Negotiating A Commercial Lease? Everything you need to know about commercial lease agreements to save you time and money

May 20, 2019

The decision to renew or sign a new Lease Agreement is always a tough one to make.

Whether you are moving into your new office, setting up a retail shop, opening a gym, or simply about to renew an existing lease, you need to remember, that signing a Lease Agreement is always challenging.

Any small issue that you ignore right now could be a big problem later…

For that reason, before you sign the dotted line, here are some key things that you need to know to avoid risks.

 

What is a commercial lease?

A commercial lease is a contract entered into between two parties whereby one party (“the Landlord”) grants another party (“the Tenant”) exclusive use of land or buildings for a period of time (“the term”) generally in return for the payment of rent or a premium.

 

How do commercial leases work?

With the exception of sub-leases (which fall outside the scope of this note), a lease can be granted for any term that the parties both agree to.

Generally speaking, if a lease is granted for a longer term (of say 125 years), it is granted for a premium and a nominal annual rent.  However, most commercial leases are granted for terms ranging up to 15 years and such leases are normally granted with no premium payable by the Tenant, but with the Tenant paying an annual rent based on market rates.  

If the lease is granted for a term in excess of 7 years it must be registered at the Land Registry and, depending on the amount of premium, rent and term of the lease, the Tenant may be required to pay stamp duty land tax.  

 

Importance of commercial leases

A commercial lease regulates the relationship between Landlord and Tenant, and it is essential for both parties that it is correctly drafted. Many businesses consider that a lease is a paperwork exercise and look to use online precedents with a view to try and cut costs.  However, all businesses need premises to operate from and a commercial lease regulates that occupation and states what either party can and cannot do and is an essential document for the operation of the business.  Failure to deal with the lease properly can result in years of disputes, litigation and huge costs.

From a Landlord’s perspective, if the lease is not correctly drafted it could result in various issues such as, but not limited to:

  • incorrect rent payments;
  • inability to collect service charges;
  • the Tenant inadvertently benefitting from security of tenure, which makes it very difficult to remove the Tenant from the premises and gives the Tenant the automatic right to a new lease at the end of the existing lease;
  • or onerous obligations to provide services to the tenant.  

All of the above and many more potential issues can then result in property owners having additional difficulties in obtaining mortgage funding or selling the properties as banks and purchasers do not wish to inherit the defective leases.  

From a tenant’s perspective, if the lease is not drafted correctly it could result in issues such as; but not limited to:

  • not being granted the rights needed by the Landlord (such as a right to access the property);
  • being required to pay additional charges that you were unaware of;
  • being responsible for repairing the property, even if it is not in good repair at the date of the Lease;
  • no requirements on the Landlord to provide essential services;
  • no ability to transfer the Lease to a third party;
  • onerous conditions attached to break clauses which make it very difficult to terminate the lease early; no protection for deposits paid to the Landlord or mechanism to ensure the deposit is returned;
  • incorrect or no payment of stamp duty when it was due, which leads to the imposition of fines or the lease not being registered at the Land Registry, which renders the legal title of the lease void.  

The points above are a few of the most common issues that often arise when a lease is prepared, but there are many more that can arise.  Leases are technical legal documents and failure to get them right can be costly for the parties involved. Unfortunately, when parties with no legal experience download precedent leases from the internet, they do not know what issues they should be looking out for and, in the long run, this could be extremely costly.  

 

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How can we help?

Here at LawBite, we do not offer free precedent leases to download for the reasons highlighted above.  However, what we do provide is:

  • A bespoke commercial lease prepared specifically to suit the requirements of your property drafted by a specialist consultant solicitor with more than 10 years of experience of commercial property.
  • We can provide bespoke leases so for as little as £290 plus VAT, which is a fraction of the price of standard commercial law firms.

By making this small investment NOW, you will be sure to save yourself the time and cost of future issues that are far more likely to arise if you seek to draft a lease yourself.

For further business legal advice, please enter an enquiry or call us today on 020 7148 1066 to speak to a member of our friendly Client Care Team.

Joe Phelan

The author of this article is expert LawBrief Joe Phelan.

Joe Phelan is an experienced commercial property solicitor who has worked in some of the largest law firms in the North East and for one of the largest housing associations in the UK. Joe has acted for clients ranging from individuals to Plc’s and NHS Foundation trusts and is highly experienced in dealing with commercial and residential conveyancing; real estate finance; and Landlord and Tenant matters.