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 Nigel
As you are a business tenant, your tenancy of both units will be protected under the Landlord and Tenant Act 1954 (the Act). It does not matter that your tenancy is not based on a written lease, a verbal monthly tenancy such as yours attracts the protection of the Act.
This protection means that the landlord can only end your tenancy by serving 6 months notice on you in a form prescribed by section 25 of the Act. In this notice the landlord has to state whether or not he objects to the granting of a new tenancy. One of the grounds he can object is that he intends to either demolish the premises or carry out a substantial work of construction to the premises and cannot carry out these works without obtaining possession of your units (ground f). The other one commonly used is that the landlord requires possession for his own use, this is available to him if he has owned the units for over 5 years (ground g).
Once a landlord serves a section 25 notice on you stating opposition to a new tenancy on either ground f or g you will be entitled to statutory compensation. The compensation is based upon the rateable value of your premises. If you have occupied premises for over 14 years you are entitled to twice rateable value, if your occupation is under 14 years you are entitled to once rateable value.
It follows that you are entitled to twice rateable value for the unit you have occupied for 24 years and once rateable value for the premises you have occupied for 12 years.
I hope this helps
John
I have occupied one business unit for the last 24 years and another adjacent unit for 12 years. I have had no lease for either unit.Rent has been paid monthly. The landlord wants to develop the site. Am i able to claim compensation from him when he asks me to vacate the units.
Dear Chris
A landlord can only make a claim for dilapidations if the tenant has breached a term of the tenancy requiring the tenant to keep the property in repair and often to decorate the property. If there is no lease and there is no verbal agreement to keep the property in repair and decorate, then the landlord cannot make a claim for dilapidations, save where the tenant has actually damaged the property themselves.
Therefore, if there is no lease it is highly unlikely a landlord can make a claim for dilapidations.
Regards
John
Does a landlord have the right to claim delapidations if there was never a lease?
Karen
One of the key aspects to check when acquiring a business that operates from a tenanted property is the ability for the existing owner of the business to transfer their rights of occupation. If there was an existing commercial lease, it is standard within such a document for the tenant to have the right to transfer his interest in the lease subject to the landlord’s consent.
However, the landlord cannot normally withhold his consent unless it is reasonable to do so. It is not reasonable for a landlord to insist on a “back hander” in order to allow the transfer of an existing lease. The landlord can only reasonably refuse the transfer if occupation by the new tenant would adversely affect the value of the landlord’s interest in the property. For example if the existing tenant was ICI, the landlord could reasonably refuse a transfer to a new company set up the previous day with no assets, as the landlord’s interest would be worth less because a “shell” company is not of comparable financial standing to an established company with substantial assets.
If the lease under which the vendor occupied had expired, they had a right to renew that lease, unless it was excluded from the protection given to business tenants by the Landlord and Tenant Act 1954. Therefore, only if the lease had both expired and was excluded from the protection referred to above, did the landlord have the vendor and you “over a barrel”.
I assume that an application was made by the vendor’s solicitor to apply to the landlord for a transfer of the lease? If the landlord wrongly refused this application where the lease provided that he can only refuse when reasonable to do so, then the tenant would have a claim against the landlord. Unfortunately, unless you had a contractual relationship with the landlord, which is unlikely in these circumstances, you do not have a claim against the landlord. If you have entered into a contract with the vendor but it has not completed, you may have a claim against the vendor, but that will depend entirely on the terms of the contract. Such a claim commonly arises where the vendor is obliged to obtain the consent of the landlord to the transfer, and fails to do so.
The vendor may have a claim against the landlord, and it may be that you need to broach this with the vendor to see whether they are prepared to pursue this. If the vendor still holds the lease, then they can apply to court for a declaration that the landlord has unreasonably withheld consent and direct that the transfer be permitted. If they no longer hold the lease they can seek damages from the landlord for loss they have suffered as a consequence, if the landlord has unreasonably withheld his consent to the transfer.
One final point to bear in mind relates to the costs of making a claim of this nature. If the landlord opposes the claim and it goes ahead to a full trial, the costs are likely to escalate to £10,000 or beyond. Therefore, such a course of action is not to be undertaken lightly.
This is a complicated query, but I hope the above has given you a few pointers.
Regards
John
Was in the process of purchasing a business from Vendor, but Landlord kept altering the lease to his benefit obviously. He kept me dangling for eighteen months and promised that I could move in once the sale between myself and the vendor had gone through, but he wouldn’t sign the Lease preventing the sale going ahead. He and the vendor intensely disliked each other, so when she had to leave the business unsold because she was emigrating, the Landlord asked me for a meeting inside the property and for a subsequent backhander before he would sign the Lease(he had already put A-boards on the A6 advertising the business). I refused and within two weeks he had a couple of guys inside the property running the business that I had been trying to purchase for eighteen months. I ended up with no business, no job and a huge solicitor’s bill. Could I have sued him for wasting my time? When I broached this with my solicitor, he said I would have been throwing good money after bad and to walk away!! Aggrieved!!
Miss Hillson
The short answer is unfortunately, no. Unless you have some form of agreement allowing you to deal with the tenant’s possessions after the lease has ended you cannot sell them even though rent is outstanding. A well drafted lease will incorporate such an agreement.
If the lease was still in existence then you could exercise the ancient remedy of distress for rent, and instruct bailiffs directly to seize the goods and sell them. However, as you have changed the locks you have in all probability terminated the lease.
You have a couple of options available, the first is to obtain a county court judgement against the tenant for arrears of rent and other outgoings. You can then instruct the County Court bailiff to seize the tenant’s possessions, their authority is derived through the enforcement of a court judgment and hence they can sell the goods whereas you can’t. The other is to locate the tenant and deliver the possessions to them, or put them in storage and advise the tenant they are available for collection.
If you sell the goods and set the value off against rent you will potentially face an action for trespass to goods or conversion. It does seem unfair but that is the law.
I have set out the legal position above. Many tenants disappear leaving arrears and if they have not collected their possessions within days of moving out, the likelihood of them suing for the loss of those possessions is slim. However, I have acted for a client who disposed of what they thought was waste and rubbish left by a tenant, who subsequently took them to court.
Regards
John
We had no lease between me (landlord) and tenant. Tenant left property owing rent and utility bills. Have changed locks. Can i sell the possessions left behind
If you rent a commercial property without a lease and the rent is calculated by reference to a specific period such as £X per month then this will be a periodic tenancy. If you operate a business from premises where you occupy as a periodic tenant and there is no written tenancy, the landlord will have to serve you at least 6 months notice under section 25 of the Landlord and Tenant Act 1954 and you will have the right to apply for a new tenancy.
what if i want to rent a property without a lease, can the landlord evict me when and if he wants to. Do I have any rights as a tenant without a lease ?