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.
Hello – you look like very helpful people from the above post, and I may need to engage you… I wondered if I might run my situation by you for an initial opinion…
My ltd company entered into a Tenancy at Will with a landlord for a commercial workshop. At the outset there were email discussions that we needed a 2 month notice period in order to move our gear out. This was agreed in email, and the rent period set at 2 months. And off we went, everything fine, rent paid when asked etc.
2.5 years later, the landlord changed ownership and we received an email giving us 24 hours notice to vacate, but ‘we’re trying to be fair, so some time in the next week or so please’ … of course, I was not happy and pointed out on the phone that we had 2 months notice in our contract. The new landlord said he was looking at the agreement and that it contained no such clause (seems the first landlord didn’t actually amend the agreement, despite our emails saying he had) … anyway, my view was that the law would give us the 2 months anyway (based on rent period), but I moved heaven and earth and removed the stuff from the workshop that we couldn’t lose if the landlord changed the locks. This left some junk and parts from our business in the unit, none of which we’re bothered about or have any intrinsic value, just that we didn’t have time to organise getting rid of it all in the period they initially gave us.
Now (ironically 2 months later, the 2 months they could have given us), the landlord is chasing us to remove this rubbish or threatening to charge us etc…. it seems there is a £600 credit they owe us anyway, and because of the way they have dealt with me, i’m becoming less interested in resolving it for them. I might add that I can find nothing in our tenancy at will saying that we should leave the unit empty (and they keep saying ‘by letter of the agreement etc’, so my argument is ok, by the letter of the agreement I don’t have to do anything, so stop harassing me…
Might I ask what your take is based on that please?
Thanks
I have been renting a retail unit for 9 years from the same landlord. I had 4 years in one unit and then moved to a larger unit 5 years ago. I have never had a lease but have always paid the agreed annual rent and service charge. I have paid the same rent for 5 years but my landlord has informed me he wants to increase my rent by 60%. i think this is unreasonable. Can he evict me if i refuse to pay the increase? Is there a maximum increase he can legitimately impose? If he evicts me, claiming he wants to occupy my unit for his own business, is there a minimum period before he can relet it to someone else and would I be able to claim compensation if he does this?
Hi We have been renting commercial premises from eight to nine years we started with six year lease in that term there was rent increase as well, we never renewed the lease it wasn’t’.mentioned by either party. The landlord has now sold his business and properties early this year and now the new landlord wants our premises and to move out into a much larger premises within a few weeks at the same renting costs till December which then we would have to purchase the freehold or vacate the premises. It seems unfair but not sure if we have any writes without a lease.
Regards Paul
I have for the last 7 years rented a small industrial unit for my car maintenance business. I have never signed a lease or license. I pay my promptly every month. I am now in the process of purchasing my own unit on the same sight.
My current landlord has told me that under The Landlords and Tenants Act 1954 I am duty bound to give him 3 months notice.
I would be very grateful if you give me your thoughts, as reading this blog I think he is out of order. Very glad that I found this very helpful site.
Susana
Thank you for your query.
Whether or not your dad can take possession of the property will depend on whether on the terms of the agreement between him and the tenant. However, I would urge your dad to take legal advice before taking any steps to remove the tenant, as tenants of commercial property often have protection known as ‘security of tenure’ under the Landlord and Tenant Act 1954, which means a Landlord can only regain possession of the property in certain circumstances and after a certain procedure has been followed.
We would be happy to provide further advice if required: 01772 258321.
Kind regards
Katie
James
Thank you for your recent enquiry.
Without sight of the lease I am unable to provide you with any specific advice in response to your enquiry, as this will ultimately be dependent upon the terms of the lease itself. Generally speaking, the extent of a tenant’s obligation to repair and maintain the property that they are leasing is dependent upon the extent of the property demised to them under the terms of the lease. For example, a lease of the whole property would require such repairs to be carried out by the tenant unless expressly excluded in the lease, whereas, a lease of part of the property may require the landlord to carry out such repairs with the costs being recovered by way of a service charge.
With regard to the Landlord surveying the property prior to and after the completion of repair works and invoicing you for the same, again this will be dependent upon the terms of the lease. However, it is worth noting that it is not unusual for leases to contain provisions for repair works to be carried out to the reasonable satisfaction of the landlord and for the landlord’s costs in this respect to be recoverable from the tenant.
Should you require any further assistance, please feel free to contact us on 01772 258321 and we will be happy to help.
Kind regards
Rhian
My husband and his brother and mum have some land on which there are 3 industrial units. One of their tenants has two of these units and they have never drawn up a proper lease. This tenant is four months in arrears with the rent and has never paid any utilities. He wanted my husband etc to do some work on the land before he paid. After a meeting recently he agreed to pay half the outstanding rent now and half when this work was done. He also agreed to sign a lease which my husband etc agreed to pay for. Since then he has changed his mind and he wants two leases drawn up one for each units so husband etc are trying to arrange for both these leases. They need to get hold of him as the solicitor has questions regarding the two leases that only he could answer and they are still waiting for the first half of the rent that he agreed to pay but he is not answering the phone or emails and is not at the units when they go down to try to see him and find out what is going on.
Looking at some of the other messages on here it looks like they will need to give him 6 months notice to leave but is there anything else we can do such as change the locks or turn off the electricity if anything so they can get in contact with him.
Many thanks
Firstly, thank you for the service that you provide on these comments sections and the prompt and detailed replies that you always give.
My problem is as follows. I signed a lease for a restaurant taking over the original 25 year lease from another party. The lease doesn’t mention anywhere the words full repairing and insuring but it does mention insurance costs and repair costs being payable by the tenant. Therefore, if I need to undertake works to replace a water damaged floor through no fault of my own am I liable for full costs? Also, landlord has said that before any works commence he needs the area surveyed and works to be carried out as per the report. Do I have to pay for this report? I have come across several issues with the property in the last 5 years since I took over and each time the landlord insists that I must pay to have them repaired and at the same time he instructs professionals to check the work before and after and bills me for this. Is this right?
Many thanks
We hire a room in a community centre and signed a license in 2008 with times we can use the room and notice of 3 months required to terminate by either party. We had a notice to terminate in September 2012 and a new “agreement” needed to be signed. It has been ongoing negotiations and hold ups and we are still not happy to sign at a much higher rent (50% increase) and also clauses that wouldn’t protect our business.
We have been enjoying the room exclusively for the almost 6 years of occupation and have a key to our room, and have paid rent on time each month.
Was wondering if from the letter of termination in 2012 and with not signing a new agreement due to no negotiations from landlords where we stood?
We had an email recently stating we could stay in the room due to the local community needs, but have been told to leave immediately last week because we dont have an agreement in place!!
I’m part of a small group of artists who use an old waiting room on a platform of a working railway station. It transpires that the space has been used by one or other of us since 1998with a verbal agreement with the then Marketing Directer of the then railway company which. We pay no rent and newer railway companiy has been providing us with water & electricity. Network Rail are in the process of modernising the next door space on the platform (had been a cab office). We’re uncertan of who actualy owns the property and what our legal standing is.