I am currently acting for many landlords who are seeking to deal with tenants who are defaulting on their obligations.
What I have found surprising is the number of tenancies that commercial landlords enter into without having a properly drawn up lease. While I fully understand the wish to save money in these tough times, renting out commercial property without a properly drafted lease will end up costing the landlord more in the long run. I have set out below five reasons why you should always have a written lease when renting out commercial property.
1. It’s the law
A tenancy for a period of three years or over has to be made by deed, so if you have verbally agreed a five year term, the tenant could potentially walk liability free at any time if you have not entered into a formal lease made by deed.
2. Protection
If you want to ensure you are able to get the property back from the tenant at the end of the lease term it is essential you have a written lease. If the lease is a periodic lease, that is, it runs from month to month or year to year, or is for a fixed term of over 12 months, it will be protected by the provisions of the Landlord and Tenant Act 1954.
This protection restricts the rights of the landlord to get the property back at the end of the lease term, and also allows the tenant to apply for a new lease which the landlord can only object to on specific grounds. The landlord and tenant can agree that this protection does not apply, but they must follow a procedure which requires there to be a lease in writing.
3. Insurance, Repairs and decoration
In most commercial leases the obligation to insure, repair and redecorate is placed upon the tenant. The extent of the obligation is up for negotiation, but at the very least a tenant should be made liable to pay for the buildings insurance on the property, keep the property in at least as good a state as it was at the start of the lease, making good any damage including that through wear and tear, and to decorate the property before handing it back. This will make it much easier for you when seeking to re-let the property, and if the tenant has failed to comply with its repairing and redecorating obligations at the end of the lease term, you can claim against the tenant for the loss suffered, which is usually the cost of carrying out the repairs and decoration.
If there is no written lease the tenant has no obligation to contribute towards insurance or do anything to the premises, other than to avoid deliberate damage. In this situation you will be out of pocket for the insurance premium and may find yourself with a steep clean up and decorating bill before you can re-let.
4. Use
The only way you can restrict what the tenant does in your property is to have limitations in your written lease regarding what the tenant can an cannot do on the property. This can prevent the tenant doing something on the property which may be a nuisance to you or your other tenants, and could depress rental values on your other properties or stigmatise the property they are occupying.
5. Termination
A properly drafted commercial lease will have a provision that the landlord can get his property back if the rent is a specified number of days late, usually somewhere between 7 and 28 days. It also should state that where there has been any other breach of the lease terms, or the tenant has become insolvent, the landlord has a right to terminate the lease. This powerful remedy is known as the forfeiture clause, and only exists if it has been properly agreed, and it will be difficult to argue it has been agreed unless it is contained within a written lease.
If there is no forfeiture provision, the landlord would have to go to court and argue that there has been a fundamental breach of contract entitling the landlord to break the tenancy, but this is by no means certain to succeed. An express forfeiture provision is essential to the proper management of commercial property.
The above are clear illustrations of the need to have a properly drafted commercial lease. The cost of getting the lease properly drafted will be saved many times over if there is a dispute with the tenant, and in relation to costs, the lease usually provides that the tenant should be responsible for the landlord’s management costs associated with the property itself.
We moved into a commercial unit in April 2015 and the landlord said there was no need for a written lease (1 of the 3 businesses sharing the unit just signed a one page document to say we would pay the rent). Now 10 months later the landlord has given me a blank lease and asked me to fill in the blanks and return to him, but I believe it should be him that gives me the complete lease and we just sign. Am I correct?
Hi
Can rent be reviewed by the Landlord under a protected periodic tenancy (no written agreement) and what are the repair obligations?
Kind regards
Natalie
I rent a yard to someone who pays me rent weekly. There is no formal lease in place. The area of land which is fended in and gated is also used by myself and a friend of mine, although my tenant uses the majority of the area for his storage for his business. He is refusing to leave the yard and continues to pay rent weekly to my account. What rights do I have to get him off and how do I go about it ? I am afraid that he could sue me for putting him out of business. He has been using my yard for about 5 years but it could be less.
I have a tenant (husband and wife) who was given a lease in Feb ‘15 but they did not sign it. I drew the lease down from the internet and modified it accordingly, but probably not up to Solicitor standard! They have been paying rent (and given me the deposit) as per the terms on the lease looking after the property and installed a lot of cooking equipment. (The business is a café which the wife runs and he runs his taxi business from the back room.)
I may want to sell the premises in a year or two (there is a one bedroom flat above the business premises with a short hold tenancy agreement signed). The whole building would be of value to anybody who is looking at a premises for investment purposes. I would expect my current business tenant to realize this. If he took a mortgage/business loan, the rental income from the flat would help a great deal in repaying the loan,
I am looking at worst case scenario that when I sell they may not want to purchase the whole of the building (flat and all). What sort of problems could I get if they don’t move out and how can I resolve it?
We are on good terms at the moment, no problems occurring, they are looking after the properly and paying rent on time.
I rented two separate properties from my landlord at different sites under different business names. One of the businesses have defaulted on rent and the landlord has reclaimed the property, but has consequently sent the bailiffs in to lock up the other business which has not defaulted. is this legal?
Hi
I have a question and hope you can advise.
I have been renting our office/warehouse for 13 years. originally we had signed a lease agreement. however in 2007 my company went into administration. I bought back the company under a pre-pack agreement from the administrators. i informed my landlord and continue to pay rent from the new company. the landlord had no issues with this.
i would like to know what my position is now and if i have any rights. Can the landlord kick me out whenever he wants? also what about rent rises?
another problem is that he holds a deposit of £4250 which i gave £3500 from the old company and £750 from the new company. This is a quarter rent amount.
if i leave, do i get this back?
many thanks
Raj
Hi, I’m hoping you can help me. I am in a commercial property and my lease ran out a few months ago. I am working on renewing the lease with the landlord but we are stuck on a pest control issue and cannot seem to reach agreement. Can the landlord evict me if I have been paying month to month since my lease expired? There are no issues with payment and I feel I have been very patient with the landlord regarding the pest control issues.
Hi, this is a great service, so we are hopeful of your help please. The commercial lease ends on 31/12/2015. As we are happy to continue with the same terms, is there any need to serve notice. The tenant said she will tell us in 3 months if she wants to leave or not.
In other words, if we don’t serve the notice this week, we the tenant still be bound by the same terms anyway. Thank you. Janet Million
Hi – thanks for this article – really useful.
I wonder if you can advise on our situation. My partner took occupation of a commercial unit in 2011 which he is still in. At the time he took occupation he was given a lease (running to 2016 with mutual rolling right to terminate on a months notice) and a contracting out notice to sign, but never signed them or returned them to his landlord. He’s been occupying since then, and paying rent each month, and indeed took another unit from them in 2013 (for which he did sign the lease, and the contracting out notice – but the lease termination date was August 2013 and he’s still in occupation).
My interpretation is that he has 1954 Act protection on both of these units and therefore has the right to request a new tenancy if the landlords serve notice on him. Would you agree with this?
The issue has arisen because they have indicated they wish to terminate his occupation (they want to rent to someone else who they think fits better with their vision for the place). He’s happy to go but wants a bit of time to find the right premises and move in an orderly way. It would be good to know if he has statutory rights to fall back on, if only to strengthen his hand in negotiations!
Many thanks
Hi john, we have been renting under a 3 year licence, this ended 2 months ago and they are asking us to sign another 2 year licence. The problem is due to the roof leaking and condensation problems, which has damaged our racking & stock, we do not want to sign another licence. We have asked them to try to sort out these issues but they are saying we will have to sign the licence or they will advertise the premises as available. We always pay our rent on time, could they make us leave! Would we get 6 months notice to try to locate to other premises if this happened?