If you are planning to sign a lease contract for a commercial property keep reading.
In this article, we will outline answers to questions you may have about commercial leases, such as ‘what is a landlord responsible for in a commercial lease?’, as well as ‘do you need a solicitor for a commercial lease
Property law is complex and will nearly always require commercial property legal advice to avoid disputes arising in the future. We will help you understand what a commercial lease actually is and what you need to know about them, as well as your responsibilities in a commercial lease as a landlord or tenant. You can also find out about the termination of commercial leases and the costs associated with drawing them up.
What is a Commercial Lease?
A commercial lease
is a contract made between a business tenant and a landlord. This commercial lease contract grants you the right to use the property for commercial or business purposes. Money is paid to the landlord for the use of the property.
In a commercial lease, the responsibilities of both the landlord and business tenant are detailed.
Although both a commercial property lease and a residential property lease have the same basic concept of paying for the use of a property, they are different.
A commercial lease contract between landlord and tenant is specific to properties being used for business purposes. Both parties would therefore typically have more knowledge of business properties and running a business.
Whereas, a residential lease is used for non-business purposes, i.e. a place to live. Residential properties are easier to evaluate, by looking at prices of other properties in the area, but commercial properties require special expertise to evaluate the property.
Another difference is the length of the contract of commercial and residential property leases. Commercial leases are typically around five years, whereas residential leases are much shorter, usually around one year.
Signing a Commercial Lease?
The process of signing a commercial lease involves two main parties: the landlord and the tenant. A guarantor may be required as a fallback position, so if a tenant can not pay the rent there is a remedy for the landlord. Rent is usually paid in quarterly installments throughout the year, but the number of installments can be negotiable.
To learn more about rent, we have a blog post
about how commercial landlords can deal with rent in the COVID era.
In both commercial and residential leases, the tenant will be required to pay a deposit, which is typically one month’s rent, to ensure they will pay the rent or compensate for any damages they cause. The deposit is handed back to the tenant on completion of the lease, provided there was no damage to the property that needs to be repaired.
Do you need a solicitor for a commercial lease?
Seeking advice from a commercial property solicitor is not required, but it is strongly recommended if you are looking to enter into a commercial lease. The solicitor will review the lease and ensure the tenant is protected and they are aware of all conditions in the lease. It is likely that the Landlord will have legal representation.
Before you sign a commercial lease, you should think about the elements of the lease. If you can, choose a short-term lease. They are ideal for businesses looking to grow, as a short-term lease gives them flexibility and they are more low-risk, allowing business owners to choose bigger properties as the SME grows and develops.
You should also be wary of any hidden costs when signing a commercial lease, which your lawyer will be able to flag upon reviewing the contract. Make sure you factor in repairs and also include a break clause in the contract to allow you to terminate the agreement without facing any penalties if you need to.
In terms of who pays for a commercial lease agreement, it’s usually the tenant who covers the cost of drawing up the lease document, but this can be agreed by the lawyers of the two parties.
Landlord Responsibilities for a Commercial Lease?
A landlord is responsible for keeping up with the maintenance of the property, as well as any repairs. They have a duty to make sure the property is a safe place to work. The landlord is generally responsible for maintaining structural parts of the building such as the roof, as well as common areas and lifts.
Aspects of the property such as air-conditioning and heating should be defined in the lease to make sure there is no confusion or disagreements. Commercial property insurance, gas, fire, and electrical safety are also important considerations.
A landlord can refuse to renew your lease if you have breached certain obligations or regulations laid out in the commercial lease, or you have refused to pay your rent. Landlords also have the right to refuse if they want to use the premises for themselves, either to work or live. The landlord must explain on what grounds they are refusing to renew the commercial lease.
A Commercial Lease that is coming to an end or is about to expire
What happens when a commercial lease expires? Typically, what happens when a commercial lease expires is the tenant has the option of either leaving the premises on the contract expiration date, or renewing the lease.
This is usually simple, and involves communication with the tenant and the landlord, completing any paperwork which needs to be done.
We’ll also look at the process of ending a commercial lease early. You may be wondering, ‘can a commercial lease be terminated early’? The tenant may be able to end the lease early if it contains a break clause, allowing them to terminate the contract - typically with at least two months notice - without facing a penalty or violating any regulations of the lease.
Other instances where the tenant may be able to terminate the lease before it has expired is if they can pass the lease onto someone else to use the property with permission from the landlord, or if you are able to sublet the lease
Can I be evicted?
The latest government guidelines on eviction, updated on 1 June 2021, state that the notice period for eviction must be at least four months. From 1 August 2021, the notice period for cases where there were less than four months of unpaid rent will reduce to two months. For the most serious cases, defined as ‘arrears equivalent to four or more months rent’, notice required might only be two or four weeks.
Since 31 May 2021, orders of eviction can now be enforced where the landlord has a valid warrant of possession. Bailiffs must provide 14 days’ notice of an eviction.
To find out more about eviction and the government guidelines on eviction, visit the government website
. If you want advice on individual cases of eviction, contact a free, impartial advice service such as Citizens Advice
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If you are looking to take on new commercial premises, our specialist commercial property lawyers and solicitors are able to provide strategic and practical business legal advice at all stages of the transactional process.
We can work with you to ensure the terms of your lease fit with your business needs, as well as helping you to identify and mitigate risks and liabilities you may be taking on and which may not have been immediately obvious.
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