Five reasons you should always have a written lease
Posted by John Chesworth Jun 10th, 2010, in Property
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.
31 Comments
By John Chesworth on June 17th, 2010
If you rent a commercial property without a lease and the rent is calculated by reference to a specific period such as £X per month then this will be a periodic tenancy. If you operate a business from premises where you occupy as a periodic tenant and there is no written tenancy, the landlord will have to serve you at least 6 months notice under section 25 of the Landlord and Tenant Act 1954 and you will have the right to apply for a new tenancy.
By misshillson on September 10th, 2010
We had no lease between me (landlord) and tenant. Tenant left property owing rent and utility bills. Have changed locks. Can i sell the possessions left behind
By John Chesworth on September 13th, 2010
Miss Hillson
The short answer is unfortunately, no. Unless you have some form of agreement allowing you to deal with the tenant’s possessions after the lease has ended you cannot sell them even though rent is outstanding. A well drafted lease will incorporate such an agreement.
If the lease was still in existence then you could exercise the ancient remedy of distress for rent, and instruct bailiffs directly to seize the goods and sell them. However, as you have changed the locks you have in all probability terminated the lease.
You have a couple of options available, the first is to obtain a county court judgement against the tenant for arrears of rent and other outgoings. You can then instruct the County Court bailiff to seize the tenant’s possessions, their authority is derived through the enforcement of a court judgment and hence they can sell the goods whereas you can’t. The other is to locate the tenant and deliver the possessions to them, or put them in storage and advise the tenant they are available for collection.
If you sell the goods and set the value off against rent you will potentially face an action for trespass to goods or conversion. It does seem unfair but that is the law.
I have set out the legal position above. Many tenants disappear leaving arrears and if they have not collected their possessions within days of moving out, the likelihood of them suing for the loss of those possessions is slim. However, I have acted for a client who disposed of what they thought was waste and rubbish left by a tenant, who subsequently took them to court.
Regards
John
By Karen Brennand on September 27th, 2010
Was in the process of purchasing a business from Vendor, but Landlord kept altering the lease to his benefit obviously. He kept me dangling for eighteen months and promised that I could move in once the sale between myself and the vendor had gone through, but he wouldn’t sign the Lease preventing the sale going ahead. He and the vendor intensely disliked each other, so when she had to leave the business unsold because she was emigrating, the Landlord asked me for a meeting inside the property and for a subsequent backhander before he would sign the Lease(he had already put A-boards on the A6 advertising the business). I refused and within two weeks he had a couple of guys inside the property running the business that I had been trying to purchase for eighteen months. I ended up with no business, no job and a huge solicitor’s bill. Could I have sued him for wasting my time? When I broached this with my solicitor, he said I would have been throwing good money after bad and to walk away!! Aggrieved!!
By John Chesworth on September 27th, 2010
Karen
One of the key aspects to check when acquiring a business that operates from a tenanted property is the ability for the existing owner of the business to transfer their rights of occupation. If there was an existing commercial lease, it is standard within such a document for the tenant to have the right to transfer his interest in the lease subject to the landlord’s consent.
However, the landlord cannot normally withhold his consent unless it is reasonable to do so. It is not reasonable for a landlord to insist on a “back hander” in order to allow the transfer of an existing lease. The landlord can only reasonably refuse the transfer if occupation by the new tenant would adversely affect the value of the landlord’s interest in the property. For example if the existing tenant was ICI, the landlord could reasonably refuse a transfer to a new company set up the previous day with no assets, as the landlord’s interest would be worth less because a “shell” company is not of comparable financial standing to an established company with substantial assets.
If the lease under which the vendor occupied had expired, they had a right to renew that lease, unless it was excluded from the protection given to business tenants by the Landlord and Tenant Act 1954. Therefore, only if the lease had both expired and was excluded from the protection referred to above, did the landlord have the vendor and you “over a barrel”.
I assume that an application was made by the vendor’s solicitor to apply to the landlord for a transfer of the lease? If the landlord wrongly refused this application where the lease provided that he can only refuse when reasonable to do so, then the tenant would have a claim against the landlord. Unfortunately, unless you had a contractual relationship with the landlord, which is unlikely in these circumstances, you do not have a claim against the landlord. If you have entered into a contract with the vendor but it has not completed, you may have a claim against the vendor, but that will depend entirely on the terms of the contract. Such a claim commonly arises where the vendor is obliged to obtain the consent of the landlord to the transfer, and fails to do so.
The vendor may have a claim against the landlord, and it may be that you need to broach this with the vendor to see whether they are prepared to pursue this. If the vendor still holds the lease, then they can apply to court for a declaration that the landlord has unreasonably withheld consent and direct that the transfer be permitted. If they no longer hold the lease they can seek damages from the landlord for loss they have suffered as a consequence, if the landlord has unreasonably withheld his consent to the transfer.
One final point to bear in mind relates to the costs of making a claim of this nature. If the landlord opposes the claim and it goes ahead to a full trial, the costs are likely to escalate to £10,000 or beyond. Therefore, such a course of action is not to be undertaken lightly.
This is a complicated query, but I hope the above has given you a few pointers.
Regards
John
By Chris Mandl on February 10th, 2011
Does a landlord have the right to claim delapidations if there was never a lease?
By John Chesworth on February 11th, 2011
Dear Chris
A landlord can only make a claim for dilapidations if the tenant has breached a term of the tenancy requiring the tenant to keep the property in repair and often to decorate the property. If there is no lease and there is no verbal agreement to keep the property in repair and decorate, then the landlord cannot make a claim for dilapidations, save where the tenant has actually damaged the property themselves.
Therefore, if there is no lease it is highly unlikely a landlord can make a claim for dilapidations.
Regards
John
By Nigel Pritchard on February 22nd, 2011
I have occupied one business unit for the last 24 years and another adjacent unit for 12 years. I have had no lease for either unit.Rent has been paid monthly. The landlord wants to develop the site. Am i able to claim compensation from him when he asks me to vacate the units.
By John Chesworth on February 24th, 2011
Hi Nigel
As you are a business tenant, your tenancy of both units will be protected under the Landlord and Tenant Act 1954 (the Act). It does not matter that your tenancy is not based on a written lease, a verbal monthly tenancy such as yours attracts the protection of the Act.
This protection means that the landlord can only end your tenancy by serving 6 months notice on you in a form prescribed by section 25 of the Act. In this notice the landlord has to state whether or not he objects to the granting of a new tenancy. One of the grounds he can object is that he intends to either demolish the premises or carry out a substantial work of construction to the premises and cannot carry out these works without obtaining possession of your units (ground f). The other one commonly used is that the landlord requires possession for his own use, this is available to him if he has owned the units for over 5 years (ground g).
Once a landlord serves a section 25 notice on you stating opposition to a new tenancy on either ground f or g you will be entitled to statutory compensation. The compensation is based upon the rateable value of your premises. If you have occupied premises for over 14 years you are entitled to twice rateable value, if your occupation is under 14 years you are entitled to once rateable value.
It follows that you are entitled to twice rateable value for the unit you have occupied for 24 years and once rateable value for the premises you have occupied for 12 years.
I hope this helps
John
By Sonal on March 13th, 2011
Hello, I have a question I hope you can help me with. I have had a commercial lease for the last 26 and a half years in total (2 lease renewals) which expires in 3 and a half years (October 2014). I wish to sell the remainder of the lease on very soon due to ill-health, will the new tenant gain the transfer of the Protected Rights? My lease is covered by the Landlord and Tenant Act (it says 1996 in my current lease, but I am presuming it coovers the original Act??) I really hope you can help on this and thank you for your help in advance.
Sonal
By John Chesworth on March 14th, 2011
Hi Sonal
There are two main pieces of legislation that concern commercial leases, the first is the Landlord and Tenant Act 1954 (the 1954 Act) and the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act).
The 1954 Act is the piece of legislation which is still in force and provides security to commercial tenants. The 1996 Act is largely concerned with the enforceability of the covenants given by tenants and their guarantors after they have assigned their leases to another party.
In short, if a business lease has the protection of the 1954 Act, that protection will transfer along with the lease as long as the new tenant is carrying on a business from the premises. Therefore, if the person you assign the lease is also buying your business, they will have protection as long as they carry on a business from the premises.
Regards
John
By Emily on November 22nd, 2011
Dear John
What is the Landlord’s position to forfeit commercial premises for want of payment of rent in the absence of a written tenancy agreement and therefore, no written forfeiture clause. Is there a common law right to forfeit or peaceably enter the property?
I believe that forfeiture is only available to a Landlord if there is an express provision in a lease and there is no implied right to forfeit for breach of covenant ie:non payment of rent but I don’t know where to go from here as there is no written agreement.
Many thanks in advance for your help,
Emily
By John Chesworth on November 22nd, 2011
Emily
Where a tenancy is oral, a landliord can agrue that the tenant’s failure to pay rent is a repudiatory breach of contract and as such treat the tenancy as terminated. A couple of important points:-
1. If the property is residential or has any residential element it is a criminal offence to evict anyone without a court order; and
2. If you have evicted someone and the court find you had no grounds to, you will potentially be liable for substantial damages.
3. Depending on the type of tenancy, you may be able to terminate the tenancy by notice.
If you want possession, then detailed advice as to the type of tenancy you are involved in is essential and court action will probably be necessary. I suggest you instruct a solicitor with property litigation experience to assist.
Regards
John
By Chris on November 24th, 2011
I took over the lease in a commercial property in 2003. The Lease ran out on 1st January 2009 and was never renewed. With the current economic climate I am now struggling to pay the rent. The landlord has asked me to leave and is bringing in estate agents to re let. What are my rights, if any?
Regards
Chris
By John Chesworth on November 24th, 2011
Chris
Do you want to stay in the property? If, so then as tenant (which I presume you are having taken a lawful assignment), your rights will depend on whether or not the lease has the protection of the Landlord and Tenant Act 1954 (the Act). In order for it to be outside of the Act’s protection, the Landlord will need to have followed the correct procedure before the lease was granted, and there must be a declaration in the lease that Part II of the Act does not apply.
If the lease does have the protection of the Act the landlord can only take possession of the property by virtue of the expiry of the term (ie the end date has passed) if they have first served notice under section 25 of the Act which must be at least 6 months in duration (Section 25 Notice). Once this notice is served you can apply for a new tenancy, and the landlord can only object on specific grounds, one of which is a delay in paying rent. In short if the Act applies the landlord is not entitled to possession based solely upon the expiry of the lease term unless he has served a Section 25 Notice, and the date stated in that notice has passed.
Having said all of the above, the lease will probably have a forfeiture provision where rent is a given number of days overdue. If this has been triggered, and no part of the property is residential, then the landlord can simply change the locks and thereby terminate the lease with immediate effect. This right of forfeiture is not affected by the Act’s protection, therefore compliance with the obligation to pay rent is of paramount importance.
If you want to stay in the property, I suggest you pay any arrears of rent, ensure ongoing rent is paid when it falls due, and get specialist legal advice as to whether or not your tenancy has the protection of the Act. If it does, then you are in a much stronger position.
Best of luck!
John
By MURADUR RAHMAN on January 5th, 2012
I am subletting a restaurant from the leaseholder who has no contact with me and just found out that there is no clause on the lease to sublet, However i am dealing direct with the landlord and never missed a rent, my rent is always paid through bank from my business account.
The lease expires on this month in April and on the lease it states that it’s a renewal lease,
can the landlord chuck me out even if I am paying my rent
By John Chesworth on January 9th, 2012
Muradur
Many thanks for your comment, unfortunately, I cannot advise on your specific case without sight of the lease and a full explanation of the background facts. However, there are some general principles which will be of assistance.
Unless there is a prohibition on sub-letting contained in a lease, the tenant is free to sub-let the property. Therefore, if there is no clause in the lease relating to sub-letting at all, then the tenant is free to sub-let.
Commercial leases usually have a prohibition on sub-letting without the landlord’s consent. If there was a prohibition on sub-letting and the landlord had not given his consent, then the landlord has to decide whether or not he wants to terminate the lease. If he carries on accepting rent from the tenant or sub-tenant after he knows of an unlawful sub-letting, he has probably waived the right to terminate the lease.
If you are a lawful sub-tenant, or the landlord has waived the right to terminate the lease by accepting rent from you, and the lease is not contracted out of the protection given by the Landlord and Tenant Act 1954 (the Act), then the tenancy will continue on after the end date specified in the lease, until the landlord has given you at least 6 months’ notice in the form prescribed by the Act.
If that notice is served, you then have the right to apply to court for a new tenancy and the landlord can only object to the grant on limited grounds.
If your landlord is refusing grant you a new lease then I suggest you see your solicitor as soon as possible, with a copy of your existing lease.
Best of luck
John
By warren on January 12th, 2012
dear john
i wonder if you can help !.
we rented a unit and signed a lease for 3 years it has recently ran out ( 2 months ago ), we had the option to purchase the unit subject to a valuation at current time, we got it independantly valued and the landlord got it valued, and of course the landlords valuation came in at £100k more?.
obviously we have declined and have informed them, so they are not best pleased, i found some other premises and have purchased them, we have slowly moved out of our other premises but still leaving some equipment in there, we also kitted the unit out because when we moved in all what was in was a mezzanine floor nothing else, we installed air con, electrical systems lighting everything it all totalled to approx £80k in the last few months we have got behind in rent but have spoken to the landlord and explained we will get it back up to date as soon as possible, i recently spoke to the landlord as he was fishing around on what we are doing about the lease, i mentioned we have moved out but still moving equipment out before i give them the final notice, it was later on today i returned back to the unit and found a bailiff breaking in and changing the locks, i said what are you doing and he replied issuing a peacefull possession order, he broke in triggered the security system which is monitored to the police and all hell broke loose.
i contacted the landlord on a undisclosed number as he was ignoring my phone and asked whats going on, he replied you said you have moved out, i explained we needed to negotiate all the works we have done and i have found him another tenant, the new tenant wants the unit with all the work we have carried out, i am trying to get at least a contribution from the landlord.
is there anything i can do,
many thanks in advance
By Sonal on January 14th, 2012
Hi John,
You helped me previously on here with a query in March 2011, and I have another question which has come up which I hope you can shed light on.
My parents have a commercial lease (which also includes residential as they live upstairs in the above flat-all under one lease). They are going to sell this very soon, as the flat is not suitable for a disabled person. My question is that my Father is severely disabled with a degenerative brain condition-what rights does he have against the Landlord regarding repairs and dilapidations? It is a FRI Lease, and the new prospective buyers are happy to carry out the repairs once the lease has been assigned to them. There is no way my Father would be able to get repairs carried out, or afford them at the moment-we are just about keeping the business going and paying the rent so that we can reside upstairs(which incidently increased in the last rent review in Ocober 2011)
Please can you help.
Many thanks for any advice,
Sonal
By John Chesworth on January 16th, 2012
Warren
It sounds as if the landlord has instructed baillifs to obtain possession by peaceable re-entry on the basis that your rent is in arrears. The effect of this is to terminate your lease with immediate effect. Most commercial leases have a provision allowing the landlord to do this, you will need to look at what is commonly called the forfeiture clause to see what will trigger the landlord’s right to take such action.
In terms of your improvements to the site, a tenant is entitled to claim compensation for improvements they carry out to a site, but in order to do so the tenant must have served notice under section 3 of the Landlord and Tenant 1927 before they carried out the improvements. If you have not served the notice before carrying out the improvements, you cannot claim compensation.
If you want to get back into the premises, you will need to consider an application for relief from forfeiture, but before this is made you will need to have paid the arrears of rent and also the landlord’s costs of the forfeiture.
This is probably not the news you wanted to hear and it illustrates what a potential minefiled the law of commercial property can be.
Regards
John
By John Chesworth on January 16th, 2012
Hi Sonal
If the lease is an FRI lease, meaning full repairing and insuring, then the obligation to carry out repairs and remedy dilapidations will fall on the tenant, and there will be no rights against the Landlord.
If you have a buyer who will take on the liability for the disrepair, this is probably the best sollution for you.
Regards
John
By glen on January 17th, 2012
I was on a 5 year lease from June2005 to June 2010 when it ran out. I have not renewed it and have not paid any rent for 9 months, am I liable for that money ?
By John Chesworth on January 17th, 2012
Glen
As you will see from our blogs, a key piece of legislation relating to commercial leases is the Landlord and Tenant Act 1954 (the 1954 Act). Unless a lease has been contracted out of the provisions providing security for business tenants under the 1954 Act, the tenancy continues on after the end date specified in the lease if a business is still being conducted from the premises.
A landlord or tenant can terminate this statutory continuation by giving notice. A landlord must give at least 6 months’ notice, whereas a tenant need only give 3 months’ notice.
Turning to your case, if the lease has the protection of the 1954 Act the tenancy will carry on beyond the end of the contractual term until it is terminated by notice, on the same terms as the lease, including the liability to pay rent. If you are in this scenario you will be liable for the rent for the 9 months since the lease term ended, and you need to serve 3 months’ notice in accordance with section 27 of the 1954 Act if you want to terminate your occupation and the liability to pay ongoing rent.
I hope this helps.
John
By Kirsten on March 22nd, 2012
We have been renting a swimming pool in a family home for commercial purposes for the last 12years. We pay regular rental payments. We have no written or formal lease. We are unable to renovate and keep the premises up to date as the owner deems this unnecessary. He now wants to discuss our monthly payments and probably increse them. What are our rights and where do we stand.
Your advice would be appreciated. Kind regards, Kirsten
By John Chesworth on March 29th, 2012
Hi Kirsten
Do you have exclusive use of the swimming pool or is only for certain times of the day on certain days of the week? This is important, as for there to be a tenancy, you have to have exclusive occupation. If you don’t have exclusive occupation you will occupy under licence and the owner will be able to alter the sums payable as and when he wishes. If you have exclusive occupation you may well have a business tenancy which is protected under the Landlord and Tenant Act 1954 and entitles you to statutory protection from eviction and also controls how rent is assessed on any review.
Kind regards
John
By kerry on April 4th, 2012
Hi, I have recently brought a property where I run my beauty salon. I have let two of my friends rent part of the property for their hairdressing business. I did not get a lease signed before they moved in. I have since tried to get them to sign a lease, which they are constantly delaying. The first lease i asked them to sign was a short 6 months lease with a cheap rent to help them settle in. That lease has expired and they did not sign. I have now given them the next lease with a slightly increased rent and again they are not signing. They pay their rent a week or two late most months and I am wondering what rights i have if any? I know that I have been a fool and I should have had the lease agreement in place before they moved in. I’m now in the position that I can’t afford to go through lenghty court processes, but I can’t afford for them not to pay their rent on time or agree to the increase. I should say that the initial rent amount was agreed verbally, where I stated my intention that this was short term whilst they settled in. Can i get them out of the property or force them to sign the lease?Thanks Kerry
By John Chesworth on April 4th, 2012
Hi Kerry,
The first thing that comes to mind is whether you needed your landlord’s approval before letting your friends take a sub-lease of part of the property. I suggest you check the provisions of your lease as you may have breached your obligations to your landlord if consent is required for sub-lettings and it has not been obtained.
In relation to the tenancies, you are quite right that a proper lease should have been signed. I suggest you get them to set up a standing order for their rent and sign the lease or else threaten action to evict them from the premises.
If they refuse to pay their rent, you may have a right to evict them if the draft lease you gave them had a clause allowing you to forfeit the tenancy if they were late in paying rent. You will need to check the terms of the draft lease even if it was not signed, it may be binding on the basis that the terms reflected what was agreed between the parties when the tenancy was created.
Best of luck
Regards
John
By lisa on April 18th, 2012
Hi JohN
I have decided to close the doors of my business i have no lease and never have , i have occupied the premises for the last 3 1/2 years at the begining of me taking the premises on i signed a piece of paper which said either party tenant or landlord had to give 2 months notice to vacate the premises.
i have had no issues so far . 2 years ago i ran into trouble and i gained over 1000 in rent arrears that got noted down and i have been paying it off in instalments ontop of my monthly rent it is now down to around 900 , but last month i ran in to trouble again and was not able to meet my rent of 750 . I have advised the landlord that i intend to close the doors . He is threatening to keep my equipment until rent is payed up to date . Is he able to do that ? i have advised him i will make payment towards my rent arears of what i can afford over the months after clsoing and removing my equipment , he said i am not remvoing my equipment until it is paid.
Also he has advised me that he is going to put the freehold on the market to include my business as a going concern.
can he sell my the business that i have built up with all my equipment.?
I am able to take my equipment out at any time although i have rent arears .
I am paying my rent for this month ,
what are my rights please help
By Rosie on April 26th, 2012
Hi John
In premises running my business. It was a partnership (I was not a partner at the time) until last year. Partnership had been in occupation of premises for many years with no lease. There is still no lease in existence. Partnership became LLP last year and I joined as member along with the former partners. Landlords want to negotiate lease which is fine but there are substantial rent arrears. Can they enforce payment of the rent arrears and if so against who? The original partners up until the partnership ended and the LLP since that date?
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By shield on June 14th, 2010
what if i want to rent a property without a lease, can the landlord evict me when and if he wants to. Do I have any rights as a tenant without a lease ?