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 Fergus
If you have a tenancy at will then both landlord and tenant can terminate the tenancy immediately. Therefore, the new landlord would not have to give you any notice if he wanted you out.
The reason that landlords are fond of using tenancies at will is because they are expressly excluded from the security given to business tenents under provisions of the Landlord and Tenant Act 1954 (the Act). Under the Act, a landlord has to give a tenenat 6 months’ notice before terminating a tenancy even when the tenant’s contractual right to remain may have ended. However, this requirement does not extend to excluded tenancies such as tenancies at will.
I think your current landlord should be putting you in touch with the new one, so that you can start making some arrangements for the future.
Regards
John
Hi John,
I know it is a quite common case: I have still one year lease to go and our sales dropt dramatically. I want to get out of this lease asap, money running out. I don’t know which the best way to approach the landlord because I know already that he will ask for the all year rent and he is not prepare to meet half way with any deal. Can you suggest any exit strategy?
Many thanks
Paola
Hi John,
Wonder if you could help me ??
I hold a tenancy at will agreement on a pub currently being sold freehold as a going concern.
My current landload (one of the big pub co.)informs me that new landlord has to leave me in place for six months, is this true ?? I have no contact details for the new landlord nor do I know what his plans are for the pub ??
Thanks
Fergus
i have a commercial lease which was taken out on 28th march 2008 for 3 years. shortyl after i moved in on of the rooms in the shop fell in leaving a big whole in the roof. i told the landlady and it took 12 months for her to fix it. in that time i stated that my lease said if there was any damage due to something that shud be insured by landlady then my rent or a porportion of it shud be suspended for 3 years or till the problem is fixed she didnt do this so i stopped paying the rent which resulted in her getting the roof fixed. she then put the property in the hands of agents who made a verbally aggreement for me to pay off the rent arrears along side my current rent, they also said they would get the remaining damages fixed as well new carpets etc. 5 months on still not fixed and still cannot use the room. so my verbal rental agreement has been slow in getting the rent to them, pay 1 week then pay 2 weeks later so due to my buisness suffering due to me not being able to offer the full services due to not being able to use this room.
the agents have been in touch and have said if i dont bring my rental upto date they are going to come and change the locks and kick me out. I am still paying them rent every week and when i miss a week i make it up the following week i.e 2 payments in 1 week. i thought that the landlady cannot just forfeit the lease due to rent arrears as she has excepted rent off me from when i 1st fell into arrears and as we dont have a written agreement on the new rental she is basicly going off the oringinal lease. I thought she has waived her right to forfeit? is this right? As it is very worrying, as if they were to complete the work to the damages i myself could conduct my buisness properly and therefore they would get there rent back quicker. just seems like there not listening and the agents dont reply to me when i contact them.
Hi Ella
You are quite right to be cautious taking a lease in the current climate. I suspect that many landlords of unleased properties would be prepared to grant a 5 year term, with a break after 3 years, and many landlords are offering rent free periods as an incentive to fill their properties.
From the perspective of the landlord in your situation, the property represents an investment for him, and as long as he is receiving his rent from somewhere, whether it be the tenant or a guatantor such as the previous tenant, I suspect he will sit tight holding onto the remaining 16 years of the current lease. If the guarantor is someone of financial substance, then the value of the landlord’s property is enhanced by the exitence of the current lease on the property, and he will be loathed to let it go.
The driver for the landlord to agree a new lease with you will be if there is a real possibility of the rental stream drying up from the current lease, which will mean the guarantor becoming insolvent. If that happened, you will be in the driving seat as landlords will bend over backwards to get tenants in their properties in the current climate.
If you take the 16 year lease and your business does not work out, you will find it very difficult to find someone to assign the lease to in the current climate, and you will be left with the millstone round your neck. If there are alternative properties available were you can agree a new lease then I suggest you look very closely at them.
If you want someone to act for you once you have agreed terms in respect of new accommodation, I would be more than happy to quote.
Regards
John
Dear Sir
In 2005 I purchased a property for £360,000 with on a long lease of over 100 years. The ground rent has been confirmed by the managing agent to be £0.00 per year. However the service charges amount to about £5000 per year – with which I have no problem. However about 18 months ago the managing agent (WDB) decided to dig up balancing service charges going back to 2003 and increase the existing service charges by 33%. These, I have so far refused to pay, insisting they are unreasonable (although I would not object to any reasonable increase). Although I have continued to pay my regular amounts, the so called arrears have no amounted to over £4000. The solicitors for the free holder have said that if I don’t pay they will send in the bailiffs – possibly even tomorrow. My question is – Are they allowed to forfeit the lease because of this dispute about service charges i.e. Can I loose the property and my investment because of this dispute about service charges? Am I therefore forced to pay?
Kind Regards
Richard Glemberg
Hi Manish
If you have 9 years left on your lease the Council will only be able to get you out of the property before the end of those 9 years, against your wishes, if either:-
a) you breach your lease in some way and do not rectify the breach;
b)or of they use powers of compulsory purchase which can be used for larger scale public development projects, in which case they would have to compensate you for the disruption to your business.
If your lease has the protection of the Landlord and Tenant Act 1954 (the Act) then at the end of the current term of your lease, you will be entitled to remain in occupation unless the landlord gives you the correct written notice in accordance with section 25 of the Act. After he has given this notice you can request a new tenancy from the landlord. The landlord can oppose the grant of a new tenancy on limited grounds, one of which is that he requires your property in order to carry out redevelopment.
If a landlord opposed a new tenancny on the grounds of redevelopment, he must show a fixed intention to redevelop the property at the date of the court hearing when the matter will be decided, which will be at least 9 years away.
If the landlord sucessfully opposes the grant of a new tenancy on the ground of redevelopment, he has to pay compensation which can be up to twice the rateable value of the property, dependant on how long the business has been run from the property. This will be the only compensation you will be entitled to if the landlord proceeds along this route.
I hope this helps.
Regards
John
Hi John
I run a language school and we are looking at taking on the lease of an office in town. The previous tenant signed a 21 year lease with the landlord – three years ago he sold his business to retire. Unfortunately these people went bankrupt and now he is left paying the rent on an empty property. We really want to move in to this property, but we do not want to inherit the remaining 16 years left on the lease, with no break out clauses, as this is too onerous in the current climate.
But the landlord is insisting on maintaining this 16 year lease, with us signing an AGA.
What are your thoughts on this one? Is there just nothing we can do about it, and the previous tenant will just have to keep on paying the rent on the empty shop until he can find someone who IS brave enough to sign up for 16 years? Or until he goes bankrupt himself?
Thanks,
Ella
I HAVE NINE YEARS LEFT ON A COMMERCAIL LEASE WITH A LOCAL CONCIL, THEY WANT TO REDELEVOP THE SITE AND INCREASE THE NUMBER OF PROPERTIES ON THE SITE FORM 15 TO 62 REDUCING THE NO. OF COMMERCAIL TENNATS FORM 9 TO 3. I HAVE BEEN INFORMED BECAUSE THEY ARE IN PARTNERSHIP WITH A PARVITE DEVELOPER I MAY NOT GET A NEW UNIT OR IF I DO THE RENT WILL BE FAR GREATER THEN I PAY NOW. I PAY 8800 A YEAR RENT AND HAVE NINE YEARS LEFT, BUT THE BUSINESS IN VERY PROFITABLE AND ALSO WE HAVE INVESTED OVER 300K IN BUYING THE LEASE AND REFITTING THE SHOP? I WORRY THAT I AM GOING TO LOSE MY INCOME AND INVESTMENT. WHERE DO I STAND?
MANISH
Hi Terri
Often in commercial leases where a rent deposit is paid, the landlord and tenant enter into a written agreement called a rent deposit deed. That agreement sets out the times when a landlord can draw from the deposit and also for the return of the deposit when the lease ends. If you have entered into such an agreement you will need to consider that carefully as it will govern what happens with the deposit money.
Suject to what is said in any rent deposit deed that may exist, and based upon standard practice, it is unlikely that your landlord can lawfully take rent payments from the deposit if the lease has been lawfully terminated, for the following reasons.
If a tenancy is terminated lawfully by either the tenant or the landlord, the right to any payment of rent that would fall due after that date ceases. Therefore, if you have lawfully terminated your tenancy, your landlord will probably not be allowed to take from the deposit, payments for rent that have fallen due since termination.
If your landlord is contesting your claim to have terminated the tenancy lawfully, he will say that the lease is ongoing and he is entitled to take money from the deposit for unpaid rent in the usual way, as the lease is ongoing. Therefore, the crux of the issue will be whether or not you were entitled to terminate the lease.
If you have already commenced court proceedings, you may need to amend them to include a claim for the return of the deposit.
Best of luck.
John