Senior solicitor Julian Spence, in our Commercial Property team, explains the things to consider when leasing commercial premises.
A lease of commercial premises is a significant financial commitment for a tenant for the term of the lease. It is therefore worth taking the time at the beginning of negotiations to consider how the parties expect the lease to operate and their respective obligations to each other.
If completion is to be triggered by an event, for example the grant of planning consent or completion of landlord’s works, an agreement for lease may be necessary to set out the parties’ contractual obligations.
Is a fit-out and license for alterations required?
Does the tenant want to fit-out the premises? If so a licence for alterations may be required. The parties should agree what the expectation will be at the expiry of the term of the lease, and whether the landlord will require reinstatement.
The rent and contract
The rent and the contractual term are the fundamentals of the lease. But there are a number of other practicalities the tenant should consider, including title investigation, what enquiries to raise and commissioning the appropriate searches and a survey. Is it a headlease? Or an underlease? Is the consent of a third party required? What post completion work will there be? Will completion of the lease trigger a charge to Stamp Duty Land Tax (SDLT)? Will the lease be subject to registration?
When and how should the rent be reviewed? What is the expectation to be in relation to repair and decoration? Will the repairing obligation be limited by reference to a schedule of condition? Will the landlord operate a service charge? Who insures the premises? What happens if the building is damaged by an insured risk? Who bears the risk if cover cannot be obtained for any reason?
Disposing of a lease
How can the tenant dispose of the lease before the end of the term? Can the tenant assign or underlet the premises? If so, what pre-conditions must the tenant meet?
Will the lease incorporate a break allowing the parties to terminate the lease at various points during the term? Will it be landlord only, tenant only, or mutual? Will it be one off, or rolling? What pre-conditions will there be? Will the landlord reimburse pre-paid rent? A tenant should always try to obtain the most favourable pre-conditions so the operation of the break is not undermined.
The landlord's deposit
If the landlord requires a deposit, the parties should agree (preferably in the heads of terms) the circumstances in which the deposit is to be returned, whether on the expiry of early termination of assignment of the lease, or whether the tenant has satisfied an appropriate profits test for example. Will the tenant be entitled to accrued interest? When can the landlord draw on the deposit? Do they have to give notice to the tenant giving the tenant the prior opportunity to remedy a breach? A rent deposit deed should be entered into setting out the practicalities.
The end of a lease
What will be the expectation upon the expiry of the lease? What happens if there are any dilapidations? How does this interact with the repairing obligations in the lease?
It may be prudent for a tenant to appoint their own surveyor at the outset to negotiate and agree the terms of the proposed transaction with the landlord’s surveyor. We enjoy excellent working relationships with a number of firms and are always happy to recommend a suitable adviser to clients if required.
Instruct a specialist Commercial Property solicitor
We can help you with the drafting of the required documents and ensure that they reflect both what you have agreed with the landlord and meet your expectations throughout the lease and upon the lease expiry.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.