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 Craig
The landlord did not have a legal obligation to consult you when he considered the new tenant’s application to change the use of the premises. Under a standard AGA, it would not really matter how the arrears of rent had arisen with the new tenant in occupation, the fact that those arrears exist give the landlord the right to pursue the former tenant for them.
Unfortunately, it is likely there is little you can do to get out of your liability.
Under the business sale agreement and assignment of the lease you should have obtained a covenant from the new tenant to abide by the terms of the lease. If they gave you a personal guarantee you could perhaps pursue them under that guarantee for any liability you have to to the landlord.
Best of luck
John
Hi John,
In June 2008 I agreed a new 6 year lease. After 13 months of trading I sold my business. As expected I signed an AGA.
The new tennant approached the landlord 6 months after buying my business asking his permission to change the business from a Sandwhich shop to a Milkshake bar which he agreed too.
I was not consulted by the landlord which suprised me given my liability under the AGA, I now learn that the new tennant has arrears and I am being pursued under the AGA.
Can I get out of my liability in the circumstances.
Tracy
In practice, landlords don’t often claim against guarantors of previous leases for dilapidations. However, this does not mean that they can’t. If there was a clause in the lease which states that the property should have been returned or ‘yielded up’ to the landlord in repair at the end of the old lease and it was not, then potentially a guarantor of that old lease could be liable.
You will have to hope that the landlord does not appreciate he has this right and that he doesn’t go to a knowledgable property lawyer!
Regards
John
Thanks very much for that John. There was & still is a dilapidations clause on both the old and new lease. Do landlords often claim prior lease guarantees for this?
Tracy
Hi Tracy
The personal guarantee your husband gave for the old lease will almost certainly only guarantee the obligations under that lease. It would be highly unusual for that guarantee to incorporate an indemnity for obligations contained in a lease that was not in existence when the guarantee was given.
Therefore, you need to check whether or not your husband gave a guarantee for the tenant’s obligations under the new lease. It is normal for such a guarantee to be given in the lease itself, but I suggest you thoroughly check all the documentation you have relating to the renewal lease. If a guarantee was not given for the new lease, then the landlord cannot pursue your husband personally for default on that lease.
One note of caution, if there were any outstanding breaches of obligation in relation to the old lease, the landlord may still be able to pursue your husband for such breaches. One area that the landlord could potentially bring a claim under the old lease may be for breach of repairing covenant in what is known as a dilapidations claim. That will very much depend upon the current state of the property and the terms of the old lease.
I hope this is of assistance.
John
Hi John
We previously took out a commercial lease and my husband as named as a guarantor, however when this came up for renewal i asked the landlord and have an email confirming that they agreed to the removal of the guarantor’s status. We subsequently received a new tenancy agreement with did not detail the guarantor part – i did ask a solicitor to check over this agreement first before signing it & he rang and advised that i would not be liable if the company went bankrupt etc. This lease has now been running for nearly 1 year but our company is struggling and I am slightly worried that the landlord could still come after us as the former tenant with a guarantor status if we had to make the company insolvent. Any help would be appreciated.
Hi Judy
Rent only becomes payable when there is an existing tenancy, therefore, once a landlord terminates a tenancy, they cannot charge you for future rent.
There was until recently a school of thought that argued compensation for loss of future rent should be payable after forfeiture on the basis that the tenant had breached their contractual obligatin to pay rent, and that if the landlord suffered a loss of future rent because he could not re-let at the same rent, or re-let at all the former tenant should compensate the landlord.
However, in the 2006 case of Reichman v Beveridge the Court of Appeal gave guidance that such compensation was not recoverable under English Law.
In summary, after termination the tenant is not liable to pay anything further for rent that falls due after the date of forfeiture.
I hope you get matters resolved.
John
john about future rent,Im being told that the landlord can pursue me for future rents if they cant re let…is this right?
Thanks john youve ben very helpful I will put these points to our solicitor.judy
Hi Judy,
The common law allows a landlord to retain the fixtures and fittings a tenant has left, but not what are known in law as chattels, those being items that are not fixed to the premises.
Therefore, things like tables, chairs, kitchen utensils etc cannot be retained by the landlord pursuant to the common law. If he refuses to let you have them, and has no right under the lease to retain them, he is acting unlawfully.
Your solicitor maybe correct that it will make reletting the premises easier, however, as the landlord has terminated the tenancy, they cannot charge you for future rent only for arrears of rent.
If the landlord wants to keep your belongings to help him relet the premises, then you need to reach some form of agreement to offset your arrears of rent against the value of the belongings. As you have a solicitor instructed they will be able to assist you in this process. All I can do in this response is to give some general points of principle, which I trust are of assistance.
Regards
John