If you’re negotiating a commercial lease, it’s important to understand your legal responsibilities as both a tenant and landlord. These obligations are set out within the lease agreement, which, once signed is legally binding.
If you’re currently reviewing a lease agreement and you need help to shed light on what your legal responsibilities are, read on.
1. Understanding the terms and conditions
This sounds like an obvious one but it’s vitally important that you know the details of your commercial lease. The lease will typically include terms relating to rent, duration, permitted use, maintenance obligations, and end of lease or termination conditions. We’ve covered this section in more detail in a previous blog post which you can read here. Seeking legal advice is highly recommended as each lease is unique to the property. For example, a retail tenant may agree to terms related to specific business hours or signage, while an office tenant might need clarification on shared spaces or utilities.
2. Due diligence on the property
As a tenant, you are legally responsible for ensuring the property is suitable for your business operations. This may include ensuring that the permitted use of the property aligns with your intended use and that the property complies with health and safety regulations. For example, if you’re leasing an industrial space, you might need to verify that the property meets environmental standards or has the appropriate loading and unloading areas.
3. Repairs and maintenance
A key responsibility in any lease negotiation is determining who is responsible for repairs and maintenance. Leases can vary greatly in this regard:
Full Repairing and Insuring (FRI) lease: The tenant assumes full responsibility for all repairs and upkeep. This clause is common and most tenants are surprised to learn they’re responsible for repairs, even if the property was in poor condition when they moved in. This means returning the premises in a better state than they received it, not just as it was.
To reduce this liability, tenants should consider arranging a survey of the property’s condition when agreeing on heads of terms. This survey can highlight potential issues, giving tenants the opportunity to negotiate for repairs or a rent-free period if necessary.
Internal Repair (IRI) lease: This is more straightforward and means that the landlord is responsible for structural repairs, while the tenant takes care of the internal space.
You need to clarify these responsibilities upfront to avoid unexpected costs down the line.
4. Compliance with health and safety laws
Businesses renting premises must ensure that the property complies with all health and safety regulations. For example, if you are leasing a warehouse, there may be additional requirements for fire safety equipment, ventilation, or storage capacity. Failure to comply with these regulations can result in penalties or legal action.
5. Insurance Obligations
Typically, the lease will specify who is responsible for various types of insurance. This could include:
- Building insurance (usually the landlord’s responsibility),
- Contents insurance (the tenant’s responsibility), and
- Public liability insurance (which both parties may need).
Having the correct insurance in place can be overlooked by business owners and so making sure you have adequate cover will protect your future interests.
6. Landlord and Tenant Act protections
In England and Wales, tenants are generally protected by the Landlord and Tenant Act 1954, which grants them the right to renew their lease unless the landlord has valid grounds for not doing so. However, both parties can agree to exclude this protection, and this should be a key consideration during negotiations.
7. Legal documentation
There are several key documents that should be part of the negotiation process:
Heads of Terms: This sets out the proposed terms of the lease and can be helpful in preventing disputes. If you want to learn more about what Heads of Terms cover, you can read this article here.
Lease agreement: The final legally binding document that outlines all responsibilities.
Guarantee agreements: Sometimes, landlords require tenants to provide a guarantor, especially if the tenant is a start-up or has limited credit history.
Final thoughts
Negotiating a commercial lease is a significant legal undertaking. Ensuring you have a clear understanding of your obligations—either as a landlord or tenant—is key to preventing disputes and maintaining a smooth business relationship.
At Jamieson Law, we specialise in guiding businesses through this complex process, offering expert advice to ensure that all legal responsibilities are clearly defined and met.
Get in touch today for tailored advice and support as you navigate your commercial lease.
