Having a professionally drafted lease is vital for any commercial landlord if costly mistakes and omissions are to be avoided.
All too often we come across cases where poorly drafted leases come back to bite the landlord when a dispute arises further down the line. Here are five of the most common errors made with commercial property leases.
1. Rent review clause
Something that should be in all long term commercial property leases is the rent review clause. Without it, a landlord is likely to get tied into a long-term lease without the ability to periodically increase rent to take account of inflation and other market forces. Again this must be properly worded to ensure it is enforceable and that the landlord does not make a loss on a property over a period of many years.
2. Repair and maintenance obligations
Another common dispute that arises relates to who is responsible for maintaining and repairing the property. As the tenant will have exclusive possession and use of either the whole of a property, or a specific part of it, the landlord will want the tenant to keep it in good repair and return it in repair at the end of the lease. However, if the lease does not explain this in the correct language it can lead to a lengthy and expensive court claim while the property continues to deteriorate in condition.
3. Forfeiture
If tenants fail to pay the rent or breach other obligations, commercial landlords are able to evict them without having to get a court order for possession of the property. However, the landlord’s right to forfeit should be expressly set out in the lease document. If this is not dealt with in the lease, it could result in expensive court proceedings while the landlord attempts to get the tenant out.
4. Security of tenure
Generally speaking, property law allows for a tenant to remain in the property and request a new lease once the old lease has come to an end. Of course, the landlord can still seek to avoid granting a new lease, but only on limited grounds by following a formal notice procedure which the tenant can object to. Again, this can result in lengthy proceedings while the court decides who is entitled to possession of the property. This can all be avoided at the outset if the landlord states that such security of tenure is not to be a condition of the lease. This involves a formal procedure which many landlords do not know how to carry out correctly without legal advice.
5. Legal fees and other costs
To protect against incurring unnecessary or unwarranted costs, commercial landlords are able to have it written into the lease that the tenant has to cover their legal and other costs on any consents or variations to the lease. A landlord can also stipulate that any bailiff’s fees can be recovered from the tenant if there’s an issue with rent arrears or the need for an eviction. However, a landlord is only entitled to these costs if the lease expressly provides for this. Again the wording must be watertight to enable costs to be recovered.
It is all too easy for property disputes to arise through poorly-drafted or missing clauses within the written lease. Landlords should always ensure that proper legal advice is sought before entering into any lease.
For more advice on commercial property leases, or any other property law matter, please contact Harrison Drury on 01772 258321.
Can you help please? We recently leased a commercial property….we were sent a lease from the landlords solicitor which we went over and sent back amendments we wanted made which were agreed. (We had legal help). We then raised a few issues upon receiving the keys 5 days before the lease was finalised (broken windows to be fixed before we took on the responsibility for them as they are huge and the retaining wall to the side of the property drive was badly leaning). We leased the property as it included parking for two vehicles which was included in the advertising and marked on the plan of the lease they sent us originally and detailed in section 23 in capital letters stating we could park two cats motd and taxed in roadworthy condition. Whilst doing our renovations a workman a ting for the landlord arrived and installed a parking post blocking our entry into the parking area….we questioned this and he said to go to the office and collect a key. We have since been refused a key and the letting agent keeps telling us we have no parking and the solicitor has apparently confirmed this, I have gone back to my legal advisor who has confirmed parking was included, I have sent a strong email but am suspecting they may have removed the parking before finalising our lease when we raised the point of the retaining wall,this will have been done without our knowledge and we would not have gone ahead. If this turns out to be the case what can we do please?
Mr Chaudhry
Thank you for your enquiry.
If the proposed tenant company entered into voluntary liquidation during the term of the lease, you would be an unsecured creditor and therefore it would be unclear as to whether or not you would recover any rent arrears or other monies due and owning to you pursuant to the terms of the lease. If you were to obtain a personal guarantee from the directors of the company, this would be advantageous as you could pursue the directors personally for the any outstanding rent arrears and other sums due under the lease, albeit that you would remain an unsecured creditor in the event that the directors were to be made bankrupt.
In terms of due diligence, we would recommend that a you obtain as a bare minimum copies of the trading accounts for the proposed tenant company for the last three years along with a bank reference and two trade references, in order that you may satisfy yourself as to the financial standing of the proposed tenant company and determine whether or not it is necessary to obtain a personal guarantee from one of more of the company directors.
Another alternative security that you may wish to consider is whether or not the tenant shall provide a rent deposit.
If you have any questions or would like me to look into this further, please do not hesitate to contact me on 01772 258 321 or email me at alex.walmsley@harrison-drury.com
Kind regards
Alex
Please can you give an advice on this we are purchasing a commercial property Shop as an investment the rental lease is in the name of a Limited company which has been incorporated since August 2011 this company has signed this lease on 01/11/2016 for ten Years at £33000 per Annum rent with rent review and break clause after five years. Is it safe to accept this ltd company lease or should we ask for personal Guarantee of directors,we worried that they can winde up the company and quite the property for wich we may not able to find a tenant for such a high rent. Please advise how to secure the lease before we signe the purchase contract thank you.
Chital
Thank you for your recent enquiry.
Generally speaking, a Landlord does not have the power to unilaterally vary the terms of a Lease. However, without sight of the Lease or the letter from the Landlord confirming the basis on which the Landlord is claiming the right to vary the Lease, we are unable to provide you with any definitive advice.
If you have any questions or would like me to look into this further, please do not hesitate to contact me on 01772 258 321 or rhian.hawkins@harrison-drury.com
Kind regards
Rhian
Hello
I have taken over a commercial property last year. The lease document clearly say…Premises is to be use for supermarket and Off license. When I applied for Premises licence to open off license…my landord sent letter via solicitor asking me to withrow my application because they made mistake on the lease…Off license was not allowed as next door has off license, he has same landlord.
can he demand this?
Hi Gill
The basis of your occupancy will depend on what was agreed between you and the Landlord/Buyer. It is possible that you could occupy the property under a tenancy at will or in the alternative as under a periodic tenancy, the period being determined by the frequency of rent payments. In order to advise definitively, a full consideration of the sale contract and all supporting pre contract correspondence will be necessary. Please feel free to contact us if you wish to be provided with details of the legal costs associated on 01772 258321.
Kind regards
Holly
We recently sold our building to our Landlord and are now renting it from him.We are thinking of relocating (to reduce our costs)in the near future but have not as yet decided or agreed a lease with him. The Landlord has agreed to give us a short term lease (6 months) but asked us to waive our rights to renewal.we are not happy with this as we may decide to stay. He has (in a moment of pique) said that if we don’t sign the lease he will change the locks on the building. We have been paying a rental of £1800 per month but he is demanding £2000 in the lease. we have always had a go9od relationship with this Landlord in the past he has been very reasonable with our previous rentals (for which we had no lease either) but I am worried that if we sign this lease we will be signing our rights away. However I am finding it very dificult to find out what rights we currently have(without a lease)
Rupert
Changing a company name does not change the identity of the company – it is still the same legal “person”. Similarly, selling the shares in that limited company does not change the identity of the tenant.
Regards
David
Thank you for your reply. However, the tenant subsequently changed the name of the limited company (to whom the lease was originally granted), and then sold the shares of the new limited company. Was the lease invalidated by the limited company name change ? (since it is no longer the name of the limited company to whom the lease was originally granted).
Would much appreciate your opinion.
With thanks
Rupert
In order to determine whether it would be the responsibility of the landlord or tenant to maintain the guttering and downpipes of the property, we would need to see a full copy of the lease. The extent of the obligation imposed upon the tenant in respect of maintenance and repair will depend upon the extent of the property demised to the tenant under the terms of lease. Generally speaking, a lease of the whole of a property would impose an obligation upon the tenant to carry out these kinds of repairs, whereas, a lease of part of a property would be more likely to impose the obligation upon the landlord.
In relation to your second query, it is a common term under most leases that the tenant must obtain consent from the landlord prior to assigning the lease to a third party and that the landlord must not unreasonably withhold granting such consent. However, if the tenant is in breach of any of their covenants under the lease then the landlord may reasonably refuse to grant consent until the breaches have been rectified.
If you would like any further advice in respect of the queries you have raised, please do not hesitate to contact us on 01772 258321 and we will be happy to assist you.
Regards
Rhian