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 john, our pub co have sold the freehold of our pub to a local consortium, along with a dept of £7000, that they said we owe, we have been in dispute with the pub co over this,but now the new owners have said they want the money and rent upfront,we have always paid the rent weekly,they bought the pub 5days ago,then 24hrs after they demanded the money, they sent a bailiff in,he has done a walking possetion, and given me 5days to pay,or they are stripping the pub of all trade f&f,kitchen etc,so we cant trade!our tennancy is up in sept,and we dont have any money as weve never had a wage from here, please help! annette.
Hi Karen
You need to be careful about dealing with the tenant’s possessions at the end of the lease. Some leases have a provision that if the tenant leaves stock on the premises for more than a specified number of days the landlord can dispose of those possessions. However, unless your lease has such a provision you cannot dispose of the stock lawfully. If you did dispose of it you could be liable to the tenant both under the civil code and potentially the criminal code so you must be careful.
If you have an address for the tenant (you can get the registered office address from Companies House)you could arrange for the stock to be delivered to that address once the lease expires. Alternatively, in order to re-let the property, you could remove the stock and put it in storage taking care that the stock is not damaged, as damage to the stock could result in liability.
A tricky area this one, and a reason why a good modern lease will have a specific provision allowing a landlord to deal with the tenant’s possessions at the end of the term.
Regards
John
I own a building which i lease out to a Ltd company, i have found out his company is due to be dissolved at the end of this month, his lease expires on 30 July and he has not requested to extend it problem being he hasn’t been to the premises for weeks – all the stock etc that is in the shop if it’s still there when the lease expires am I allowed to just put it to the dump or do i have to return it to him? There’s no administrators etc been assigned to this company as yet but i have had his customers asking if they can take the stock they are owed if he doesn’t turn up the day his lease expires and I’m unsure if this would make me liable for theft charges??
The first thing to do is ensure that you make made an application to court asking for a new tenancy before the date stated on the section 25 notice has passed. If you do not you will lose your right to apply for a new tenancy.
If you want your application for a new tenancy to succeed you really need to get all the arrears cleared. I suspect this will also be the starting point for the landlord in any negotiation for a new lease outside of the court application procedure.
I appreciate the businesses have a number of competing demands on their finances, but unless the payment of the arrears rises to the top of the priority list, you are in danger of being eveicted from the premises.
I have received a section 25 notice opposing the renewal on my shop premises. I did fall behind in the rent but have managed to pay it steadily over the last six months but not yet paid the arrears. My landlord has used this as the reason for opposing the renewal however I want to remain in the premises as business has improved but can not yet pay back all the arreared rent. I am going to send a response to the landlord, do you have any advice on what I should include in the letter?
Gratefull for any advice
Hi Mike
Apologies for the delay in getting back to you on this one.
Once a lease is signed the tenant is bound to pay rent and to comply with its other obligations until the term expires. A surrender will have to be negotiated, and it is really a question of what your landlord will accept, and I suspect this will very much depend upon the market conditions for commercial property in your part of the world.
I suggest that you get some guidance from a local commercial property valuer to assist you with this one.
Regards
John
I run a business from a premises which had a 51 year lease from 1984 so it has run 26 years and has another 25 to run.I do not owe rent and have been a good tenant and am not in financial problems.
Lease does not have break clauses and wish to include some to facilitate selling have been talking to landlord with whom have a good relationship about including some and shortening the lease,landlord willing to accomodate but his solicitor advising him against.
My gut feeling is he would accomodate this or give a new lease as opposed to an assignment for payment of a sum my current rent is £7000 per year what would you suggest would be a reasonable sum to offer and would the sum for surrender be similar if we were forced to go down that line
I look forward to hearing from you
Hi John
The tenant’s action in the circumstances you have outlined would probably constitute an implied offer to surrender his lease. The landlord would be deemed to have accepted this offer to surrender if he carried out some unequivocal act which accepted that the lease has ended. Non-exhaustive examples of such acts may be re-letting the premises or expressly stating to the tenant that the landlord accepted the surrender of the lease. In this case the lease would end and any future obligation to pay rent would cease. However, the tenant would still be liable for any existing arrears of rent or other breaches of the lease including repairing obligations.
In the present case where keys have been posted through the landlord’s letter box as opposed to be accepted by the landlord, this is unlikely to be an acceptance of the offer of surrender, as the landlord has not actually done anything to communicate acceptance to the tenant.
If a surrender has not taken place and the landlord does nothing in respect of the premises, such as re-letting or re-occupying, the lease will continue and the tenant will remain liable for the rent and other obligations under the lease until the lease term expires.
It may be best to contact the tenant to remind him of his obligations and see whether he is prepared to pay a lump sum to by a release from the lease.
Regards
John
If a tenant vacates a property without notice, hands keys to the landlord, and is in rent arrears, what can the landlord do? Also, lease has several years to run.. how does this effect the situation? The landlord did not accept the keys but the tenant posted them through the letter box.
Any advice appreciated
(the above is a brief description to keep the account as anonymous as possible)
Hi Alan
You are quite right to seek to regulate matters as soons as possible. My concern is that if a new lease is granted, the old lease may not have been terminated properly.
The old lease is now vested in the estate of the deceased tenant. A quick method of proceeding would be to get the personal representatives of the deceased tenant to assign the old lease or agree to surrender that lease and then grant the new lease as you have suggested.
I suggest you approach the solicitors who dealt with the estate of the deceased tenant, to see which way they want to deal with the matter.
Regards
John