The majority of businesses need premises to operate from, whether they be for offices, workshops, factories or storage facilities.
PLEASE NOTE: FOR CORONAVIRUS SPECIFIC GUIDANCE WE HAVE PRODUCED THE FOLLOWING BLOGS IN REGARDS TO COMMERCIAL LEASES/LANDLORD & TENANT ISSUES:
The Coronavirus Bill – what it means for landlords and tenants
Coronavirus – Do my obligations under a commercial lease still stand?
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 premies, 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 they must satisfy themselves that it is suitable both physically and legally for the use they intend. 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 there 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.
Hi Su
The problem you face is a common one for businesses with more than one outlet. As you have no break clause, the only option you have is to approach your landlord and ask him whether he will accept a surrender of the lease. He will want some payment, but it may be less than paying for the lease until the end of the term.
If the second premises will make the whole business insolvent, then drastic times require drastic measures, and you could consult with an insolvency practitioner to see whether you could put the company into administration and buy the viable assets of the business through a new company, including taking an assignment of lease 1, and then liquidating the original company including the liability under lease 2.
This procedure is known as a Pre-Pack Administration. It is costly, due to the professional fees involved, and also the landlord may object to an assignment of lease 1. However, this could be a possible way out if the second lease will drag the business into failure.
Best of luck
John
I have a shop lease 5y to go. The tenant (virtually insolvent and owing rent and other breaches of lease) put the business up for sale by way of assignment, a proposed assignee was allowed in to the shop whilst referances, schedule of delapaditions and legal matters were being dealt with, the tenant walked out a year ago leaving the proposed asignee in place, BUT before the lease assignment was completed the original tenant died suddenly, what do I do. I propose to offer a new lease which expires at the date of the old lease. Your thoughts please
Dear John,
I have a cafe business with two outlets in the same town. Both leases are for 10 years with 7 yrs remaining. Both are between my limited company and the respective Landlord. There are no break clauses. I hold a personal guarantee on one of them (lease 1), but not on the other (lease 2). The terms of the guarantee are now satisfied as the guarantee is removable once a certain level of turnover has been reached, and that has now been exceeded, i.e. I can apply to the landlord to have the guarantee removed this year. My problem is that one of the outlets (lease 2) is underperforming and threatens to destroy the business as it is making a massive loss. I have to find a way to get out of this lease. In this climate there are a lot of empty properties around, so I know assigning the lease is one option but I’m not sure if anyone would take it. The other outlet (lease 1) is fine. I have not yet approahed either landlord to discuss rent reductions etc, but this week was forced to close outlet 2 (lease 2) as I make less of a loss by closing it. I am not in arrears on either lease.
Do you have any advice as to what I should do? The business is viable and could be a success as long as I can get rid of the bad lease (lease 2).
Many thanks in advance.
Hi Chris
You’re right this is a tricky one.
I will have to sound like a conventional lawyer here, but as the effect of rent review povisions is entirely dependent on how the lease is drafted, I cannot advise you on the workings of your rent review clause without first looking at the lease. However, I can give some general guidance which may be is use.
The first point to make is that while the term of your 16 year lease has expired, if you are still in the premises, and the lease was not contracted out of the provisions of the Landlord and Tenant Act 1954, you are still occupying under the terms of your old lease, including the provisions relating to rent review.
In most commercial leases, the time for carrying out a rent review is not “of the essence”. This means that even after the time for the rent review has passed, the landlord can still invoke the rent review procedure. However, if the review date was 2004 it is usual that the valuation is that of the going rent for your property in 2004, although given the market conditions over the past few years that may not differ too much from the current rental value.
There are sometimes provisions in commercial leases that allow the landlord to charge interest from the contractual review date on any uplift in rent following a review which is finalised after the contractual date, even if it is the landlord’s fault for not proceeding with the review and completing it on time!
If you would like us to advise on the specifics of your case, please give me a call.
Regards
John
Hi Tracey
The landlord in your case has clearly retaken possession of the property by accepting the keys and allowing works at the premises. It is likely that a court will find that he has accepted a surrender of the lease by his actions. Once the lease has been surrendered, it has terminated along with your liability to pay the sums that fall due after the date of surrender. Therefore, I do not think the landlord has a strong argument to claim future rent and other sums due under the lease.
There is clearly an agreement on your part to pay £6,000 in consieration for the surrender. If you fail to comply with the repayment terms, your landlord could sue you for the balance of the £6,000 that is due.
In order to get finaility and avoid potential litigation, I would urge you to comply with the repayment terms if possible.
Best of luck
John
hi john
Thank you for your last reply,I understand that as time has gone bye i have lost the chance in getting my club back due to my solictor dragging things along,
But where do i stand when comes to my belongings?
Can i get these back ie: carpits,optics,wall lights,cellar collers ect?
Thankyou for you time
Geordie & Bianca Chisholm
Hello John, here is a tricky one for you.
I have a 16 year commercial lease which began in 1992. The landlord started negotiating a rent review in 2004 but this was not agreed upon before the lease expired. We are now quite close to agreeing on a new lease but the landlords are saying that the new rent will be back dated to the review date of the expired lease ie 2004.
There is nothing in the old lease to cover this eventuality and I am pushing that they can not ask for back rent on a lease that no longer exists.
Have you heard of anything like this before.
Chris
Hi John
I am following on from my post of 18th Sep. Unfortunatley we did not manage to sell the business and had to close the shop early in Nov. We immediatley contacted the landlord who initially insisted that he would not surrender the lease. Out of the blue a few days later his accountant contacted us to say they would surrender the lease for £6000 payable in 2 payments (Nov and Dec). We asked for this in writing and did not receive it until mid Dec. in the meantime the landlord had asked for a copy of the keys which we provided.
Once we had the details in writing we tried to negotiate payment terms with him as we couldn’t afford what he was suggesting.
Eventually the only terms he would accept were £1000 a month over 6 months (which we are not sure we can meet and have said this to him). When we made the first payment he asked for keys and before we took these down to him we called in the property to make sure that there was no post.
Whilst in the property we noticed that builders had been in starting to knock through to the property next door. On discussion with the shop owners next door we found out that they were taking over the property.
When we took the first payment to the landlord and gave him the keys he provided us with a letter to say that he surrendered the lease with effect from that day (after he had let someone start work on the building) but that if future payments were not met he would take action to recover all future rent and insurance payments. Is he able to do this is he now has a new tenant? Should we have anything else to say we have surrendered the lease?
Hiya,
RE: Private Residential Property
I wonder if you can help. My brother has lived in our family home for 45 years on and off. (My mother and father moved into the property in 1963 and the house did not have any mortgage.) However he has caused major issues in the home over the years due to his alcohol intake!!
The house was in my father’s name and approx 9 years ago he signed the house over to me in a solicitors practice. My father died approx 2 years later (8/3/03) therefore leaving the house to me. My mother and brother continued to reside in the house and I lived with my partner in his property.
In June of this year I moved back into the family home and took out a mortgage soley in my name on the house to do some renovations. My brother’s behavaiour has continued and I have decided that for my mother’s sake he needs to be removed!
My brother has paid the council of approx £130 per month for 10 months but paid nothing else (ie board and lodgings or any other household bills.
The question I want to ask is can I removed him without any question or does he have any rights with him paying the Council Tax?
Many thanks for taking the time to read this.
Regards
Julie
Hi Bianca and George
It may be too late to go back into the club as the timing of an application for what is known as relief from forfeiture is crucial. As you are now many months down the line and the property is being occupied by another tenant, it is unlikely you will be able to get back in.
It does sound like you have been baddly let down, however, a detailed examination of all the facts of the case would be required before a solicitor could advise whether someone is legally responsible for your loss. Given that the dispute will also involve professional advisers that you have previously used, it will probably become very costly, and unless you can get legal aid, or get a solicitor to run the case on a non win no fee basis, you will have to find thousands of pounds in legal fees to get something up and running.
I suggest you call around a few local solicitors in your area to see if anyone can assist you on a legally aided, or no win no fee basis.
Best of luck.
Regards
John