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.
Dear john
Thank you for your reply,very much appretiated.
We got a solictor 2 days afetr the club closed as it was the weekend,It seems that from day one we had one desapointment after another,we have only had one letter in 8 month from are solictor.
we have been getting legal aid but was turned down to take them to court.we feel we have had very bad advice. we would dearley like to get are possetions back.we put all are life saveings in to the club.
as its been 8 months since the club closed is it to late to get are possetions back?
my account sold all my stock when she re-opened my club i payed £12000 for my 20 year lease(which i was only open 6 working weeks.
when i signed the contract i had a solictor there present supplied bye the owner of the building,i wasnt informed about any thing that was wrong with the club,i was just told its not his probblem (the owner of the building)after i had the keys to the club, when i found out wot was wroung with the club.
I offerd the owner the £3000 for the remaining rent monnies but he would not axcept it, i all so told the bailifs i had the moneys there if thay wanted to take it that morning as the friday night takenings was good, I had the money.
After the bailifs changed the locks, two hours later my accountant and her partner thats got the club now where opening the doors,i have since found out that i had been stiched up by her and the owner of the building.
could you give us advice on wot to do next?
Thank you again for your time in reading this,all ready you have sounded more help full than my own solictor, Makes me feel ill knowing i could of gone back in to my club as i had the money aranged for the monday but offerd it to him on the saterday. your advice makes far much more sence, is it to late?
your sicerely
Bianca & George Chisholm
Hi Bianca
It sounds like you have had a terrible experience. Did you have a solicitor acting for you when you took the lease of the property? You ought to have had some information about the state and condition of the fixtures and fittings in the property.
Most leases have a provision that if rent is late the landlord can change the locks and forfeit the lease. The rent usually has to be at least 14 days late, but you will have to look at the terms of your lease. If your lease is lawfully forfeited for non-payment you could have got back in by paying any arrears and the costs of forfeiture. The landlord would have been forced to let you back in if you had made those payments within the first few weeks after the locks were changed.
I will drop you a quick e-mail to see whether there is anything we can do for you.
Regards
John
Hi John
We initially entered into a commercial tenancy agreement with our landlord for 3 yrs in March 07. We have just received our paperwork for the new tenancy but note that it states that our original tenancy will end in June. When I queried it with them, they stated its because they have to give 6 months notice & they must have forgotten to send the paperwork out to end the tenancy in march. We wish to continue with the tenancy but wonder are we able to contest the end date of the tenancy?
hi john
its bianca & george Chisholm my e-mail add, is biancalong20@yahoo.co.uk
thank you
Dear john
I toke a 20 year lease,costing me £12,000,the whole pub had to be gutted out and re-wired with all new fixtures and fittings,costing me over £40,000.the owner of the building didnt tell me the club needed re-wireing, the heating wasnt working the cellar coolers was not working there was no fire alarm systerm at all,and no security systerm. all in all the owner lead me to belive every thing was working,i recived the keys 1st feb 2009,was open 6 working weeks(6th march 2009),it was a thriving pub,i had paid my land lord half the rent just oweing £2000 as was late 3 days, but agrred to get the week end trade to pay the remaining monies. i had just bought the celler collers the same week, as the owner of the building new.,on the saterday morning the 6th week of opening two bailifes came to my club and changed the locks,since i have not been able to go back to my club, all my possesions is in the club ie.carpets i bought, ceiler coolers,brand new bar with optics, dance floor mixing desk,over £4000 in snacks and beer, sprits (stock)ect, the list just gos on.I built the club up from nothing it was a shell. with in 2 month the pub has re-opend,my account whome i have since found out was working with he owner of the building for her to take over! nothing has been done by my solicter in 8 month i cant take her to court or the owner of the building,is it possible to get all my possetions out of the club? is there any light at the end of the tunnle? is any thing you can surgest that i should do?
im desperat to get something done.
thank you for takeing your time to read this.
Regards bianca & George Chisholm
Hi Michael
You are right to be concerned about the security of your rights of occupation, if in fact, you do occupy under a tenancy at will. A tenancy at will can be terminated with immediate effect, and if you did not vacate, a landlord of none residential premises would be within his rights to change the locks without the need for a court order.
If your agreement is not in writing, or has been running for a long period of time with regular periodic payments, you could have an argument that your tenancy is not actually a tenancy at will but a periodic tenancy. A periodic business tenancy wich falls within the Landlord and Tenant Act 1954 (the Act) has statutory protection, and can only be terminated by giving 6 months’ notice. During the notice period the tenant has the right to apply to court for a new tenancy, and the landlord can only object on limited grounds set out in the Act.
If you would like me to have a look at your tenancy agreement please give me a call.
Regards
John
Hi Terri
There are many divisions of the High Court. When a claimant commences their claim they can chose which division to issue the claim in. If the court thinks that it has been issued in the wrong division they will transfer it to the correct one.
However, the Queens Bench Division is the most commonly used and, if you like the default division of the High Court, hearing a real cross section of cases. It would not be unusual for a contractual claim relating to a lease to remain in the Queens Bench Division if it had been issued there and the defendant did not object.
That said, claims issued that relate to land, such as leases are most often dealt with in the Chancery Division and given that the judges who sit in the Cahncery Division have expertise in this area, I would recommend that the proceedings be brought in the Chancery Division for a clain similar to the one you describe.
I hope this helps.
John
Hi,
I have a tenancy at will agreement for my small printing business premises. I am worried that this does not give me much security. If he wants to end the tenancy can the landlord simply change the locks or does he need a Court Order?
Grateful for any advice
Mike
Can you advise me on our claim which will be in the High Court, for an amount in excess of £60,000. Whilst it relates to a commercial lease and we are suing for breach of conract – would the case be heard in the QBD Division which covers conractual dissputes – or in the Chancery Division? Many thanks.
Hi Paola
There are only two ways of remaining solvent and getting out of a lease before the term has completed. One is to negotiate with the landlord for an early surrender, but like most landlords in the current climate, yours seems unwilling to accept anything less than the full rent for the whole year. One way of potentially applying pressure to your landlord is to tell him that if he insists on the full years rent you will become insolvent and he will get nothing. That sometimes works.
The other option would be to try and sell your business along with the lease for a nominal value. The purchaser would become primarliy liable for the rent, although you will probably have to guarantee the rent until the end of the term of your lease.
A final, but rather risky strategy, is to stop paying the rent. The landlord may chose to change the locks to the premises, at which point he will unwittingly terminate your obligations to pay any rent that falls due after the date he changed the locks. However, he could pursue you through the courts for the arrears up to the date he changed the locks.
I hope this helps,
John