Commercial Leases – What You Need To Know…
Whether you are expanding your business into new offices, opening your first retail shop, or taking on a warehouse because you’ve ran out of room in your commercial unit, the contents of your business lease could mean the difference between an enjoyable tenancy and not.
Here at Emmtoria Law we have an experienced, dedicated Commercial Property team to help you, whether you are taking your first step into business taking up its first space, or you’re an established business seeking space and growth. We work with you to ensure that the terms of your Lease fully reflect your intentions with your property, from alteration requirements to options at the end of the term, we will guide you every step of the way.
There are some parts of a Commercial Lease which are core to the essence of a Lease namely, a fixed term of years, the tenant having exclusive possession (rather than having to put up with a cosy landlord visiting every ten minutes and telling you how to run your business), security of tenure (business tenants benefit from this, sometimes this can be excluded within the lease) and covenants on the part of the landlord and tenant (obligations you and the landlord must comply with).
Some other key elements are listed below which is simply an overview of the common terms you will see in your lease – this is not designed to be exhaustive and is not advice, it is simply a glossary of sorts to help you understand the lingo.
Parties – the lease will list the parties who are entering into the agreement, normally ‘landlord’ and ‘tenant’ but sometimes, ‘guarantor’ too which will likely be an entity guaranteeing the tenant’s obligations.
Prescribed Clauses – you will sometimes see these at the start of the lease, and they look a bit like a summary of the lease. These are required when the lease is granted for a term of at least 7 years as it will most likely need registering at HM Land Registry.
Definition of the Property – the lease will need to accurately describe the property being let to the tenant, normally including the use of an accurate plan if it is not the whole of the premises being let. The lease will normally define what forms part of the property, i.e., the windows, the doors, landlord’s fixtures etc.
Term – the lease must be granted for a certain period i.e., 5 years commencing on ‘X’ date. The lease may contain a break option whether for the landlord, tenant or both, exercisable on a certain date, usually an anniversary of the start date and usually requiring a certain number of months’ notice beforehand.
Rent – there will almost always be a covenant to pay a rent. The lease must make it clear as to when the rent is due and how much it is. The lease may also mention when interest is due on late payments and whether or not VAT is payable. Sometimes the rent can be reviewed (known as ‘rent review’ provisions) and this can be linked to inflation, a percentage of the business turnover, a fixed increase at set times or an open market review at the time of the review. This may affect your stamp duty liability so it’s vital you seek advice if you are unsure.
Repairing obligations – if the lease lets the entirety of a property, the tenant will likely be liable to repair the whole property. If the tenant only lets part of a building then the lease will make it clear as to who is responsible for repairing which parts i.e., it may be that the landlord repairs the structure but can still recharge the cost (or a proportion of it) to the tenant sometimes by way of service charge.
Alienation – this is the tenant’s ability to ‘deal with’ the lease whether by assignment (transferring it to another party), subletting (the tenant becomes a landlord to a sub-tenant), charging (securing a mortgage against the lease) or sharing occupation. This could affect your ability to deal with the lease as you see fit in the future, especially if there is no early break clause and you want to end your lease early by selling it for example.
Other common clauses will deal with the use of the property and what the tenant is permitted to use the property for, the tenant’s ability to alter the property, insurance obligations and obligations surrounding the returning of the property to the landlord.
Here at Emmtoria Law, we know that running a business can be a full-time job and dealing with the legalities of your commercial lease is probably not something you want to worry about! The above is not only the bare minimum of what you can find in a lease, but it can also be drafted in a multiple number of ways that can put you at an advantage or a disadvantage. You need an experienced lawyer behind you to get it right the first time, which helps to prevent potential room for disputes and associated costs in the future.
At Emmtoria Law, we will carry the burden for you, guiding you through the process and keeping you updated every step of the way, whilst offering fixed fees so you’re absolutely clear on costs at a time when costs are so important to you.
To speak to one of our experienced solicitors call us on 0330 056 5820 or email us at hello@emmtoria.co.uk