As a business owner, over time as your business grows you will likely have a need to rent business premises. This article will walk you through some of the key aspects of Commercial Leases in the UK, providing you with the knowledge and confidence to make informed decisions about your business's leasehold property.
What is a commercial lease?
A Commercial Lease is a legally binding contract between a business tenant and a landlord. The lease grants the tenant the right to use a property for commercial purposes, in exchange for regular rent payments to the landlord.
The key distinction between commercial and residential leases lies in the property's intended use, as commercial properties serve as workplaces, retail stores, offices, or any other space where business operations occur. As such, Commercial Leases are tailored to accommodate the specific requirements and intricacies of running a business.
Signing a commercial lease
Before you sign a Commercial Lease, you need to understand the process involved and what's at stake. Typically, there are three primary parties involved: the landlord, the tenant, and, in some cases, a guarantor. The guarantor acts as a safeguard for the landlord, taking on liability for rent payment and repair and dilapidations liability etc if the tenant defaults.
Rent payments are usually made in quarterly instalments throughout the year, but the regularity of instalments can be negotiated as part of the deal. Sometimes business tenants prefer monthly rent payments for cashflow purposes. Additionally, tenants are typically required to pay a deposit, which is usually equivalent to one quarter's rent, although again this is negotiable. It may be as little as one month’s rent or as much as six month’s rent. This deposit secures rent payments and covers any potential damages to the property during the lease term.
Do you need a solicitor for a commercial lease?
While it's not legally required to seek legal advice when entering into a Commercial Lease, it is highly recommended. Consulting a commercial property solicitor can help you navigate the complexities of these agreements, ensuring you are protected and fully aware of the Lease conditions.
A commercial property solicitor reviews and amends the Lease wording on your behalf, identifying any onerous clauses and clarifying your obligations. This advice and these amendments can prove vital in limiting your liability over time.
Who pays the legal fees for a commercial lease agreement?
The responsibility for payment of legal fees is negotiated as part of the deal. In many cases, the tenant is responsible for covering the landlord’s legal costs. You should clarify this matter during Lease negotiations to avoid any surprises down the road.
Landlord and tenant repair responsibilities
Where a tenant leases an entire building, it is common for the lease to be a ‘full repairing’ lease, meaning that the tenant is responsible for repair and maintenance for the entire building. Where the tenant leases a part of a building only, it is common for the tenant to be responsible for the interior of their part, and then pay a service charge to the landlord to contribute towards the cost of repair of the structural elements of the building, such as the roof and any common / shared areas and mechanical and electrical aspects such as the lift etc.
What happens when a commercial lease has a tenant break clause?
A tenant break clause allows the tenant to terminate their lease early (on the break date), provided that they serve valid notice in accordance with the break clause and pay any rent and other payments due to the landlord as at the break date.
Can a commercial landlord terminate a lease?
Landlords can terminate a Commercial Lease earlier than the end of the term in specific circumstances. These circumstances include situations where the tenant has failed to pay rent or meet other important Lease obligations.
If the Lease includes a 'forfeiture clause,' the landlord can use it to end the Lease in such cases and claim back possession. However, if the tenant disputes the forfeiture in court, they may be allowed to remain in the property during the legal proceedings.
Can a landlord sell a commercial property during a lease?
Yes, a landlord can sell a commercial property during a Lease term. However, the Lease itself remains valid and enforceable after the sale. This means, in most cases, that the new owner becomes the landlord, and the tenant’s rights and obligations under the Lease remain unchanged.
Can a tenant transfer a lease?
In most cases the tenant will be permitted to transfer (‘assign’) the Lease to an incoming tenant (‘assignee’) with their landlord’s consent.
Often the lease wording will state that the landlord cannot unreasonably refuse their consent to the assignment. Where the assignee has a good trading history and is of good financial standing, the landlord should not refuse their consent. The landlord may make their consent subject to the outgoing tenant ('assignor') entering into an ‘Authorised Guarantee Agreement’, which is a document whereby the assignor guarantees the assignee’s lease obligations until the end of the Lease, or until the assignee themselves assign the Lease to a third party.
The Landlord and Tenant Act 1954
Some Commercial Leases in the UK are protected by the Landlord and Tenant Act 1954. Under this legislation, landlords must offer tenants the option to renew the Lease at its end, with certain exceptions. Grounds for refusing an extension may include the tenant's failure to maintain the property, unpaid rent or the landlord having a genuine desire to occupy the premises for their own purposes.
The Commercial Lease Agreement should indicate whether it falls under the protection of the 1954 Act. If you’re uncertain about your Lease's status, seek legal advice from a commercial property solicitor.
Get legal assistance from LawBite
To position yourself for success you need to grasp the nuances of these agreements, from the initial signing to Lease renewal and potential termination. Seeking professional advice, understanding your responsibilities and staying informed about your rights are important steps to ensure a successful and secure Commercial Lease experience.
If you have any questions or require legal assistance regarding renting commercial property don't hesitate to contact us. We're here to ensure your business is protected and positioned for success.