The Harrison Drury Blog

5 things a tenant should know about commercial leases

Office to lease

The majority of businesses need premises to operate from, whether they be for offices, workshops, factories or storage facilities. While some businesses own the premises they operate from, most occupy under a lease paying a market rent. But, there is more to a commercial lease than the payment of rent and the answers to the following commonly asked questions will give potential business tenants some useful guidance:-

1. Once I have signed the lease can I get out of it if my business suffers a downturn?

Leases are generally granted for a fixed period of years known as a term.  The lease term can only be ended early by the tenant if, prior to entering the lease the landlord has agreed that the tenant has an option to do so, or, the landlord later agrees to release the tenant from the lease before the term has expired.  If neither of these situations arise, and you cannot find an acceptable replacement tenant for the premises, you may well remain bound to pay the rent and comply with all other obligations until the end of the lease term, even if you have vacated the premises.

2. I know there will be rent to pay, but are there any other costs I may be responsible for under the lease?

If you are renting part of the landlord’s building such as an office block, you may also have a responsibility to contribute to the upkeep and maintenance of common parts of the whole building such as the roof and structural walls, or other things that are used in common with other occupiers of the landlord’s property, such as lifts or a reception area.  This is often referred to as service charge.  The tenant will also be responsible for the payment of the insurance premium for the premises to cover damage to the premises and also the loss of rent the landlord may suffer if the premises become unusable due to such damage.

There can be a cost if you want to transfer the lease, or sub-let part of the property to someone else, as you will usually need the landlord’s written permission, and the landlord can normally claim the cost of considering whether to agree to the transaction and also drafting and agreeing the form of the written permission.  Finally, you will usually be responsible for the business rates, utilities and any other outgoings in relation to the premises.

3. If I find that there are repairs required to the premises, am I right to think the landlord will sort them out?

Most commercial landlords not only seek to avoid any responsibility to carry out repairs to the premises, but will actually seek to put the responsibility for putting the property into repair on the tenant’s shoulders.  A tenant who agrees to a full repairing obligation can find himself with a repairing bill running into tens of thousands of pounds when the lease ends, despite the fact that the disrepair pre-dated the lease itself.  A well advised tenant will try to limit his repairing responsibility to keeping it in no worse state than it was at the date of the lease.  For this reason, it is highly recommended that an ingoing tenant obtains a survey to check and record the condition of the premises before they enter into a lease.

4. What happens if, after I have taken the lease, I discover there are problems relating to the premises that impact on my business?

The principle of “buyer beware” relates to a tenant taking a lease in the same way that it does to a purchaser buying a property, meaning that a tenant takes a property “warts and all” and he must satisfy himself that it is suitable both physically and legally for the use he intends.  The research into the property carried out by a good lawyer will reveal many things about the property, including whether the landlord actually has the power to grant the lease, any adverse rights that may affect it as well as any rights that benefit the property such as rights of way.   Lawyers can carry out a range of enquiries and searches to discover such things as planning permissions affecting the land, whether the property is connected to the public highway, whether there is any risk that the premises may be on contaminated land, whether the is a risk of subsidence due to historic mining in the area, whether the property is connected to mains utilities and a host of other information.

It is common for tenants who have not been represented by solicitors to enter a lease without finding out any of this information.  If a problem rears its head in such a case, say for instance the property does not have planning permission to use it for the tenant’s business, he will have no comeback against the landlord and the tenant will have to continue paying the rent despite the fact he may have a useless asset.

5. I’ve heard that a landlord can change the locks of my business premises if I am late paying the rent, is this true?

In short, yes.  The powers of a commercial landlord to deal with non-payment of rent are far-reaching.  Forfeiture is the procedure by which a landlord can terminate a lease and virtually all commercial leases will have a clause allowing the landlord to terminate the lease if the rent is unpaid for a specified number of days, usually somewhere between 14 -28.  Unlike their residential brethren, commercial landlords do not need a court order to retake possession of leased property if their right to forfeit the lease has arisen because of late payment of rent.  Landlords also have the right to send bailiffs in to seize the tenant’s goods and sell them if the rent is unpaid, but legislation will soon come into force to restrict this right.

The above answers cover some basic issues relating to commercial leases, but in reality only scratch the surface of what is a complicated topic.  If you have any queries relating to commercial leases please comment on this article and I will try and answer them.  I will also be posting further blogs on different aspects of commercial leases and commercial property in general and welcome and comments and contributions you may have.

698 Comments

By V Heath on October 27th, 2016

Hello,
I have am a tenent in a commercial property owned by a pension trust. I have been here for 4 yrs and the landlord has always been understanding regarding rent payments. But now my business has hit a bad patch losing a major contract. I July I asked for a meeting and explained the situation that we would not be able to make the rent and we should forfit our lease and close. He said not to panic and hold fast as something may turn up and he wasn’t too worried about the money. But now we are still in the same position and he has gone from that attitude to sending an email from his agent demanding the rent which now totals £4850! I have explained that I cannot raise this money immediately but he said that the trust is now making the decisions and they will instruct a solicitor which will cost me more. I have asked for a little extra time and I have offered a payment plan of £100 per month and offered to vacate the building. But none of these things are acceptable to the trust. The landlord originally said he would try to move me into a cheaper unit in the building but I have no written proof of this mneeting, only my emailed responses. They are very good at NOT putting things in writing! Can you advise what is most likely to happen next? We only had the demand from the agent on Wednesday and today they have said they will instruct solicitors. I am concerned bacause I am a director at a completely different business which they seem to be very interested in. Can they demand money from that business? I They have asked for it verbally.
Hope you can give me a clue what course they may take here?
Many thanks
Victoria

By mr gurtirathSingh on October 30th, 2016

I’m a garontor for my son who has not been able to pay the rent for 3 months forthe business and the landlord has put a for lease sign outside the shop and is saying that he is going to terminate the lease I have a Tennant that is intrested in the shop and he has contacted the landlord directly to take over the shop and pay the rent and leave me out can this be done as Iam the garontor do I not have the opportunity to transfer the lease to myself can you please advise me what I can do

By Beccy Patience on November 8th, 2016

Dear Mr Singh

Thank you for your comment.

Unfortunately, we are unable to provide any advice without sight of the Lease and associated documentation.

Should you wish for us to provide you with advice, we will be to do so on a fixed fee basis. If this of interest to you, please feel free to contact our property litigation team on 01772 258321 or email me at Rebecca.Patience@harrison-drury.com with further details and I will pass this on to them for consideration.

Kind regards

Beccy Patience

By antoni fliege on November 8th, 2016

I least a small commercial property the lease was for 3 year from April 2010 to April 2013 as far as I know I did not sign the lease I told the landlord verbally at the end of July 2016 this year that I would be moving out as soon as possible I started moving out bit by bit but input in the beginning of October she gave me one week to move everything out and make the property ready for somebody else to move in when I 11st moved into the property it had not been decorated and prepared for a me being I only had a week to move about the rest of my belongings I did what I could to decorate and bring it to a better state than when I moved in the landlord has sent me a bill £1600 for refurbishment £600 for replacing carpets and outside walls removing paint I would agree with the work the landlord carried out time booked out for it is a week is charging me an extra fall months rent he is saying that is loss of rent that he could have made where do I stand also do the lease agreement still stand been over the years out of date could you please advise me what to do
many thanks Tony

By Alex Walmsley on November 11th, 2016

Hi Tony, Thanks for your query.

Under the Landlord and Tenants Act 1954 (LTA 1954), where a lease has expired the terms will non the less continue to apply. This is known as ‘holding over’. The Lease usually continues until the Landlord or the tenant serve a formal notice.

As for the issue with the refurbishment you have carried out on the property; the original lease will need to be examined in order to see if there are any repairing obligations within it and whether the landlord may have a claim for dilapidations.

Should you wish for us to review the original lease in more detail and provide more comprehensive advice on your matter, we will be able to do so on a fixed fee basis. Please feel free to contact our property litigation team on 01772 258321 or email me at alex.walmsley@harrison-drury.com with further details and I will pass these on to the team for consideration and they will then get in touch with you.

Kind Regards

Alex Walmsley

By Deborah Mckenzie on November 13th, 2016

I own a farm in Scotland and let domestic properties on the farm to private tenants.
One tenant closed a business and asked to rent an agricultural shed as a temporary store for his shop’s goods.
He has since moved from my domestic rental property without leaving a forwarding address and is currently four months in arrears on rental for the barn. I need the barn back for farm use. I cannot write to him and he either ignores my phone calls or promises to visit, then does not turn up. I have warned him verbally by telephone that I will dispose of his goods.
Do I have the right to remove his goods from my barn and dispose of them?

By Miss Dar on November 15th, 2016

HI,

I am in a similar situation to some of the others on this pag.
I took on a 9 year lease for retail bussiness and the bussiness failed as i have been on maternity for the last 9 months. A friend of mine informally tookm over the bussiness when i had the baby but was failing to keep up with the rent payment.

I have struggled to come to an agreement with landlord. He has been a bully and has blocked several attempts of minet to just sell the bussinesss and pay him his outstanding rent.

I have offered to pay the sum of £2000 on a weekly basis of £100 a week.

He does not respond to emails or messages and threatens to take me to court if i dont give him his money in 4 weeks.

He has given me false hope in the past that i can sell my lease or bussiness but then gone back on his word.

He also has all my currents possession which he claims he has binned. We took on the lease and spent £15,000 on refurbishing the property which has increased the value of his property.

I am a single mum with two children and he has been very vibdictive in his ways,. I am unable to afford legal support at the moment.

Please help me what can i do?

By Emily Leeming on November 15th, 2016

Dear Deborah,

Unfortunately we are not able to assist you in this matter as your property is in Scotland and therefore out of our jurisdiction. We are, however, happy to provide contact details for a solicitor in Scotland who may be able to assist you. If this would be of help to you then please contact our property team on 01772 258321 or email me at Emily.leeming@harrison-drury.com for further details.

Kind regards,

Emily Leeming

By james on November 16th, 2016

I have taken on a lease for a 5 yr fixed term and fixed rent for that term
When we moved in the land lord informed us we had a month to do the usual refit
This we did on time But the restaurant down stairs singularly failed to achieve it has been 6 months of building work drilling constant buling noise drilling form 9am till 4 pm

I had a meeting with the land lord , he informed me essential work will need done
3 weeks he said , its been 6 months

We have tried to get in contact land lord he will not respond, the only response we get from him is his bill

We have tried talking to the builders the tenant down stairs but every agreement we make they break,

We have offered to close some days so they can carry out the heavy work , they then do that when we are open instead
Its been now 6 moths of this and its killing out cliental , our client basically have to come through a building site
We would never have agreed to rent this unit on first floor if we knew this was going to be done
Can any one help

By Debra Ball on November 18th, 2016

hi If a landlord changes the locks due to rent arrears and prevents the tenant from trading does this mean the lease on the property ends? The landlord is saying the lease is still valid.
Please advise

By Ruth on November 20th, 2016

I am about to enter into lease negotiations for a commercial lease for the ground floor of a high street property. The Heads of Terms have been agreed between myself and the owner of the building. My solicitor is advising me to have local searches (Local search, Water and Drainage, Environmental and Chancel carried out at an additional cost of £750+ vat. I am not so sure I need this as I am will only be a tenant, I am not buying the property. The location of the premises is in a busy prosperous, nature protected area that is not in danger of having a motor way built through it or any other local planning (fyi: the new tenants moving into floors 1 & 2 are not having searches carried out) I will be paying a service charge which relinquishes me of any responsibility for fundamental issues that could occur.

What is the general opinion? do I really need to instruct these searches to be carried out?
thank you

By Elaine Fraser on November 21st, 2016

We where going to take on a lease on a freehold public house but after months of problems over the structure of the lease we decided on the advice of our solicitor not to go ahead. We installed a commercial kitchen and some various other items and the owner once informed of out plans changed the locks. We have not signed anything as this was all done under a verbal agreement. How do we stand in regard to recovery of our property
Many thanks

By Salma Yakub on November 22nd, 2016

Dear Ruth, Thanks for your query.

We do appreciate that commercial searches are very expensive however, we would never recommend anyone to enter into a commercial lease without carrying out a commercial search. These are carried out to ensure that you only make a commitment to proceed with your lease of the property once you are satisfied that there is nothing which could potentially interfere with your proposed use and interest in the property.

The searches would reveal the following matters:

Local search – this search is carried out at council. It will reveal matters such as the planning history of the property; whether or not any works have been done to the property; whether buildings regulations approval was required for, whether the property abuts the adopted highway; whether or not there are any financial charges registered against the property by the local council. We would usually recommend that tenants at least carry out a local search.

Drainage and water search – this search will reveal if the property is connected to the mains drains and water; it will reveal if there is a surface water drainage charge,

Enviromental search – as a tenant, you may become liable for any on site or off site contamination. The costs of remediating the ground can be very expensive and as such you should carry out an environmental search to see the extent of any liabilities.

Chancel search – we would recommend this search, it will reveal if the property you are taking a lease of falls within an area which, could have a potential liability to contribute to the repair of the church chancel.

Should you wish for us to provide more comprehensive advice on your matter, we will be able to do so on a fixed fee basis. Please feel free to contact our property team on 01772 258321 or email me at salma.yakub@harrison-drury.com with further details and I will pass these on to the team for consideration and they will then get in touch with you.
Kind Regards
Salma Yakub

By Robert Burn on November 22nd, 2016

Dear James,

Thank you for your query. It appears there are two lines of enquiry to consider here.

The first is your position in relation to your landlord and the lease. We would need to review the terms of the lease in order to advise you in this respect. Tenants are generally entitled to quiet enjoyment of their property, and your landlord may be breaching that entitlement by allowing the restaurant’s current course of action. This is known as “derogation from grant”.

The second line of enquiry is in relation to the restaurant, as a claim in nuisance may be available to you against the restaurant’s owners. Claims in nuisance are sometimes available against landlords, but only in very limited circumstances.

If you would like more information regarding your options, please do not hesitate to contact our property litigation team on 01772 258321 or email me at robert.burn@harrison-drury.com.

Kind regards,

Robert Burn

By Robert Burn on November 22nd, 2016

Dear Elaine,

The first thing we need to do here is establish the basis on which you occupy the premises. The lack of a signed agreement does not mean that a lease or licence does not exist, so we will need to carefully examine your circumstances before we can provide any advice in relation to your query.

It is important that you act quickly in this scenario, so please contact our Property team as soon as possible on 01772 258321.

Kind regards,

Robert Burn

By Vanessa Gilbert on November 25th, 2016

I am interested on a leasehold guest house at the price of £175.000 but it only has 10 years left of a 21yr lease rent is £23000 per annum. My question is what happens if the landlord does not want to renew the lease will I have lost the sum paid out as I would not be able to sell the lease which is what the owners of current leaseholders are doing?

By Steve on November 27th, 2016

Hi, I took out a 1 year lease on a unit and the lease came to an end over a year ago. I have made attempts to renegotiate the lease with the landlord however he refuses to take my calls.
Recently he has. Stopped using a property agent and wants to collect the rent himself, also he wanted to alter the terms of the lease without discussion. I rejected this and the outcome was him deciding to leave thing as they were which I also objected to as I still wanted a renegotiation. This has gone on for a few months now and because he won’t talk to me and I have nothing in writing to say he no longer wishes monies to be paid to the agent, I have withheld the rent.
He has now locked me out of the unit again without notice- can he do this legally?
Thanks for your help
Steve

By Natalie Bowditch on November 28th, 2016

Hello, I own a small off licence in England and have recently found out that I have been paying the upstairs tenant’s utilities as well as my own. This has been going on for 2 years. The letting agent for the property has said that the money will be refunded and has made an initial payment but there is still over £2000 remaining and the situation is continuing as he will not get a separate supply put in. He has responded to all of my emails with the fact that the upstairs tenant hasn’t paid him, but that shouldn’t really be my problem as he has managed this property for over 10 years. Can I withhold my rent or is there a another way to handle this? We have been emailing him for the next payment for over 4 months.

Leave a Comment




Back to blog posts
Back to blog posts