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.
We started our business in July 2009. Since starting we were presented with a proposed lease, negotiations went back and forth several times but an agreement was never reached. The Landlord went silent. We have always paid rent on time by standing order since starting the business. In the last few weeks the Landlord has passed away. The executor contacted us and has asked that we sign a Tenancy at Will. This includes an increase in rent plus VAT, and what appears to be a termination at will. Would you recommend we sign the Tenancy at Will or concentrate on revisiting the full lease negotiations?
Thank you in advance.
Hi Shaz
Thanks for your query.
It is likely that you will have occupied the premises under an implied periodic tenancy, in which case you would benefit from the security of tenure provisions in the Landlord & Tenant Act 1954. If this is the case, the landlord would have to give you at least 6 months’ notice in the prescribed form to end the tenancy and they would in any event only be able to terminate it on one of a number of specific grounds. These grounds include an intention on the part of a landlord to occupy or redevelop premises, but would be unlikely to include a sale of the business. If you do receive a letter from the landlord’s solicitor, however, it is important that you take legal advice on the steps to be taken to prevent them from attempting to evict you. Please feel free to contact me should this become necessary.
Kind regards
James
I have been operating a restaurant for 1 year with no lease or written agreement. The landlord wants me out but I have been paying rent monthly to his mortgage account. His said his solicitor will be sending me a letter telling me to pack up. I don’t want to leave and want a lease so I can sell the business. I think the landlord wants me out so he can sell the business himself.
Nozahic
Thank you for your query.
I would need to see the lease in order to advise you on this more comprehensively, however, during the term of a lease, rental payments can only be increased in accordance with the lease. If the Council are able to increase the rent, there will be a ‘rent review’ clause which will set out when and on what basis the rent can be increased.
Kind regards
Katie
John
Thank you for your query.
It is difficult to advise you on this without knowing more information. However, if the tenants are not complying with their obligations under the lease, including failing to pay rent, then it is possible to bring the lease to an end. Only the landlord is able to take steps to remove the tenants in these circumstances and legal advice should be sought before effecting this.
Kind regards
Katie
Sophie
Thank you for your query.
Whether you are occupying the property as a tenant at will or under a periodic tenancy in the circumstances you describe is not clear cut. In order for there to be a periodic tenancy, there must be an intention that the occupation will create legal relations; ongoing negotiations for a new lease therefore suggests that a tenancy at will exists until the new lease has been completed, as it is the new lease which creates the legal relations rather than the interim period. There have clearly been some negotiations as the landlord has provided you with a written lease, however, where 14 months has passed without the new lease being completed and without further negotiations, I can see that that it is actually a periodic tenancy that now exists, not least as the landlord has accepted continued rental payments.
For more definitive advice, I would need full details of the circumstances surrounding your continued occupation. Please call me on 01772 258321 and I would be happy to advise further.
Kind regards
Katie
Hi
In 2006, we decide to open a new office in Portsmouth. We sign a lease with some people who had a lease with the council. This lease finish in 2010. Our landlord decide to don’t renew the lease but they do the concil we have to sign a new lease, for few month the council didn’t want to recognize us, but after 6 month, they ask us to pay the rent. We ask a lease they say they will do us a offer soon, after 3 year the council send us a letter, they want to increase by 4 the rent. We can accept that, I will be too much, what we can do, also we invest a lot of money in, like cold store, new door, new window, because the unit is so old, can we ask some money for all this thing we put in if we move. Of course we try to negoce the price. We pay 11k now, before 23k and now they want 46k, the business rent for pay tax, the value is 25k.
Can you help me
Regards
Hello,
Your advice would be appreciated. I am trying to establish whether my partner’s business has a Periodic Tenancy which would be protected by the 1954 Act or a Tenancy at Will which would not be protected.
The facts are that his business is in occupation of commercial premises for the purposes of their business; these particular premises are used for storage. They have previously occupied these premises and adjacent premises under two separate contracted out leases. Last July they moved out of the main premises and the lease came to an end. They agreed with the landlord that they would continue to lease the storage space. The landlord sent them a lease on similar terms to their previous lease but it was never signed and the contracting out notices where never made. The draft lease was for a period of 11 month (again to put it outside the protection of the Act) and could be terminated on two months written notice.
Now, 14 months later, with uninterrupted occupation and the monthly payment of rent the landlord has just served two months notice (by email) quoting the lease that was never completed. At no point during the 14 months did the landlord seek to complete the lease or were any negotiations carried out.
Your advice would be appreciated as I have looked at landlord and tenant books and read a fair bit of case law but none of it is directly comparable.
Regards
Sophie
Hi
Could it be possible to have your advice reference a old guy aged 75/80 He has 2 shops and a piece of land with a small garage. He lives upstairs of 1 of the properties. He has rented the 2 shops out and the garage. They have noticed the old guy is not well so they have stopped paying him rent he has not received any rent in the last 6 month. We have approached the old guy and said to him that we will rent 1 of the shops off him and start to pay rent straight away. and to get the solicitor involved. The problem is they will not leave and want £20,000 off the old guy or they will sue him. and £20,000 off me. To start another shop. Any advice would be a big help. Thanks john.
Malcolm
As you correctly identify, there are certain conditions that need to be met before a tenancy can exist, and exclusive possession is one of those conditions. However, the charity needs exclusive possession over a part of the property only in order for a tenancy to exist. If there is a tenancy, and it is not excluded from the Landlord and Tenant Act 1954, then you will need to serve the charity with a s25 notice in the prescribed form giving the charity not less than 6 months’ and not more than 12 months’ notice to end the lease.
There are specific rules which need to be followed in order to end the tenancy properly and I would recommend taking legal advice in relation to this matter to avoid problems arising down the line.
Kind regards
Katie