I am currently acting for many landlords who are seeking to deal with tenants who are defaulting on their obligations.
What I have found surprising is the number of tenancies that commercial landlords enter into without having a properly drawn up lease. While I fully understand the wish to save money in these tough times, renting out commercial property without a properly drafted lease will end up costing the landlord more in the long run. I have set out below five reasons why you should always have a written lease when renting out commercial property.
1. It’s the law
A tenancy for a period of three years or over has to be made by deed, so if you have verbally agreed a five year term, the tenant could potentially walk liability free at any time if you have not entered into a formal lease made by deed.
2. Protection
If you want to ensure you are able to get the property back from the tenant at the end of the lease term it is essential you have a written lease. If the lease is a periodic lease, that is, it runs from month to month or year to year, or is for a fixed term of over 12 months, it will be protected by the provisions of the Landlord and Tenant Act 1954.
This protection restricts the rights of the landlord to get the property back at the end of the lease term, and also allows the tenant to apply for a new lease which the landlord can only object to on specific grounds. The landlord and tenant can agree that this protection does not apply, but they must follow a procedure which requires there to be a lease in writing.
3. Insurance, Repairs and decoration
In most commercial leases the obligation to insure, repair and redecorate is placed upon the tenant. The extent of the obligation is up for negotiation, but at the very least a tenant should be made liable to pay for the buildings insurance on the property, keep the property in at least as good a state as it was at the start of the lease, making good any damage including that through wear and tear, and to decorate the property before handing it back. This will make it much easier for you when seeking to re-let the property, and if the tenant has failed to comply with its repairing and redecorating obligations at the end of the lease term, you can claim against the tenant for the loss suffered, which is usually the cost of carrying out the repairs and decoration.
If there is no written lease the tenant has no obligation to contribute towards insurance or do anything to the premises, other than to avoid deliberate damage. In this situation you will be out of pocket for the insurance premium and may find yourself with a steep clean up and decorating bill before you can re-let.
4. Use
The only way you can restrict what the tenant does in your property is to have limitations in your written lease regarding what the tenant can an cannot do on the property. This can prevent the tenant doing something on the property which may be a nuisance to you or your other tenants, and could depress rental values on your other properties or stigmatise the property they are occupying.
5. Termination
A properly drafted commercial lease will have a provision that the landlord can get his property back if the rent is a specified number of days late, usually somewhere between 7 and 28 days. It also should state that where there has been any other breach of the lease terms, or the tenant has become insolvent, the landlord has a right to terminate the lease. This powerful remedy is known as the forfeiture clause, and only exists if it has been properly agreed, and it will be difficult to argue it has been agreed unless it is contained within a written lease.
If there is no forfeiture provision, the landlord would have to go to court and argue that there has been a fundamental breach of contract entitling the landlord to break the tenancy, but this is by no means certain to succeed. An express forfeiture provision is essential to the proper management of commercial property.
The above are clear illustrations of the need to have a properly drafted commercial lease. The cost of getting the lease properly drafted will be saved many times over if there is a dispute with the tenant, and in relation to costs, the lease usually provides that the tenant should be responsible for the landlord’s management costs associated with the property itself.
If you lease a commercial property for six years should the lease be independently witnessed.
I have recently rented a shop but Im told the roof needs repairing but I wasn’t told about this before I moved in, Do I need to pay for the repairs
Hi Gary,
Many thanks for your enquiry.
As the blog piece highlights, the importance of a well drafted lease is crucial to clarifying potential issues such as the one that you have raised.
Unfortunately, without sight of a lease or other agreement in which you have entered into, we aren’t in a position to be able to give you specific legal advice without discussing the matter further.
If you wanted to get in touch with a member of the Commercial Property Team, we would be more than happy to assist where we can.
Kind regards,
Rob
My employer has asked me to work on Sunday at a retail unit which will have no lease as of midnight Saturday. Is the insurance still valid after this time?
Hi Stuart,
Many thanks for your enquiry, we trust you found the blog an interesting read.
Both employees and employers owe a duty of care to one another during the course of an employment relationship. Unfortunately, we aren’t in a position to be able to give specific advice on this point without discussing the matter in more detail, but if you wanted to get in touch with a member of the Employment Team, we would be more than happy to assist where we can.
Kind regards,
Rob
Hi, I have been operating from a premises for the past 23 years. There was never a written agreement or lease, just paying a monthly rent. I have now been informed by the landlord that he has put the property up for sale and given me 12 months to vacate. Can you tell me what my rights are.
Thanks you
We have a small restaurant which we have leased for the last 20 years. During this time the rent has doubled) and the lease is due for renewal mid July. Our landlord wants to impose a further 20% increase on the rent, the property is in an area that has very little footfall and the rents in our area haven’t risen. Can we refuse to pay the new rent? The landlord has also landed us with a claim for unpaid buildings insurance going back to 2007. He has never presented us with any insurance invoices up until last month (and refuses to provide an insurance schedule), am I right in thinking that The Limitations Act 1980 applies and that he can only go back 6 years anyway? This years insurance premium has also increased 3 fold and he refuses to give me an explanation as to why, yet openly admits that the premiums for his other properties have remained the same. Please advise as this man makes me tear my hair out!!! Thank you.
I am director of a small arts charity. We have occupied our current premises, a shopfront with offices above, since 2005. We use the premises purely for administration. During that period we have had a number of one year leases, although there have been a number of gaps between those leases. We currently have no lease. The landlord is mainly a domestic landlord with only 2 commercial properties. The previous leases were a bit of a mish mash, based on a domestic lease, and drawn up I presume without legal advice. The landlord is trying to impose a two year lease with some vague and potentially draconian clauses which would pose a risk to our trustees. We have had meetings with her and pointed out the issues and she offered to redraft those clauses, although that has not happened. Relations are deteriorating and the landlord has now threatened to give us 14 days notice to quit unless we sign. We have paid rent until the end of June.
Hi
I am the owner of a small retail business. We had 2 locations. One location we signed a lease the other we did not. Our current landlord 8/15-2/16 with whom we didn’t sign lease had a verbal agreement for the property. He offered 2 months free rental for work that needed to be done on the building. Roof leaked and property needed a lot of outside landscaping. When we came into that second month of free rent, the landlord made a comment that we needed to at least pay 1/2 of the month .. so we did, not wanting to cause problems. Secondly there ia a good portion of our backroom that was filled with past tenants items that were promised to be moved out and never was. I rent a storage unit to hold inventory and explained to landlord that I need that space that I am paying rent for to move my inventory into. He kept saying okay but it never happened. This past winter he gave us a water bill. said we needed to plow our own entrance and the roof leaked from some heavy rain. At this point I had enough and gave my notice. I owe him 2 months rent and sent him a bill for what I had lost on space from back room and the 1/2 of second months “free” rent. Can he legally pursue me for outstanding amount without a lease.
please advise . thank you Jim
HI
I have rented out a small industrial unit without a lease, the tenant left at the end of December 2015,he owed two months rent, He says he is not going to pay,as he has done some minor repair to the property,can I legally pursue him for outstanding amount? [£1000]
Hi
We have taken the property for charitable use(temple) and we got lease until 2019,with the permission of the landlord we constructed small rooms for the deities, but the landlord of the property has taken finance on the property and he didn’t pay. During the month of September 2014 the finance people evicted us and the charities belongings are still inside the building. The idols and valuable things are left inside the building, last week the landlord has got bankrupt and what shall will do with lease and the valuable things inside. we really want to move back to the premise where we developed the Hindu temple.
Please advise.
Thanks Padma
Dear Karen
Thank you for your comment.
It is usual practice for the landlord to draft the lease as they will usually want to retain overall control of the terms upon which the property is leased. I would be more than happy to review the draft lease for you if necessary.
If you have any questions or queries, please do not hesitate to contact me on 01772 429 207 or jack.stephenson@harrison-drury.com.
Kind Regards
Jack