Leasing commercial property is a common practice for many small enterprises. As a business owner, you need to understand the intricate legal framework surrounding Commercial Lease Agreements.
Among the myriad of terms and conditions in a Commercial Lease Agreement, lease covenants stand as vital pillars that define the rights and obligations of both landlords and tenants. In this article, we delve into commercial lease covenants, shedding light on their significance, enforcement and potential pitfalls.
What is a covenant in a commercial lease?
A covenant in a commercial lease refers to a promise or obligation that both the landlord and tenant agree to uphold during the lease term. These covenants outline various terms, conditions and rules that govern the relationship between the landlord and tenant.
Covenants cover a wide range of matters, including the payment of rent, maintenance responsibilities, permitted use of the premises and restrictions on alterations. Understanding these covenants is essential to ensure a harmonious landlord-tenant relationship and avoid any potential legal disputes.
How do covenants in a lease work?
Lease covenants act as the foundation for a successful landlord-tenant relationship. They provide clarity and certainty regarding each party's obligations, reducing the risk of misunderstandings and disputes.
For instance, a "payment of rent" covenant ensures the tenant's timely rent payments, while a "repair and maintenance" covenant outlines responsibilities for keeping the premises in good condition. These covenants are legally binding, and both parties must adhere to them throughout the lease term.
What are the most common types of commercial lease covenants?
The most common covenants in a commercial lease include:
- You promise to pay rent on time and in the correct manner
- Any reasonable repairs will be actioned
- You will insure the property
- The landlord has the right to enter and inspect the premises
- Alterations will only be made with the landlord’s permission
- You will not create a nuisance that affects neighbouring properties
How do lease covenants become unenforceable?
While lease covenants are binding, certain circumstances can render them unenforceable. Covenants must be reasonable and not unfairly restrict the tenant's rights. For example, if a landlord unreasonably withholds consent for a tenant's request to make alterations that would not negatively impact the property, the covenant may become unenforceable. Furthermore, covenants that courts consider to contravene public policy, excessively restrict rights, or lack clarity might also encounter challenges in court.
What is a fully qualified covenant in a lease?
A fully qualified covenant in a lease is a commitment that the tenant must fulfil only if certain conditions are met. For example, a tenant may be required to obtain the landlord's written consent before making substantial alterations to the property. This condition ensures that the landlord has the opportunity to assess the proposed changes and ensure they align with the property's overall maintenance and value.
What is an absolute covenant in a lease?
An absolute covenant in a lease is one that must be strictly adhered to without any conditions. For instance, a tenant might be prohibited from using the leased premises for certain activities, such as running a noisy manufacturing plant in a property located in a quiet residential area. Breaching an absolute covenant can have severe consequences, potentially leading to forfeiture of the lease.
How do covenants relate to forfeiture?
Forfeiture refers to the landlord's right to terminate the lease and regain possession of the property due to the tenant's breach of lease covenants. If a tenant fails to comply with the terms of the lease, such as not paying rent or using the property for unauthorised purposes, the landlord may choose to forfeit the lease.
This typically involves peaceable re-entry, where the landlord physically takes back the property. However, forfeiture is a serious step that requires strict adherence to legal procedures and potentially allows the tenant to apply for relief from forfeiture.
How are covenants treated for rolling leases?
Rolling leases, also known as periodic tenancies, are Lease Agreements that continue periodically after the initial lease term expires. In this scenario, the covenants outlined in the original lease continue to apply.
However, either party may need to provide notice to terminate the lease or make changes to the terms. Both landlords and tenants must understand how covenants function within the context of rolling leases to ensure compliance and avoid unexpected legal complications.
Get legal assistance from LawBite
Understanding lease covenants is paramount when entering into a Commercial Lease Agreement. If you breach a covenant, the consequences can be severe, including potential forfeiture of the lease. For this reason, it's important to remedy the breach promptly or seek legal advice to address the situation.
Whether you're a landlord or tenant navigating the world of commercial leases, our commercial property lawyers are here to guide you, ensuring your business is positioned for success. To find out how we can support your business, book a free 15 minute consultation or call us on 020 3808 8314.