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.
My wife and I leased a stable block commencing on 4th July 2008 on a 6 month lease. We have continued to rent the stable block for a further 6 months without a new lease, and have tried to negoiate a lower rent before signing a new lease, but the landlord has refused. Having examined the original lease, what we signed was an assuerd tenancy agreement for a residential dwelling.
the Landlords agents say we have to give a months notice in writing, is this correct, or can we just leave, as we have paid the rent in advance?
Hi Anne
If you sold your business and also the right to occupy the business premises under an exisiting lease, then I presume you will have entered into an assignment of an ongoing lease.
The law relating to the liability of former tenants under an ongoing lease is different for leases granted after 1 January 1996 when the provisions of the Landlord and Tenant (Covenants) Act 1995 will apply.
If the lease under which the current tenant is occupying was entered into before 1 January 1996, then you will remain liable for all of the tenant’s obligations as long as the lease continues.
If the lease was entered into after 1 January 1996 then you will only be liable if you have entered into an authorised guarantee agreement commonly referred to as an AGA.
It is more than likely you will have obtained the landlord’s written consent to assign the leasehold interest to the purchaser of the busines. The AGA is commonly contained within that formal consent document.
If an AGA has been given to the landlord then you will remain liable for any default of the person you sold your business to. I suggest you contact the solicitor who sold your business for you to check on this position.
With regard to insurance, I have asked around the office and none of us are aware of any insurance policies available for the potential liability you face. In my opinion, the risk that an insurer may have to pay out is far too great for them to consider covering that eventuality.
Let’s hope the purchaser of your business can manage to trade through these testing times
John
My husband and I sold our leasehold business as a going concern last November.Due to this economic situation we are worried the new person could go out of business. Can you tell us if we are still classed as the ‘head leasee’ and if so can we get insurance to cover us for the landlord of the business persueing us IF the current leaseholder goes out of business.
Thank in advance.
Hi Tracey
The ability to renegotiate the terms of the lease will very much depend on the bargaining position of the parties. If your landlord has a number of empty units on its industrial estate it may be reluctant to lose you as a tenant. Empty premises mean that the landlord will not be getting a rental income, and depending on the size of the unit, will also be liable for empty premises rates. As the contractual term of your existing lease is due to expire in less than 12 months time, the landlord may be keen to discuss variations of the lease terms so that it can secure you as a tenant going forward. It is worth remembering that you can vacate the premises at the end of your lease and the landlord may be keen to discuss the position with you so as not to have to incur the costs of remarketing the premises and other inducements that would need to be given to a new tenant entering into a lease.
I do feel however that the difficulty you will face is the issue of the personal guarantee. The landlord will be concerned to ensure that the tenant pays the rent on time and performs the tenant’s obligations in the lease. In my experience, As soon as a tenant discloses to a landlord that it is struggling the landlord will want to ensure that it has as many avenues as possible open to it to recover any rent arrears. Therefore it is likely that the landlord will be reluctant to lose the benefit of the personal guarantees and if it is may require other forms of security instead i.e. rent deposits, bank guarantees.
Kind regards
Hi John, we have a commercial lease which was taken March 07 for 3 years, we stupidly signed a personal guarantee for it. We have paid the rents on time etc and have never had a problem, however due to the economic downturn we are starting to struggle. Is is possible that my landlord may renogotiate the lease (mainly the guarantee!) as there are a few empty units on the industrial estate where we are, so surely some rent is better than it being left with no-one in it?
Thank you John. That’s very helpful.
Regards.
Doreen
Hi Doreen
If somebody has given permission to you to store goods on their property, they do not have the right to dispose of those goods as your former landlord has done. The proper course of action for the landlord to have taken would have been to contact you and ask you to collect the parasol.
By throwing it away he has interefered with your possession of the parasol, and is liable to compensate you for the cost of a replacement. If he refuses to pay you can issue a small claim at your local county court. If the judge is satisfied after hearing evidence from you that you did in fact leave the parasol in the shed and it was in good condition, and the landlord admits he threw it away, then you should be awarded compensation. You will need some evidence of the costs of a replacement, a brochure or quote from a supplier should be sufficient.
I hope this helps
Regards
John
We vacated our commercial unit at the end of January 2009 after giving notice and with the rent fully paid up. Unfortunately, we left behind a large and expensive parasol and base in the landlord’s shed. This had been placed there with the landlord’s permission during the tenancy. As we are fruit and vegetable sellers, the parasol is used in the summer to shade the produce. Now, as the weather is getting hotter, I remembered where the parasol was and contacted the landlord. He informed me that he didn’t know who the parasol belonged to and he had put it in the skip because it was damaged. He said he had asked everybody on site if it belonged to them before doing this. He has obviously conveniently forgotten that he gave us permission to put the parasol in the shed. As it was purchased last summer and had been used very little, I cannot believe he has put it in the skip, nor that it was damaged. It certainly wasn’t when it was put in there. Is there anything we can do? I am not hopeful because how would we prove anything? Doreen
Denis
Dealing with the first issue, if rent fell due on 21st of the month and your landlord forfeited on 27th of the month, all of the rent that was due to be paid on 21st is payable to the landlord and he could sue you for it. I know this sounds unfair, but it is tried and tested law.
Secondly, yes you can take court action to recover your belongings. This would take the form of an injunction application which is a fairly complex piece of legal work and can cost in the region of £5,000 in legal fees, including the injunction hearing, due to the time involved in this type of application.
It will be tricky to deal with on your own, if you are to go down this route I strongly suggest you get a lawyer on board. However, I do appreciate that the cost may be prohibitive. Have you checked any of your business insurance policies to see whether you have legal expenses cover for disputes of this nature?
Regards
John
thanks again for your clear advise on my matter John.. A little update.. I have spoken to my landlord and offered him 3options.. 1 if he was to reduce the rent on the new lease ( he was made aware of the old lease being terminated with his act of forfeiture ) then i would re-open my business with a new lease.. 2, If he were to give/sell the lease to someone else, then whoever moved in will have to pay me for the equipment that is in there, to this he gave me the most stupid answer, because this guy used to own the business and sold it to the people ive bought it from, he seems to think that some of the shelving and a fridge belong to him?? I tried to get through to him by explaining that when you buy/sell a business you buy/sell whatever comes with the business, please correct me if im wrong. and 3 was to give me access so i can empty out the premises and take my belongings. Now today i went to meet him at the premises to talk to him and pay him the outstanding money for the rent and also get personal belonging 1 of which was my cheque book ( VAT wants money ). He was waiting outside the shop when i arrived and i asked him if we could get inside the premises as i had to get my cheque book and i didnt wanted to hand him any money on the street. to this he refused and claimed i owe him more than my estimations. and untill i pay him the amount he wanted he wont open up or give me access.. my rent is due 21st of every month in advance. i owe him from 21st march to 21st april, which i was ready to clear. but he changed the locks on 27th April effectively forfeiting the lease. he believes i must pay him for the whole month which is not fair at all because he has changed the locks few days after the new month commenced. Can he do this? i offered to pay for the days we were in the premises up to the forfeiture but everytime i suggest or offer something the only thing he says is to talk to his solicitor. he is being unreasonable and I dont know if you have gathered but he is a real pice of work. My question is this. can i sue him for refusal of acces? or anything judging from his actions?
I tried to be clear with the update so you know my side of the story. Any Suggestions? i want to handle this myself before i phone you up john as this will be a good way to educate myself so nothing like this will happen to me again. i thank you for your past advise and appericiate your help.
Denis