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.
Thank you John for your very clear and kind advice.
What a brilliant site.
Liz
Hi Liz
There are a few issues that arise here. Where no written lease exists then the landlord is in a much weaker position than he would be as standard commercial leases give the landlord a string of rights and remendies against the tenant. One of those rights is forfeiture. Forfeiture is the right of the landlord to terminate the lease by entering onto the premises, usually through bailiffs, and changing the locks. My colleague Owen McKenna will look at this in more details in our next blog.
However, where there is no written lease, there will be no right of forfeiture. Therefore, on the face of it, if your partner had an ongoing tenancy and the landlord has changed the locks, this will be an unlawful eviction.
Even if the landlord has lawfully changed the locks, he has no right to keep your possessions locked in the unit. You should contact him to make an appointment to collect your goods. If he refuses put the request in writing and ask for an appointment to be confirmed within 7 days. If he does not oblige you will be able to apply to court for an order seeking the return of your goods.
I would be glad to act for you if you cannot reach an amicable resolution, if you need any further assistance please give me a call.
Best of luck
John
Hi,
My partner rents premises which we use as a storage/workshop. He has been in dispute with the landlords for some time as no contract with the agreed terms has been provided or signed, and has not paid rent for a while. Landlord took a case for unpaid rent against him which was struck out. They have now sent bailiff in and changed the locks. I had been storing a lot of personal possessions there (having recently moved) and a lot of my shop stock. Can you advise on what to do to get access to my goods?
Thanks
Liz
Thanks John, so even though i’ve not signed a “formal” lease, that informal piece of paper will still make me liable?
Kind Regards
Susan
Hi Susan
There is a legal principle called “caveat emptor” which is Latin for “buyer beware” and this principle is a fundamental principle of property transactions. Once you have entered into a property transaction, you are stuck with what you get. Therefore, any investigation you wish to make in respect of the property must be carried out before being legally bound into the property deal.
A survey of property is recomended in any property deal even short term lets, as the tenant will usually be asked to agree to have some responsibility for the repair of the property and it is wise to establish the extent of any physical disrepair at the property. If you find out there is a problem after you have entered into a business tenancy, then it is generally too late. The landlord does not have an obligation to flag up any shortcomings at the property, and he will only be reponsible for repairs if he has agreed to do so.
As you have agreed a 12 month term you are liable for the full 12 months rent, unless the landlord accepts the property back. Therefore, I suspect the landlord will keep the deposit to cover rent payments and potentially you will be liable for all payments throughout the 12 month period if it remains vacant.
I appreciate this is not news you will want to hear, but it does illustrate the need to get good advice before taking a business tenancy.
Regards
John
Hi John
Not sure if you can help me, I went to view retail premises last week to let as was planning on turning it into a hairdressing salon. After viewing and deciding I would take on the property the “landlord” told me it would be too expensive to draw up a proper lease and he would write out “a mutual agreement” on a piece of paper for us both to sign.
In hindsight I was probably a little naive, however at the time was relieved I wasn’t being tied into a long lease. I paid him £1000 cash deposit.
The piece of paper reads:
“I …(landlord name) have granted a 12 mth let for (shop address) to (me the tenant). A rent free period has also been granted for 6 wks from 01/04/09. The rent for the property is £500 pcm payable in advance. The tenant will be responsible for all the utilities in the property and keeping it in a good state. The tenant will pay a deposit of £1000 which is held as a security bond. After the 12 month period has passed, the tenant has the option to renew for a further 3 year period at a negotiated rent.
It is then signed by him and myself and dated.
Since then I’ve had workmen in to begin refurb of the shop and have now been told the boiler is over 20 years old and condemned. In addition to this it would appear when checking out land registry that he hasn’t legally split the property into 2 separate dwellings. (There is a flat above which is called “2a”) The property sits on one title and the fuse board to “my shop, number 2” is in flat 2a’s entrance which i dont have access to!!
I have flat 2a’s immersion heater in my shop and I asked him where my immersion was and he said “well you’ve obviously not got one if there’s no hot water”
I explained i felt very mislead as he had not pointed any of this out to me when viewing the shop. Surely he has a duty as a landlord to make sure the shop has a safe working boiler and safe electrics?
I have called him today to tell him it’s going to cost thousands to put just the basic boiler and electrics straight and he’s told me that’s my problem now as I took the property on “as it was seen” and I’ve now entered a legal agreement for 12 months.
He has said i cannot have my deposit back and if i dont like it to seek legal advice.
I feel terribly foolish but dont know where i stand with this and i think he knows this so is playing on it.
What would you advise?
Susan
Hi Karl
When a landlord serves a section 25 notice in a situation where they will not oppose a new lease, they are obliged to state the proposed terms upon which a new lease will be offered, the main ones being the initial rent and the length of the term. It is common for the other terms to be as per the original lease.
The landlord is not bound by these terms, and can change his mind at a later date. If the parties cannot agree the rent, you will have to make an application to court for a new tenancy and the rent will be decided by the court. The court will decide the starting rent on the basis of the the open market rent for the property, based upon the criteria set out in the 1954 Act.
The landlord cannot, however, unilaterally withdraw a section 25 notice that it has served. The service of a section 25 notice triggers your right to apply for a new tenancy, and you must ensure that if a new lease has not been completed by the termination date stated in the section 25 notice, you have protected your position by making an application to court.
If you need any further assistance on this issue please give me a call.
John
Great site
We are negotiating a new lease and the council noted to us in there section 25 a (which we acknowledged the receipt of) new lease which would have the rent £10,900 from 2014 and a twenty year lease. We also have a rent review now they want £10,250 per annum and we have worked out there figure should be £9150 based on the ITZA rate. However when we agreed to the above offer of the new lease we were politely informed in an open email that the section 25 was badly drawn up and that they would be withdrwaing it and any calderbank offers, and that this could all go to court and cost alot of money.
I this correct about the section 25 and are its offer binding
Regards Karl
Hi Lucy
Sorry to hear of your problems, your landlord’s conduct in stringing you along to avoid you breaking the lease is morally objectionable, but there is not much in law that will provide you with an effective remedy. However, I hopefully have some good news.
If the landlord has instructed bailiffs to enter the premises you tenanted, and they have changed the locks, then this will be an act of forfeiture and any rent that falls due after this date cannot be claimed by the landlord. Therefore, if you are up to date on all payments that fell due before the forfeiture you do not need to make any further payments of rent.
With regard to action through the courts, where the tenant is a limited company, and there are no guarantors, the landlord can only take action against the company and can only pursue assets owned by the company. Therefore, if you and your co-director have not given personal guarantees and you do not have assets of the company at your home, there will be no grounds for bailiffs attending your homes.
I hope that gives you some comfort.
John
My business partner and I currently run a finance brokerage and having downsized the company and making all our staff redundant, we can no longer afford to struggle on with the rent. We tried in vain several months ago to negotiate with our landlord and he verbally agreed we could pay reduced rent to help us in the current climate and arranged on 3 separate occasions a meeting with us to finalise the details.
Each time he never showed up for the meetings and the day after it was too late to give notice he wrote to us quite smuggly saying “I’m glad you’ve decided not to give notice, and by the way your now tied in for another 12 months” As you can imagine, we were left extremely frustrated but knew their was absolutely nothing we could do.
We struggled on with the rent until now, where we physically now only have myself and my co-director operating the business. Last month we were 1 day late with the rent, and he sent the bailiffs in so we’ve been left with no choice but to remove all our belongings from the premises and basically up and leave.
We wanted to know where we stand with this, we are not in arrears at the moment but not intend to make any further payments either. (As i mentioned the lease expires 01/09/09 and this time round we have already given notice)Can they send bailiffs to our homes? (We haven’t signed any personal guarantees and we are a limited company)
If they took us to court and we had to pay the remaining rent we would have no choice but to close the company as are just about managing to keep our heads above water
We’ve got email proof from the landlord of when we asked to negotiate rent, and proof he made 3 appointments that he had no intentions of ever keeping etc, would a judge take any of this into consideration?
Kind Regards