The Commercial Property team has particular expertise
in acting for either Landlord or Tenant in dealing with
Leases of all types of commercial property on a national
basis. Please be wary of granting or accepting a Lease
without having obtained the proper legal advice. Leases
are usually far more complex than transfers of freehold
property, and the repercussions of not fully understanding
ones obligations can be very costly.
We have highlighted below a few of the key issues which
parties to a Lease should understand when negotiating
terms:
The length of the term
During the past fifteen years (and with the exception
of Leases of licensed premises) the tendency has been
for Tenants to seek Leases for shorter terms (10 or
15 years or less) than was previously the case.
We will advise both Landlord and Tenant of the desirability
of long or short terms, and also on the circumstances
in which the Tenant, by virtue of the renewal provisions
of the Landlord and Tenant Act 1954, can insist on his
Landlord granting him a renewal Lease at the end of
the current term, and likewise the grounds on which
a Landlord is entitled to decline to grant such a Renewal
Lease.
Rent and rent reviews
We advise both Landlord and Tenant to obtain professional
advice to establish the fair rent for the premises (bearing
in mind the repairing obligations of the parties). Normally
reviews will be negotiated every three or five years
during the term. Rent review clauses in Leases are lengthy
and detailed and need very careful consideration by
reason of their complexity.
Break Clauses
Whether a Lease should contain an 'option to determine’
i.e. whether the Landlord or Tenant should be entitled
to break the Lease at some point during the term. Break
clauses are frequently negotiated on behalf of Tenants,
who are now inclined to be in a stronger negotiating
position than was the case 10 or more years ago. Additionally,
it is essential for both Landlord and Tenant to consider
whether a break clause should be conditional on, for
example, the payment of rent and/or the observance of
the tenant's covenants. An onerous condition may result
in a Tenant who has a break clause not, in practice,
being able to rely on it, and the Tenant in particular
needs careful advice in this regard.
Obligation to Repair
It is particularly important for the Tenant to understand
the extent of his obligation as to repair, be it an
internal repairing liability, a full repairing liability
and/or a liability to refund to the Landlord a proportion
of the costs incurred by the Landlord in repairing the
building of which the premises form part.
We can advise on the following issues that a Landlord
or Tenant may wish to clarify in respect of repairing
obligations in their lease:
-
Can the Landlord insist that the Tenant is not
only obliged to maintain the building in good repair,
but also to rebuild, if part of the building becomes
beyond economic repair?
-
Does a Tenant with an internal repairing liability
have to repair external doors and window frames?
-
Does a Tenant with a full repairing liability have
to take on responsibility for an inherent defect
in the building resulting from the design faults
when the building was constructed 10 years earlier?
-
Where a Landlord is, by virtue of the terms of
a Lease, entitled to recover the cost of effecting
repairs to the building through a Service Charge,
what protection does the Tenant have in respect
of the extent of such building works and the cost
of them?
Assignment or Sub-letting
In settling the terms for a commercial lease, the Landlord
and Tenant should understand and consider the following
matters:
-
What alienation rights should be granted to the
Tenant to enable him to dispose of his leasehold
interest in the premises by way of an Assignment
or Sub-Lease?
-
What are the considerations when deciding whether
a right to Assign or Sub-Let should only be in respect
of the whole of the premises as opposed to part
of the premises?
-
Under what circumstances can a Landlord properly
refuse his consent to a request by the Tenant to
be able to Assign or Sub-Let?
-
What conditions can a Landlord properly attach
to his consent to an application for consent to
Assign or Underlet?
-
What is the Tenant's liability if the person to
whom he assigns the Lease (the Assignee) defaults
or if any subsequent Assignee defaults?
-
What is an "Authorised Guarantee Agreement"
and why is it so important for both Landlord and
Tenant?
Alterations
A well advised Landlord will wish to keep absolute
control over the structure of the building, and a well
drawn Lease will normally provide for the benefit of
the Landlord that a Tenant is not entitled to make structural
alterations.
On the other hand, a Tenant must consider whether he
might, either at the beginning of, or during the term,
wish or need to make structural alterations, and if
so he should press for the Lease to permit this, (subject
to obtaining the Landlord's prior consent). It is also
essential for a Tenant to have any fitting out alterations,
structural or otherwise, approved before the Lease commences,
so that he can absolutely sure that the Landlord does
not unexpectedly raise objections once the Lease has
been completed. Often there will be a need for a formal
Licence for Alterations, the drafting of which will
require detailed consideration.
Improvements
A Lease should state how a Tenant's improvements are
to be dealt with when the rent is reviewed, especially
if the Tenant carries out extensive fitting out works.
Under what circumstances is the Landlord able to in
effect "rentalise" improvements, and to what
extent and in what circumstances is the Tenant able
to ensure that any improvements he carries out are not
taken into account when rent is reviewed.
The authorised user of the premises
The Landlord will wish to ensure that the "User"
provisions in a Lease prevent a Tenant from changing
its use to one which attracts a lower rental value than
the use the Landlord intends. A well advised Tenant
will also wish to make sure that the user provisions
in the Lease allow him as much flexibility as is reasonable,
so that if he has to assign the Lease, he is not unduly
limited when the premises are marketed as to the type
of business which the User provisions in the Lease allow
to be carried on.
Formal Notices
In addition, it is of particular importance to the
Commercial Landlord or Tenant to have a full understanding
of the need for and the effect of the formal Notices
required in connection with Leases. These Notices govern
the termination and renewal of Leases, the operation
of Break Clauses, the operation of Rent Review provisions
in Leases, and Repair and Dilapidation Notices in particular.
Failure to serve or deal with Notices within the relevant
time limits can result in severe consequences.
If you are interested in our services, please contact
Graeme Burn.
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