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.
We have terminated our commercial lease and are suing the landlord for breach of contract due to derogation of grant, misrepresentation and breach of the the covenant for quiet enjoyment. We paid a deposit of £1,500, which the landlord’s solicitor now says they will draw on, as we have ceased paying the rent. Is it legal for the landlord to draw on the deposit even when the lease is subject to legal proceedings and in dispute?
Please advise,
Terri Hills LLB(Hons) Director, Moondancer CIC.
Hi Tracey
If you do close the shop and the landlord takes you to court for the arrears of rent, he will be entitled to a court judgment. However, you can ask the court to make an installment order paying what you can reasonably afford from your disposable income on a periodical basis, say monthly or weekly.
The fact that you have offered this before court proceedings will go down well with the court, if it comes to that.
Best wishes
John
Thankyou so much for your response. We have someone that has been looking round the shop this week so we are keeping fingers crossed.
If we have to close as I have a full time job we are going to offer a regular payment to landlord and start doing so immediatley (albeit nowhere near the full amount)hoping that the court will look favourably on this, will this be the case?
Hi Tracey
Sorry to hear about your predicament.
Unfortunately if you have signed a 3 year lease in your own name then you will remain personally liable for payment of the rent unless you can find someone else who is willing to take on the lease through a business sale. The other option would have been to seek to agree a surrender, but I see the landlord has already rejected this.
If you closed the shop and could not pay the rent, and the landlord did not take any steps to retake possession of the shop before the end of the term, he would be entitled to payment of the rent and any other sums due under the lease until the end of the term. If you stopped paying the rent and the landlord sent in bailiffs to change the locks thereby retaking possession, that is likely to be an act of forfeiture and would terminate any future obligation to pay rent. Sometimes, landlords do fall into this trap and let the tenant off the hook in the long term. However, even in the scenario the tenant will remain responsible for amongst other things, any past arrears of rent, the costs of the forfeiture, and any compensation that may be due if repairs have not been carried out.
If the landlord fully understands his legal position and doesn’t have another tenant waiting in the wings, then they may well simply sit tight and let the rent build up. They can pursue you for the arrears either through the county court in a debt claim, and may even commence bankruptcy proceedings against you.
Once a county court judgment has been obtained, it can be secured by a charging order on your property which acts like a second mortgage. In certain circumstances a court may order that a property subject to a charging order should be sold.
The best scenario for you is to find another tenant for the property, if they are able to make a go of the business and pay the rent, then you will be in the clear. If not, then you will have to find some way to pay the rent otherwise you will be at the mercy of the landlord.
If things do get to a stage where you fear you may not have sufficient income to meet your liabilities then I suggest you get some debt counseling and the Citizens Advice Bureau provide an excellent service in this respect.
I am sorry I can’t give any more optomistic advice on this one.
Best of luck
John
Hi
We bought a Newsagents May 2008 and signed a 3 year lease with the landlord. We realised in March/April this year that we were getting into difficulties and asked to see the landlord to discuss it. We saw him and asked what options there were. He said they would not surrender the lease as it was owned by a pension scheme. They would not reduce the rent but agreed we could pay the rent on a monthly basis.
We have been doing this and have not missed any payments, we have put the business up for sale but we are now really struggling and cannot continue to keep the business open much longer.
We are not in debt with anyone else but are not a ltd company. What we are therefore worried about is that if we close the shop and are unable to carry on paying the rent are we at risk of losing our house?
Thanks Tracey
Hi Steve
The question of whether someone is occupying as a tanant at will or periodic tenant is never a question that can be answered with absolute certainty. The court has to decide from the surrounding circumstances what type of tenancy has been created, and infer from those facts what the parties actually intended. It is one of those issues where you can present the same facts to two different lawyers and get two different answers and for this reason disputes of this nature can quite easily end up in court.
A tenancy at will often arises where the parties have not yet completed a written lease and there is often something that is standing in the way of that happening, sometimes because all of the terms have not yet been agreed, but there could also be a legal formality that has to be completed before the parties are ready to enter into the relationshiop of landlord and tenant.
It has been held in a case where a tenant was seeking to argue they had a periodic tenancy, that the fact the landlord insisted that the tenancy was to be outside of the Landlord and Tenant Act 1954 (the Act), meant that the parties could not have intended to enter into a periodic tenancy before they had followed the procedure to exclude it from the Act. For this reason it was held the tenant occupied as a tenant at will. However, as with all case law, this was decided on its own particular facts and in this case the tenant had remianed in occupation after the end of a lease which had been outside the Act, and the Landlord’s evidence was that they would never had considered granting a lease that had the protection of the Act.
If you had only been in occupation of the property for say 6 months, I think you would have a strong case in arguing that you occupied as a tenant at will. However, time is a big factor in these cases, and you are 2/3 through the agreed term of 3 years and had been occupying in the knowledge that there was a lease ready for signature. To advise in more detail knowledge of all the communications passing between you and your landlord would be required, but even then for the above reasons, a definitive answer could not be given due to the uncertainty if the case went to trial.
With regard to repairing obligations, under a tenancy at will there are no implied repairing obligations other than the tenant is not to damage the property. If there was a periodic tenancy then it is probable that the repairing obligations in the draft lease would be implied into the terms of the tenancy.
I think this could go either way and each party has a risk if it went to court. My suggestion would be to seek some form of compromise from the landlord. Paying something now could save potentially thousands of pounds if the matter were litigated. I suggest that you only pay the next quarter’s rent if you have reached agreement with the landlord that it will be in full and final settlement of any claim he may have against you.
If you want us to look at your case in more detail and advise, I would be hapy to consider the documents and report back to you with a suggested strategy for a fixed fee. Please give me a call if you are interested in this option.
Regards
John
Hi
We have occupied some offices for just over 2 years. When we went in the landlord presented a 3 year lease and a document to make this outside the Landlord and Tenant Act. We didnt sign as there was some work outstanding to part of a roof. We nevertheless occupied paying rent on a quarterley basis. The roof eventually was done about 9 months ago. The landlord then raised the question of us signing the lease but to be honest this never came about. Due to the economic situation and change of business needs we no longer need the offices. We have explained this to the landlord and let him know we wish to leave at the end of the month. He then sent us a letter saying that we would have to pay the rent until the end of the lease i.e. until next March and he would be serving a dilapidations notice. A few days later a second letter arrived saying he had taken advice and we were occupying on a periodic tenancy and would have to pay until the end of the year. I had thought we were in effect tenants at will and stated so to him.
Do you think we are best to pay the outstanding quarter rent?
Any comments gratefully received
Hi Robert
Your e-mail arrived during my holiday, so apologies for the delay in responding.
Working on the assumption that the lease was not contracted out of the protection conferred on tenants by Part II of the Landlord and Tenant Act 1954 (‘the Act’)then you are correct to say that the tenant has certain rights. The potected tenant has the right to remain in the property until the landlord serves at least 6 months’ notice to terminate under section 25 of the Act. Until such notice has expired the tenant can, if they wish, stay in the property. Once a section 25 notice is served the tenant has a further right to apply to court, before the end of the 6 month period, to ask for a new tenancy.
Of course a tenant does not have to stay in the property if they don’t want, and if they have vacated before the lease term ends then that is the end of the matter. You correctly point out that if the tenant remains in occupation a day over the end of the contractual term of the lease, then they can only terminate the lease themselves by giving 3 months notice.
The way for a landlord to force the issue is for them to serve notice under section 25 of the Act. The tenant will then have to either apply to court for a new tenancy, or their tenancy will end 6 months from service of the notice and they will have to leave. If you want to speed matters up further, you as landlord can issue an application to court as soon as you have served the section 25 notice asking the court to decide the terms of the new lease. A court application would probably take about 6 months if it went to trial, however, if the tenant is not serious about taking a new lease they will probably tell you so early in the process.
The procedure is fairly complex and I would suggest you enlisted professional help. If you would like to discuss my firm acting on your behalf please give me a call.
Regards
John
Hi, we sold our retail business some 3 years ago but retained ownership of the buildings. The first lease period was for 1 year with a renewal clause at completion, including the right to buy the property at the market value. The lease was continued for a further 2 year period and is now coming to an end (November). Should the tenant have wished to buy the property, he should have informed us of his intentions 3 months prior (which he did not and has now expired) so he now has two options: to renew the lease or to vacate the property. We have contacted him to ask what his intentions are, but he will not give any answer one way or another. We believe he has the right to go completely to the end of the lease period and vacate, if he so choses, or if he goes but 1 day over, he has to give us 3 months notice. If he choses to stay (tenants right I believe) what power do we have to impose a new lease on him? We intend keeping the same terms (less the automatic right of purchase, which he had plenty of opertunity to persue). We may look at the possibility of a rent review (our previous agent tells us he got a bargain price), but would be happy to simply gain a bit of security from a decent term lease with inflationary reviews possibly included. Thanks in advance.
Jack
Apologies for the delay in getting back to you on this one.
An assured shorthold is a form of tenancy that relates to a residential dwelling and is not appropriate for a stable block. However, if this matter were considered by a court they would probably decide that there was an enforceable agreement for a 6 month period and that after that the legal relationship would be either a tenancy at will or a periodic tenancy.
A tenancy at will exists where the parties have not yet decided to enter into a new tenancy, but the tenant is allowed to occupy the property. It commonly exists at the end of a fixed term tenancy were the parties are in negotiations relating to the terms of the new tenancy.
A periodic tenancy exists where the parties have decided that the tenancy will carry on, say from week to week or month to month. It is quite often implied from the basis upon which rent is paid. If a tenant is allowed exclusive occupation of a property and the rent is agreed at a certain sum per month and nothing further is said about the length of the tenancy period, then a court would imply that a periodic tenancy has arisen.
The key difference for you is that a tenancy at will can be terminated without notice, whereas a monthly periodic tenancy can only be terminated by 1 month’s notice with that notice ending on the last day on the monthly period.
There is no black and white answer as to whether the tenancy will be a tenancy at will or a periodic tenancy. If there is some evidence of ongoing negotiation regarding the rent from the end of the initial 6 month period up to now, then that suggests a tenancy at will. However, if nothing was said after the end of the initial tenancy and you continued to pay the monthly rent for a number of months, a court may well hold that a periodic tenancy has been created, in which case a month’s notice will be required.
I hope this helps.
John