Break options and lease renewal
Where you have a break clause in your lease, they are often subject to very specific conditions for exercising them, so you must be very careful to comply with those.
Hopefully though, your business will go from strength to strength in your new property. So when your lease ends, you may want to stay in your premises. You might be protected by the Landlord and Tenant Act under the lease. We can advise you if this is the case for your business. If you are protected, then your lease should renew on the same terms as previously agreed. If you are not protected, then the tenant does not have the right to renew the lease. However, you may be able to negotiate a new arrangement with the landlord.
If you’re a landlord or a tenant looking for advice on any aspect of a break option or lease renewal, speak to one of our commercial property law specialists for more advice.
BREAK OPTION
A break option is an important right in a commercial lease. The option allows the landlord or the tenant to exit the lease early, before the agreed end date.
The right to break could be a specified date part way through the lease, or it could be at any time during the lease. They can often be subject to specific conditions, and it is very important to be fully aware of what those are, otherwise the right could be lost.
Break clauses must always be agreed between both parties before the lease starts.
SUBLETTING AND SHARING OCCUPATION
If you are a commercial tenant and find you want to sublet the property, you must check the terms of your lease first. You will usually need the permission of the landlord. Subletting can be a good option for start-up businesses, but remember the tenant remains fully liable to the landlord for the whole rent and other obligations.
You may want to share occupation of the property with other related companies without the need for a formal sublease. In this case, you should negotiate with the landlord to add this into your lease from the outset.
RENTS REVIEWS: OPEN MARKET V RPI
An open market rent review reflects the value of the property on the open market. An RPI rent review reflects the rate of inflation. Both types of rent review have advantages and disadvantages. Property prices can be subject to greater fluctuations (ups and downs) than the rate of inflation. RPI rent reviews can provide more certainty to plan for future changes in the rent. However, open market reviews will reflect a fair price for the property in relation to others in the area at the time. Note in both cases that a landlord will usually never permit the rent to decrease.
REPAIR AND MAINTENANCE OBLIGATIONS
A lease should offer clear guidance on who is responsible for the maintenance and standard of the property. Without this in writing, there’s scope for disagreements between landlords and tenants about who should be doing what.
If a lease is on ‘full repairing and insuring’ terms (FRI), the tenant will be responsible for all property repairs during the lease. Tenants need to make sure that the property is in good condition at the start of the lease.
If there are any building defects or damage before the lease starts, a tenant should try to exclude them from their repairing responsibility in the lease.
WHAT COSTS OTHER THAN RENT COULD A TENANT BE LIABLE FOR?
A tenant will be responsible for all utility costs connected with the property during the lease. A landlord may also pass on insurance costs to the tenant, (buildings insurance, loss of rent insurance, etc.)
If the property is a unit within a business park, or forms part of a larger building with multiple tenants, there will often be a service charge. This covers the provision of services benefitting all tenants, i.e., grounds maintenance or communal lighting.
It’s important to understand what your obligations are before signing a new lease to avoid any financial surprises.
FREQUENTLY ASKED QUESTIONS ABOUT
Landlord and Tenant
We’d always recommend having a commercial law solicitor review your lease before you sign it. We can help you negotiate the finer details of the agreement, so that you understand your responsibilities in full.
It depends on the agreement between you and your landlord. Your starting point will be to check your lease to see what rights you have.
If you no longer want to occupy the premises, you may be able to assign your lease to another business and they take over the responsibilities of the tenancy. There could be an option to sublet the property. In this scenario you would still be legally responsible for the property and the payment of rent. If you want to try and surrender the lease completely, you will need to negotiate with your landlord and you may need to pay a release fee.
Whatever you decide to do, it is essential that you seek the landlord’s permission first and work closely with them throughout. We can guide both landlords and tenants through this process.
It will depend on the nature of your business and how you plan to use the property. As a good starting point, we’d recommend considering the following points.
- Might you need the inclusion of a break clause, so that you can surrender the lease early if needed?
- What is the current state of the property and who will be responsible for maintenance and repairs?
- When will rent reviews take place and are there are service charges in addition to the rent?
- Can the premises be altered, for example the temporary division of a large office into two smaller spaces.
Our commercial law solicitors can help you negotiate the terms of your lease with the landlord.
The extent of your responsibilities as a landlord or tenant will depend on the lease. If you are a tenant in a simple office space on a short-term lease, you may only be responsible for maintaining the standard of internal decoration. For example, you would be expected to repair walls damaged by whiteboards. Repairs to the fabric of the building may, but not always, fall to the landlord.
Bigger commercial property leases can be a bit more complex and the tenant will almost always be responsible for keeping the property in good repair. It is important that you understand the extent of your repairing and redecoration obligations at the outset, to avoid costly surprises later in your tenancy.
It’s always worth asking a commercial property lawyer to review your lease, so that you know exactly what you are agreeing to, before signing the contract.
No, not without notice. However there may be provisions in your lease allowing the rent to be increased at certain intervals (rent reviews). Any rent review must be agreed between the tenant and the landlord. If an agreement can’t be reached, there is usually a process for independent third-party determination.
In general no, though this area of law is actually a little uncertain and you should always check your lease. Leases almost always allow the landlord to enter the property for specific reasons.
If you are a landlord and feel that you may need access to make repairs under the covenant of the legal agreement, it’s worth reserving the right of entry in the lease.
Although a lease must be specific to your property, there are a few standard things that it should include. We can help you draft your commercial leases and would typically consider:
- The length of the lease and any other payments to be made by the tenant, such as service charges.
- The permitted use, detailing exactly what your property can be used for under the assigned planning class.
- Who is liable for repairs to the property and who has responsibility for what.
- Clauses around subletting of the premises or the assigning of the lease to another business.
- A rent review provision.
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