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.
I have read with interest the various blog questions and answers and it has driven me to make a phone call to Harrison Drury! I appear in court on Friday to answer a claim by a previous landlord for rent, interest & costs. The period of our occupation of the commercial premises was from 16/3/11 to 21/12/12 but for the period between 16/3/11 & 30/6/11 the administrators of the previous tenants paid the rent due under the previous tenants lease which was cancelled on 30/6/11. The landlord allowed my company occupation but the level of rent was never agreed and we vacated the premises on 21/12/11. The landlord issued an eviction order in any event on 20/12/12 which expired on 31/1/13 and regarded the tenancy as a Tenancy at Will. I believe from the blogs I have read my company has an Implied Periodic Tenancy and therefore the landlord should have issued a S25 LTA 54 Notice. Can I claim compensation equal to one year RV I wonder? In 2011 we obtained a rent valuation from a firm of chartered surveyors (previously used by the landlords in an earlier period) and the rent was valued at £14200 if £7415 of improvements were carried out. The landlords demanded £16000 per annum. My company offered £1000 per month but it was refused. During the period only £4000 was paid mainly due to cash flow and the lack of an agreement! Since the date of departure we have have paid an additional £6000. It would seem to me that the rent value would have to be decided by the court based on the rate at which the property would be let on the open market by a willing lessor under S34 LTA 54? Surely the court would have to take into account our rental valuation carried out by the firm of Chartered Surveyors dated November 2011? It would be interesting to hear your opinion of the level of rent bearing in mind the above facts? enta
Hi Joanne
This will depend on the basis of your occupation and where this is not documented, these cases will usually be determined by the conduct of the parties.
It is possible that you could occupy the property under a tenancy at will or in the alternative under a periodic tenancy, the period being determined by the frequency of rent payments. How you currently occupy the property will determine the requisite notice period to end your tenancy. In order to advise definitively, a full consideration of the basis of how you were originally allowed to occupy the property 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
On 1st January I was “forced” to rent the business I had previously worked for on a self-employed basis. I say “forced” as the owner told me I either rented the premises, 8 acres of agricultural land, a cafe and farm shop or he would “close the doors”. Initially he verbally agreed to a 3 year tenancy and he wanted a lease drawn up. However he has now said that he doesn’t want to get the solicitors involved and that we just have an agreement between ourselves, he also refuses to clarify the length of this “agreement”. I’m very concerned as to my rights especially as I have now been told by a member of his family that he intends to sell the property in a year or two. Any advice would be greatly appreciated.
Martin
Thank you for your recent enquiry.
Without sight of all documents and correspondence that has passed between yourself, the outgoing landlord and the incoming landlord we are unable to provide you with any definitive advice. We would also require full disclosure of the facts in respect of the grant of the lease before being to assist you any further. For instance, we would require to know:-
1) Who are the parties to the lease and on what basis the lease was agreed (you mention that the outgoing landlord is in administration, have the administrators played any role in the grant of the lease); and
2) On what basis did the incoming landlord buy the outgoing landlord’s company and was it bought subject to the lease (if so the the incoming landlord may be bound to grant the lease whether or not they wish to do so).
Due to the potential impact that this may have upon the operation of your company, it is imperative that you obtain full legal advice in respect of the grant of the lease and the incoming landlord’s rights as a matter of urgency.
Should you require any further advice or of we may be of any further assistance to you, please feel free to contact is on 01772 258321 and we will be happy to assist you.
Kind regards
Rhian
HI I need some advice> I occupied an ofice on the 1st May 2013. I was given a lease to consider but it was for the wrong room so it was put to the bottom of a pile of work and firgotten, The landlord NEVER asked about it so it became a forgotten issue. I have been working away so had no use for the office so I gave my landlord in the absence of a signed lease one months notice. He is unahppy with this and said that I signed up for a year with a verbal agreement and has instructed a solicitor to serve me with a notice to have me pay another 6 months rent. The landlord is becoming very persistent as he is in need of the money as his main business has just gone into administration. I am starting to feel like a small fish…….and a little intimidated what should I do.
Hi need help ASAP for,dad. My father has a shop and has given a contract not lease. He gave the guy tenant 6months to leave approx 9 months ago and he asked to stay a bit longer so will is still apply and can my dad as the landlord go,in and change the locks and get him out now will this class as an extension? Thanks
Our lease contract on new premises was fully agreed and supposed to be completed last Monday, so that we could move in over Christmas. The agreement on our current premises expires at the end of the month.
We have been given keys already and had a lot of furniture delivered up several flights of stairs at considerable expense.
We have now been told that the premises (which are in admistration) have been sold to new landlords and that they are unwilling to make any decisions on pending leases until the New Year.
As of Jan 1st, our company is homeless. If they do not agree the new lease in a timely manner and we are forced to take on other premises, are we able to sue them for removal costs and loss of business?
Do they have any right to force us to remove the furniture?
I have been chasing for well over a week, but only been told about the decision being pushed back to after New Year today.
They are already holding my deposit and copies of the contract which we have signed in good faith.
I’m looking for any ammunition I can that will help me push the lease agreement through.
Thanks,
Martin
Hi, i’m currently sub letting a restaurant which has another 3 months left until a brand new lease is signed.
The current tenant already gave notice to the landlord sayng that he won’t renew which i agreed with the landlord to sign a brand new lease in 3 months time.
At the moment i’ve got a group of investors who wants to buy the lease or transfer the lease with all my stuff including equipment.
My question is:
I’m not the lease holder, i’m starting negotiations with the landlord to sign a brand new lease in March.
Can i sell my business to this investors without the lease being under my name?
Thank you so much
luis
Lindsay
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 contained in the lease itself. Generally speaking, the extent of a tenant’s obligation to repair and maintain the property they are leasing is dependent upon the extent of the property demised to them under the lease. For example, a lease of the whole property would require such repairs to be carried out by the tenant unless expressly excluded by 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.
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
Hi John, I am looking for some advice please. I have a commercial full repair and insurance lease. The lease has 41/2 years left to run. I am looking to either sell or hand over the business to someone else. The electrics have stopped working in a part of the building, and when I got it looked at I was told the shop needs to be fully rewired. Is this the landlords obligation? I understood the repairing to be related to more minor issues. I would be grateful of any advice, as the lease is not specific about the electrics. Thank you.