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.
Terry
Under general law, if your lease is protected by the Landlord and Tenant Act 1954 (the Act) you have the right to ask for a new tenancy after your lease has expired by giving notice in the form prescribed by section 26 of the Act.
The landlord can only object to the application on certain grounds, which include an intention to possess the property for their own use, an intention to substantially redevelop the site and also, local authorities can object where a compulsory purchase order is in place in respect of the premises.
Having had a quick look at the Hereford Markets Act 2003, there is nothing there that immediately suggests to me that the landlord could oppose a new tenancy. If you want to force the issue, a section 26 notice could be served.
If you want me to have a look at your lease please fax it over to me on 01772 258227 along with a note of your number and I will give you a call to discuss.
Regards
John
I, along with about 30 others, had 6yr leases that expired over 4 years ago. The council markets manager told me that they have no staff at present to do it. Obviously its a lie. Therefore they have an ulterior motive. A new law has been put in force since 2003 and 2 of the 3 parts are currently being carried out. We are the 3rd part.Most of us have been there over 20yrs. See Hereford 2003 Law on google.
What security of tenure do we have?
Thanks VERY much!!
Pat
If the landlord forfeits the lease by changing the locks, he terminates the lease and cannot claim future rent from you, although he will be able to claim any rent that may have fallen due at the date of termination.
So to be clear, if the landlord forfeits, he can claim for arrears but can’t claim rent which has not yet fallen due for payment.
I hope this helps.
John
Hi,
i signed a 5 year lease £20000 pa rent. I am now in bad financial situation and have treid to get out of the lease by advertising for new tenants and even tried to get the landlord to end the lease but he is having none of it and demands we pay the remaining £80K to get out of the lease. We cant afford anything at the moment we are nearly bankrupt if our landlord kicks us out and changes the lock does that mean he can nolonger pursue us for the rent? i.e the remainder of the lease amount? please respond asap really need help here thanks
Hi Joanne,
This query will depend upon the terms of your lease. However, most commercial leases will place most if not all of the obligations relating to the day to day running of the premises on the tenant.
The lease may not specifically mention electrical certificates, but if there is a clause which states that the tenant shall comply with all laws statutes etc relating to the use of the premises, then this will cover any legal obligation to obtain the electrical certficate. Even if the lease does not contain this type of provision, there will be no obligation on a landlord by implication to obtain the electrical certificate, and if your insurer requires such a certificate then the onus will fall on you to obtain it to avoid your insurance being invalidated.
Not the answer you were hoping for I’m afraid, but again an illustration of the strength of position a commercial landlord holds.
John
Hi,
We have a bathroom and kitchen show room. Our insurance company have asked for a copy of the electrical certificate for the property and have threatened that if we do not provide this they will have no option but to cancel our insurance. Can you tell me who is actually responsible for ensuring the electrical certificate is carried out whether it is a landlord responsibility or a a tenant responsibility. Also how often does this need to be carried out.
I would be grateful for your advice.
Kind Regards
Joanne
Hi Susan
It is not unusual to have a lease with this provision and a balance must exist between the right of the landlord to carry out an inspection and your right to use and enjoy the property.
If the landlord’s right to inspect is expressly stated to be for the purposes of checking for disrepair, then it would seem unreasonable if the landlord checked one week and then wanted to recheck a few days later. The frequency of the inspection may well depend on the type of premises and what the tenant was doing in there.
If the landlord is using the right of access to try and harrass the tenant, as opposed to a proper and reasonably necessary inspection, then the courts would not sanction this. If there is no subsisting disrepair at the premises, once or twice a week does seem excessive.
John
Hi, there, We have a chip shop at the rear of our Property. We lease part of the commercial property in the form of a garage. The leasehold is 999 year and £10 per year. The owner of the commercial property has recently started harassing us over his rights to access the garage for inspection purposes. The lease states we should allow the landlord access upon him ‘giving reasonable notice’ for the purpose of ‘inspection and repair’ throughout the said term. There are no repairs needed on the garage. It also states that we should have quite enjoyment of the property. It does not state a reasonably frequency of inspection. Although when we bought the property our conveyance stated once a year would be normal. However the business owner has stated he would like to inspect ‘once or twice’ per week. Unfortunately this would mean me having time off work to allow him access. What would you consider a normal frequency of inspection? Thanks Susan.
Hi John
Thank you very much for your reply.
I took over the remaining 4.5 years of a 15 year lease and as I have not signed anything other than the original lease, I am quite sure that I have not made any agreement to waive my protection under the act.
That and the 5 year ownership condition you refer to (and that I have no defaults on my lease)have given me considerable peace of mind. Thank you.
Stuart.