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
In premises running my business. It was a partnership (I was not a partner at the time) until last year. Partnership had been in occupation of premises for many years with no lease. There is still no lease in existence. Partnership became LLP last year and I joined as member along with the former partners. Landlords want to negotiate lease which is fine but there are substantial rent arrears. Can they enforce payment of the rent arrears and if so against who? The original partners up until the partnership ended and the LLP since that date?
Hi JohN
I have decided to close the doors of my business i have no lease and never have , i have occupied the premises for the last 3 1/2 years at the begining of me taking the premises on i signed a piece of paper which said either party tenant or landlord had to give 2 months notice to vacate the premises.
i have had no issues so far . 2 years ago i ran into trouble and i gained over 1000 in rent arrears that got noted down and i have been paying it off in instalments ontop of my monthly rent it is now down to around 900 , but last month i ran in to trouble again and was not able to meet my rent of 750 . I have advised the landlord that i intend to close the doors . He is threatening to keep my equipment until rent is payed up to date . Is he able to do that ? i have advised him i will make payment towards my rent arears of what i can afford over the months after clsoing and removing my equipment , he said i am not remvoing my equipment until it is paid.
Also he has advised me that he is going to put the freehold on the market to include my business as a going concern.
can he sell my the business that i have built up with all my equipment.?
I am able to take my equipment out at any time although i have rent arears .
I am paying my rent for this month ,
what are my rights please help
Hi Kerry,
The first thing that comes to mind is whether you needed your landlord’s approval before letting your friends take a sub-lease of part of the property. I suggest you check the provisions of your lease as you may have breached your obligations to your landlord if consent is required for sub-lettings and it has not been obtained.
In relation to the tenancies, you are quite right that a proper lease should have been signed. I suggest you get them to set up a standing order for their rent and sign the lease or else threaten action to evict them from the premises.
If they refuse to pay their rent, you may have a right to evict them if the draft lease you gave them had a clause allowing you to forfeit the tenancy if they were late in paying rent. You will need to check the terms of the draft lease even if it was not signed, it may be binding on the basis that the terms reflected what was agreed between the parties when the tenancy was created.
Best of luck
Regards
John
Hi, I have recently brought a property where I run my beauty salon. I have let two of my friends rent part of the property for their hairdressing business. I did not get a lease signed before they moved in. I have since tried to get them to sign a lease, which they are constantly delaying. The first lease i asked them to sign was a short 6 months lease with a cheap rent to help them settle in. That lease has expired and they did not sign. I have now given them the next lease with a slightly increased rent and again they are not signing. They pay their rent a week or two late most months and I am wondering what rights i have if any? I know that I have been a fool and I should have had the lease agreement in place before they moved in. I’m now in the position that I can’t afford to go through lenghty court processes, but I can’t afford for them not to pay their rent on time or agree to the increase. I should say that the initial rent amount was agreed verbally, where I stated my intention that this was short term whilst they settled in. Can i get them out of the property or force them to sign the lease?Thanks Kerry
Hi Kirsten
Do you have exclusive use of the swimming pool or is only for certain times of the day on certain days of the week? This is important, as for there to be a tenancy, you have to have exclusive occupation. If you don’t have exclusive occupation you will occupy under licence and the owner will be able to alter the sums payable as and when he wishes. If you have exclusive occupation you may well have a business tenancy which is protected under the Landlord and Tenant Act 1954 and entitles you to statutory protection from eviction and also controls how rent is assessed on any review.
Kind regards
John
We have been renting a swimming pool in a family home for commercial purposes for the last 12years. We pay regular rental payments. We have no written or formal lease. We are unable to renovate and keep the premises up to date as the owner deems this unnecessary. He now wants to discuss our monthly payments and probably increse them. What are our rights and where do we stand.
Your advice would be appreciated. Kind regards, Kirsten
Glen
As you will see from our blogs, a key piece of legislation relating to commercial leases is the Landlord and Tenant Act 1954 (the 1954 Act). Unless a lease has been contracted out of the provisions providing security for business tenants under the 1954 Act, the tenancy continues on after the end date specified in the lease if a business is still being conducted from the premises.
A landlord or tenant can terminate this statutory continuation by giving notice. A landlord must give at least 6 months’ notice, whereas a tenant need only give 3 months’ notice.
Turning to your case, if the lease has the protection of the 1954 Act the tenancy will carry on beyond the end of the contractual term until it is terminated by notice, on the same terms as the lease, including the liability to pay rent. If you are in this scenario you will be liable for the rent for the 9 months since the lease term ended, and you need to serve 3 months’ notice in accordance with section 27 of the 1954 Act if you want to terminate your occupation and the liability to pay ongoing rent.
I hope this helps.
John
I was on a 5 year lease from June2005 to June 2010 when it ran out. I have not renewed it and have not paid any rent for 9 months, am I liable for that money ?
Hi Sonal
If the lease is an FRI lease, meaning full repairing and insuring, then the obligation to carry out repairs and remedy dilapidations will fall on the tenant, and there will be no rights against the Landlord.
If you have a buyer who will take on the liability for the disrepair, this is probably the best sollution for you.
Regards
John
Warren
It sounds as if the landlord has instructed baillifs to obtain possession by peaceable re-entry on the basis that your rent is in arrears. The effect of this is to terminate your lease with immediate effect. Most commercial leases have a provision allowing the landlord to do this, you will need to look at what is commonly called the forfeiture clause to see what will trigger the landlord’s right to take such action.
In terms of your improvements to the site, a tenant is entitled to claim compensation for improvements they carry out to a site, but in order to do so the tenant must have served notice under section 3 of the Landlord and Tenant 1927 before they carried out the improvements. If you have not served the notice before carrying out the improvements, you cannot claim compensation.
If you want to get back into the premises, you will need to consider an application for relief from forfeiture, but before this is made you will need to have paid the arrears of rent and also the landlord’s costs of the forfeiture.
This is probably not the news you wanted to hear and it illustrates what a potential minefiled the law of commercial property can be.
Regards
John