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.
Hi John,
You helped me previously on here with a query in March 2011, and I have another question which has come up which I hope you can shed light on.
My parents have a commercial lease (which also includes residential as they live upstairs in the above flat-all under one lease). They are going to sell this very soon, as the flat is not suitable for a disabled person. My question is that my Father is severely disabled with a degenerative brain condition-what rights does he have against the Landlord regarding repairs and dilapidations? It is a FRI Lease, and the new prospective buyers are happy to carry out the repairs once the lease has been assigned to them. There is no way my Father would be able to get repairs carried out, or afford them at the moment-we are just about keeping the business going and paying the rent so that we can reside upstairs(which incidently increased in the last rent review in Ocober 2011)
Please can you help.
Many thanks for any advice,
Sonal
dear john
i wonder if you can help !.
we rented a unit and signed a lease for 3 years it has recently ran out ( 2 months ago ), we had the option to purchase the unit subject to a valuation at current time, we got it independantly valued and the landlord got it valued, and of course the landlords valuation came in at £100k more?.
obviously we have declined and have informed them, so they are not best pleased, i found some other premises and have purchased them, we have slowly moved out of our other premises but still leaving some equipment in there, we also kitted the unit out because when we moved in all what was in was a mezzanine floor nothing else, we installed air con, electrical systems lighting everything it all totalled to approx £80k in the last few months we have got behind in rent but have spoken to the landlord and explained we will get it back up to date as soon as possible, i recently spoke to the landlord as he was fishing around on what we are doing about the lease, i mentioned we have moved out but still moving equipment out before i give them the final notice, it was later on today i returned back to the unit and found a bailiff breaking in and changing the locks, i said what are you doing and he replied issuing a peacefull possession order, he broke in triggered the security system which is monitored to the police and all hell broke loose.
i contacted the landlord on a undisclosed number as he was ignoring my phone and asked whats going on, he replied you said you have moved out, i explained we needed to negotiate all the works we have done and i have found him another tenant, the new tenant wants the unit with all the work we have carried out, i am trying to get at least a contribution from the landlord.
is there anything i can do,
many thanks in advance
Muradur
Many thanks for your comment, unfortunately, I cannot advise on your specific case without sight of the lease and a full explanation of the background facts. However, there are some general principles which will be of assistance.
Unless there is a prohibition on sub-letting contained in a lease, the tenant is free to sub-let the property. Therefore, if there is no clause in the lease relating to sub-letting at all, then the tenant is free to sub-let.
Commercial leases usually have a prohibition on sub-letting without the landlord’s consent. If there was a prohibition on sub-letting and the landlord had not given his consent, then the landlord has to decide whether or not he wants to terminate the lease. If he carries on accepting rent from the tenant or sub-tenant after he knows of an unlawful sub-letting, he has probably waived the right to terminate the lease.
If you are a lawful sub-tenant, or the landlord has waived the right to terminate the lease by accepting rent from you, and the lease is not contracted out of the protection given by the Landlord and Tenant Act 1954 (the Act), then the tenancy will continue on after the end date specified in the lease, until the landlord has given you at least 6 months’ notice in the form prescribed by the Act.
If that notice is served, you then have the right to apply to court for a new tenancy and the landlord can only object to the grant on limited grounds.
If your landlord is refusing grant you a new lease then I suggest you see your solicitor as soon as possible, with a copy of your existing lease.
Best of luck
John
I am subletting a restaurant from the leaseholder who has no contact with me and just found out that there is no clause on the lease to sublet, However i am dealing direct with the landlord and never missed a rent, my rent is always paid through bank from my business account.
The lease expires on this month in April and on the lease it states that it’s a renewal lease,
can the landlord chuck me out even if I am paying my rent
Chris
Do you want to stay in the property? If, so then as tenant (which I presume you are having taken a lawful assignment), your rights will depend on whether or not the lease has the protection of the Landlord and Tenant Act 1954 (the Act). In order for it to be outside of the Act’s protection, the Landlord will need to have followed the correct procedure before the lease was granted, and there must be a declaration in the lease that Part II of the Act does not apply.
If the lease does have the protection of the Act the landlord can only take possession of the property by virtue of the expiry of the term (ie the end date has passed) if they have first served notice under section 25 of the Act which must be at least 6 months in duration (Section 25 Notice). Once this notice is served you can apply for a new tenancy, and the landlord can only object on specific grounds, one of which is a delay in paying rent. In short if the Act applies the landlord is not entitled to possession based solely upon the expiry of the lease term unless he has served a Section 25 Notice, and the date stated in that notice has passed.
Having said all of the above, the lease will probably have a forfeiture provision where rent is a given number of days overdue. If this has been triggered, and no part of the property is residential, then the landlord can simply change the locks and thereby terminate the lease with immediate effect. This right of forfeiture is not affected by the Act’s protection, therefore compliance with the obligation to pay rent is of paramount importance.
If you want to stay in the property, I suggest you pay any arrears of rent, ensure ongoing rent is paid when it falls due, and get specialist legal advice as to whether or not your tenancy has the protection of the Act. If it does, then you are in a much stronger position.
Best of luck!
John
I took over the lease in a commercial property in 2003. The Lease ran out on 1st January 2009 and was never renewed. With the current economic climate I am now struggling to pay the rent. The landlord has asked me to leave and is bringing in estate agents to re let. What are my rights, if any?
Regards
Chris
Emily
Where a tenancy is oral, a landliord can agrue that the tenant’s failure to pay rent is a repudiatory breach of contract and as such treat the tenancy as terminated. A couple of important points:-
1. If the property is residential or has any residential element it is a criminal offence to evict anyone without a court order; and
2. If you have evicted someone and the court find you had no grounds to, you will potentially be liable for substantial damages.
3. Depending on the type of tenancy, you may be able to terminate the tenancy by notice.
If you want possession, then detailed advice as to the type of tenancy you are involved in is essential and court action will probably be necessary. I suggest you instruct a solicitor with property litigation experience to assist.
Regards
John
Dear John
What is the Landlord’s position to forfeit commercial premises for want of payment of rent in the absence of a written tenancy agreement and therefore, no written forfeiture clause. Is there a common law right to forfeit or peaceably enter the property?
I believe that forfeiture is only available to a Landlord if there is an express provision in a lease and there is no implied right to forfeit for breach of covenant ie:non payment of rent but I don’t know where to go from here as there is no written agreement.
Many thanks in advance for your help,
Emily
Hi Sonal
There are two main pieces of legislation that concern commercial leases, the first is the Landlord and Tenant Act 1954 (the 1954 Act) and the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act).
The 1954 Act is the piece of legislation which is still in force and provides security to commercial tenants. The 1996 Act is largely concerned with the enforceability of the covenants given by tenants and their guarantors after they have assigned their leases to another party.
In short, if a business lease has the protection of the 1954 Act, that protection will transfer along with the lease as long as the new tenant is carrying on a business from the premises. Therefore, if the person you assign the lease is also buying your business, they will have protection as long as they carry on a business from the premises.
Regards
John
Hello, I have a question I hope you can help me with. I have had a commercial lease for the last 26 and a half years in total (2 lease renewals) which expires in 3 and a half years (October 2014). I wish to sell the remainder of the lease on very soon due to ill-health, will the new tenant gain the transfer of the Protected Rights? My lease is covered by the Landlord and Tenant Act (it says 1996 in my current lease, but I am presuming it coovers the original Act??) I really hope you can help on this and thank you for your help in advance.
Sonal